All about dropshipping
What Is Dropshipping and How Does It Work In Singapore: Pros and Cons
Dropshipping is a fulfillment model that allows entrepreneurs to outsource handling and shipping products to a third party. This fulfillment method can appeal to entrepreneurs seeking efficiency and low overhead, but it has trade-offs.
USD $39.99 a month + selling fees
Download our step-by-step Registration Guide
Download our step-by-step Registration Guide
What is dropshipping and why do you need it?
Dropshipping is a retail fulfillment method where the seller (or dropshipper) accepts orders from customers but does not stock or own any inventory. This is how it works:
1) Seller receives an order
2) Seller informs supplier of the order
3) Supplier fulfills the order
A dropshipper is in charge of marketing the product and answering the customer’s queries. They do not handle the product directly and have no control over stock availability and order fulfillment.
A dropshipper’s profit is determined by the difference between the retail price paid by the customer to the seller and the wholesale price paid by the seller to the supplier.
1) Seller receives an order
2) Seller informs supplier of the order
3) Supplier fulfills the order
A dropshipper is in charge of marketing the product and answering the customer’s queries. They do not handle the product directly and have no control over stock availability and order fulfillment.
A dropshipper’s profit is determined by the difference between the retail price paid by the customer to the seller and the wholesale price paid by the seller to the supplier.
You make an agreement with the supplier to become their dropshipper
The supplier manufactures and stores the products. Then, you create a website or e-commerce storefront such as on Amazon to market and sell your products.
Once a customer places an order, you forward the customer’s order to the supplier
The supplier packs and ships the product to the customer. You inform the customer that their order is on the way.
Enjoy the convenience as a dropshipper
A dropshipper is not involved in the direct handling of the product. Instead, when an order is received from the customer, the order is forwarded to the supplier and the supplier is in charge of fulfilling the order.
How to start a dropshipping business?
If you are ready to start a dropshipping business, we have broken down the process into seven manageable steps!
Step 1: Find a profitable niche
The first step before starting a business is to do market research and find a profitable niche.
If you sell on Amazon, you will have access to over 300 million customers worldwide. However, it is also important to differentiate yourself from other sellers to attract customers.
If you sell on Amazon, you will have access to over 300 million customers worldwide. However, it is also important to differentiate yourself from other sellers to attract customers.
Step 2: Analyze your competitors
Consider doing the following:
1) Observe how they provide customer service and the effectiveness of their methods
2) Investigate what successful businesses are doing differently from others
3) Find out how your competitors are generating leads and sales
4) Learn about the kinds of promotions they are running to attract customers via Amazon Advertising
1) Observe how they provide customer service and the effectiveness of their methods
2) Investigate what successful businesses are doing differently from others
3) Find out how your competitors are generating leads and sales
4) Learn about the kinds of promotions they are running to attract customers via Amazon Advertising
Step 3: Find reliable suppliers
Buy and test the supplier’s products yourself before selling them
Look out for quality and consistency across different order batches. A guideline would be to only sell products of good quality that you would use yourself.
Consider ease of communication with your supplier
For a dropshipping partnership to be successful, you will need to have good communication with the supplier to manage orders, shipment issues and customer disputes. It is important to choose a supplier who is responsive and able to communicate in your preferred language.
Check the supplier's processing and shipping time
This will likely affect the speed at which your customers receive their products. Ideally, orders should reach the customer within 5 - 8 days for local shipments.
Look out for quality and consistency across different order batches. A guideline would be to only sell products of good quality that you would use yourself.
Consider ease of communication with your supplier
For a dropshipping partnership to be successful, you will need to have good communication with the supplier to manage orders, shipment issues and customer disputes. It is important to choose a supplier who is responsive and able to communicate in your preferred language.
Check the supplier's processing and shipping time
This will likely affect the speed at which your customers receive their products. Ideally, orders should reach the customer within 5 - 8 days for local shipments.
