Drop shipping is one of the first things that come to mind when Malaysians think about starting their first business.
It's because with drop shipping, you don't need to spend money on products you don't know will sell or not. Instead, you work out a relationship with a supplier who has an inventory of the products you want to sell and get them to ship out the products on your behalf whenever you make a sale.
You make money by profiting the difference between the price you are selling your product at and the price that you are buying the product from the supplier.
It seems simple enough. So, why isn't most people successful at making money with drop shipping in Malaysia?
The truth is that there's a lot more to drop shipping than just buying low and selling high.
In this post, I will explain to you what drop shipping is about, but more importantly, the myths people have about drop shipping that keeps them from building a successful long-term income source from this business model.
By understanding this, you'll have a higher chance of succeeding in your drop shipping business in the near future.
Let's get into it!
Update: My goal of US$1,000/day with Shopify Drop shipping just started. Follow my journey here!
First, What is Drop shipping?
An arrangement between a business and the manufacturer or distributor of a product the business wishes to sell in which the manufacturer or distributor--and not the business--ships the product to the business's customers .
As a drop shipper you do not have to carry any products. Your main role as a drop shipper is to market your products and provide customer service.
Usually this means setting up a branded e-commerce website and getting people to buy from your website through marketing efforts like Facebook advertising, IG advertising or SEO.
Once a customer makes an order for a product or several products on your site, you make an order for the product from your drop ship supplier.
You provide them with your customer's delivery address instead of your own address so they can send the products directly to your customers.
In a drop shipping arrangement, your supplier will not include any information about their company so it looks like you are sending out the products to your customers yourself.
To make it easier to understand how this works, take a look at the graphic below:
Common Ways Malaysians Drop shipping
Here are some of the most common ways Malaysians are making money with drop shipping:
1. Drop ship on local marketplaces like Shopee, and Lazada or international ones like Amazon or eBay. Get drop ship suppliers locally or from common suppliers like AliExpress.
2. Drop ship on IG or Facebook. Get drop ship suppliers locally or from common suppliers like AliExpress.
3. Drop ship on a branded e-commerce website. Get drop ship suppliers locally or from common suppliers like AliExpress.
Of the three, I recommend spending most of your time building the third type. The reason for this is that you don't own the marketplaces you sell on or platforms like Facebook or Instagram.
The marketplace or platform owners can make overnight changes that wipe out your business (and income) entirely without notice.
As such, this article is mainly focused on the third type of drop shipping.
Pros of Drop shipping
Now that we've looked at how drop shipping works, let's take a look at the biggest benefits adopting a drop shipping model can give to your business:
Pro #1. No need to spend money on stocks
With drop shipping, all you have to do is upload product pictures and sell them. This drastically reduces the cost of starting your business as you won't need to invest money into products upfront.
Pro #2. Easy to test and find winning products
As your cost is pretty much fixed to a website and marketing costs, you can test as many products - even up to thousands - to find one, or a few that will give you the best returns.
Pro #3. Low overheads for stock keeping and fulfilment
Without having to keep inventory with you or doing the fulfilment, you do away with all the costs related to managing a warehouse full of products or fulfilling products for customers.
Cons of Drop shipping
Drop shipping does not come without its disadvantages, however. Here are some of the cons of using the drop ship model for your business:
Con #1. Inventory not in your control
Since the inventory is not in your control, anything can happen. Your supplier may decide to discontinue a product without letting you know ahead of time, or products may go out of stock without prior notice.
Not having the products can result in customers become highly dissatisfied with buying from you, or worse, public complaints that may cause harm to your website reputation.
Con #2. Easy to copy business model
You won't be the only one drop shipping from your supplier. It's likely that hundreds or even thousands of others are doing the same thing.
This can make your business model easy to copy as anyone can sell the same products as you.
How Do You Make Money as a Drop shipper?
Like any business, you make money with drop shipping by profiting the difference between cost and revenue.
The only difference is that with drop shipping, you don't have to keep stocks of products. It takes care of the inventory and fulfilment part of your business.
For example, say today you are a drop shipper for perfumes. Your supplier sells you the perfume for RM10. You put the perfume for sale on your website for RM30. To market the product, you might spend RM5 per product sold.
This brings your profit to roughly RM15 per product.
This isn't unlike any other business out there.
Myths about Drop shipping
Myth #1. Drop shipping can help you make passive income
Like franchising, some people believe drop shipping can help them generate passive income. They think, 'Since other people are helping me to send the products, I don't have to work hard.'
This is not true.
Like any business, building a drop ship business is hard work. To get the results you want, you must be ready to put in the time and effort to get it.
Your drop ship business may well one day provide you with passive income, but you'll need to work really hard to optimise and automate your business before you can get there.
From experience and observation, this can take anywhere from 5 to 10 years.
Myth #2. You don't have to invest any money
Although you do not need a lot of money to start drop shipping, that does not mean you do not need any money at all.
What people think is their drop shipping profit:
Profit = Selling Price - Supplier Price
In reality, you will need some amount of capital to start. You'll likely need to invest money in a website, and if you don't have any marketing skills, you'll need to invest in courses to help you get started.
Then, there are the costs of marketing themselves. A more realistic profit projection for a drop ship business will more likely look like this:
Profit = Selling Price - Supplier Price - Marketing Costs - Website Costs
When your business grows, you might need to invest in hiring staff to help you manage your business also.
Biggest Mistakes Drop shippers Make
Mistake #1: Not treating drop shipping like a real business
In reality, drop shipping takes care of just one part of your business: the fulfilment.
Every other part of your business is exactly the same as any other business. In order for it to run successfully, you'll need to optimise your operations, marketing, accounting, and customer service, to name a few.
If you don't treat your drop ship business like a real business, you'll likely fail.
Mistake #2. Not investing time and money in learning and mastering digital marketing
Since most drop shipping in the crowded online space, the only way you can stand out in the crowd is by mastering digital marketing.
With good online marketing, you can reach thousands of customers from your mobile phone. When you have a large audience, you will have a higher chance of making sales on your products.
As such, leaving your drop ship business up to chance and not investing any time and money into learning and honing your marketing skills can only mean one thing: failure.
Just putting up a website and expecting to make money will guarantee that you won't survive.
I recommend getting on board a course or read up on marketing guides to get started.
One of the most important marketing skill is SEO (search engine optimisation). Mastering SEO means your customers will be able find you on major search engines like Google, Bing and Yahoo.
Here is my guide to E-commerce SEO to help you get started.
The other skill I recommend getting good at is Facebook Advertising. This is because you'll need to work on your site's SEO for at least 3 - 12 months before seeing sustained results, so you will need another marketing channel to keep your business afloat mean time.
For Facebook Advertising, I've personally found buying a course to be really useful to guide you along. You can read about an affordable, but highly value-packed one I bought to help me with my own Shopify drop shipping business here.
Mistake #3. Using the same generic photos as your competitors
One of the biggest mistakes drop shippers make is that they use the same generic product photo as other drop shippers.
Of course, when customers see the same exact photo, all they will look at next is the price. They ask themselves, 'Is this seller cheaper than the other one?'
If not, they move on to the next one.
With not much to differentiate yourself from your competition, you have to aim to be the cheapest. But when you reduce your price, you also reduce your profits. At times, too much price competition may even mean you do not make any profit from your sales.
Avoid this mistake by investing some time and effort in producing unique photos. You can even send the products to you first and take some of your own photos before selling them.
Mistake #4. Not being picky with suppliers
Even if you do everything right