Step 4: Register your business
Once you have decided on your business model and suppliers, it is time to register your business. This includes but is not limited to:
1) Naming your company
2) Deciding on executives and shareholders
3) Confirming your business address
4) Incorporating the business based on your country’s regulations
Note: Depending on the type of products you sell and the scope of your business activities, you may be required to apply for a license or permit under the relevant local legislation. Always do your due diligence or seek professional legal advice to avoid breaching local laws or regulations.
Registering your business is advisable to ensure financial safety should any issues arise.
1) Naming your company
2) Deciding on executives and shareholders
3) Confirming your business address
4) Incorporating the business based on your country’s regulations
Note: Depending on the type of products you sell and the scope of your business activities, you may be required to apply for a license or permit under the relevant local legislation. Always do your due diligence or seek professional legal advice to avoid breaching local laws or regulations.
Registering your business is advisable to ensure financial safety should any issues arise.
Step 5: Set up your online store
Next, set up your online store to start selling your products! Amazon is a great e-commerce store to start with as there are already millions of shoppers.
USD $39.99 a month + selling fees
See our Beginner's Guide for details & tips on how to register Amazon Seller Account and more.
Step 6: Market your business
After you set up your online store, increase visibility of your business by using various marketing tools. Some great avenues for marketing your products may include forums, Google Ads and social media platforms such as Facebook, Instagram and TikTok.
Amazon also has advertising solutions to help your brand get discovered and increase sales. With sponsored ads, you only pay for the clicks that your ads receive. Plus, you get to monitor your ads performance and improve your campaigns accordingly.
Amazon also has advertising solutions to help your brand get discovered and increase sales. With sponsored ads, you only pay for the clicks that your ads receive. Plus, you get to monitor your ads performance and improve your campaigns accordingly.
Step 7: Analyze and improve your store
The last step to this process is to use tools (such as Google Analytics) to analyze your online store. Amazon sellers can also leverage the Amazon Seller Central’s Brand Analytics feature which has useful data and insights to empower brand owners to make strategic decisions.
Pro Tips
Find a balance between profitability and interest: To grow your business, you need a healthy profit margin. However, to sustain your business, you need to be passionate about what you are selling.
Consider selling products that have evergreen demand rather than trending products: Trending items may cause a spike in sales, but this spike will only last as long as the hype. It is advisable to sell products with evergreen demand to maintain a constant flow of sales.
Learn from experiences of Amazon sellers: Visit our Seller Stories to gain insights on their challenges and successes!
Keen to learn more about Amazon e-commerce essentials, see Amazon Seller University.
Consider selling products that have evergreen demand rather than trending products: Trending items may cause a spike in sales, but this spike will only last as long as the hype. It is advisable to sell products with evergreen demand to maintain a constant flow of sales.
Learn from experiences of Amazon sellers: Visit our Seller Stories to gain insights on their challenges and successes!
Keen to learn more about Amazon e-commerce essentials, see Amazon Seller University.
Pros and cons of dropshipping business
Explore the Advantages and Disadvantages of the Dropshipping Business Model. We have listed out some key considerations here.
PROS:
Low startup costs
As the goods are managed by the supplier, sellers are not required to purchase inventory or stock a warehouse, which means you may be able to start a dropshipping business with less capital.
Low inventory costs
If you own inventory, there may be problems with over and under-stocking. The former can lead to obsolescence especially if products are perishable, while the latter can lead to lost revenue.
Having an optimal inventory turnover will help you to make informed decisions about sales performance and marketing. However, with dropshipping, you do not have to deal with inventory costs as orders will be fulfilled by your supplier while you focus on increasing sales.
Having an optimal inventory turnover will help you to make informed decisions about sales performance and marketing. However, with dropshipping, you do not have to deal with inventory costs as orders will be fulfilled by your supplier while you focus on increasing sales.
Sell and test products with less risk
Since dropshipping does not involve any inventory costs, you can change or expand your line of products quickly and easily.
Plus, if you know a product is doing well for another retailer, you can start selling it immediately. Here is a tip: check out these most loved products on Amazon for some ideas!
Plus, if you know a product is doing well for another retailer, you can start selling it immediately. Here is a tip: check out these most loved products on Amazon for some ideas!
High scalability
As more orders come in, most of the work is still done by suppliers. Thus, it is easier for dropshippers to scale with less incremental work.
USD $39.99 a month + selling fees
CONS:
Limited branding
Products are typically made, designed and branded by the supplier. Hence, you have limited control over the branding and customization.
Less control over order fulfillment
Your supplier will fulfill orders on your behalf, which means you may have to deal with customer complaints if there are any delays or issues with the order.
Reliance on supplier’s stock
One key benefit of dropshipping is that you can offer new products instantly and stop selling less popular products at any time.
However, this also means that if your supplier runs out of stock, you run out of stock as well. This may impact your Cancellation Rate, Late Shipment Rate and On-Time Delivery score of your orders, leading to longer fulfillment times and negatively affecting your Account Health on Amazon.
However, this also means that if your supplier runs out of stock, you run out of stock as well. This may impact your Cancellation Rate, Late Shipment Rate and On-Time Delivery score of your orders, leading to longer fulfillment times and negatively affecting your Account Health on Amazon.
Low profit margins
Dropshipping involves selling pre-made products, which means suppliers would have already considered their profit margin. Therefore, to increase profits, you may have to increase the selling price.
Additionally, with minimal profit margins, you may need to increase sales significantly to generate the same profit as retailers that adopt a regular retail fulfillment method.
Additionally, with minimal profit margins, you may need to increase sales significantly to generate the same profit as retailers that adopt a regular retail fulfillment method.
Customer service quality
If your supplier delays a delivery or sends an incorrect or damaged product, it may reflect badly on your business. And because you have no control of inventory and order fulfillment, you may not be able to solve customer issues promptly.
Frequently Asked Questions
Is dropshipping illegal?
Dropshipping is a legal method of order fulfillment in Singapore, but it is important to ensure that your business is set up the right way and your suppliers are reputable.
Like any other business model, there are laws and regulations to abide by. For example, some things to take into account are:
1) Ensure that it is legal to sell your products in the country
2) Find out how to set up a dropshipping business
3) Find out how to file and pay income tax
It is crucial to do your research before starting a business to prevent legal issues.
Like any other business model, there are laws and regulations to abide by. For example, some things to take into account are:
1) Ensure that it is legal to sell your products in the country
2) Find out how to set up a dropshipping business
3) Find out how to file and pay income tax
It is crucial to do your research before starting a business to prevent legal issues.
Is dropshipping still profitable?
Dropshipping is generally considered as a low risk business model as running costs are lower. Thus, it is relatively easier and faster to be profitable.
However, the profit margin for dropshipping is usually lower so you may have to increase sales volume to generate the same profit as other retail fulfillment methods.
You may explore other business ideas and models to find one that suits your goals and preferences.
However, the profit margin for dropshipping is usually lower so you may have to increase sales volume to generate the same profit as other retail fulfillment methods.
You may explore other business ideas and models to find one that suits your goals and preferences.
Is dropshipping allowed on Amazon?
Yes, dropshipping is allowed on Amazon as long as your business follows our dropshipping policy.
To use dropshipping services for your business on Amazon, you must:
1) Be the seller of record of your products
2) Identify yourself as the seller of your products on all packing slips, invoices, and external packaging
3) Be responsible for accepting and processing customer returns of your products
To use dropshipping services for your business on Amazon, you must:
1) Be the seller of record of your products
2) Identify yourself as the seller of your products on all packing slips, invoices, and external packaging
3) Be responsible for accepting and processing customer returns of your products
Can I do dropshipping without registering my business?
It is possible to dropship without registering your business. However, this may expose you to financial and legal issues along the way.
Thus, you are advised to register your business under a formal entity to reduce any liability. Additionally, this also shows potential suppliers that you are a legitimate business.
Thus, you are advised to register your business under a formal entity to reduce any liability. Additionally, this also shows potential suppliers that you are a legitimate business.
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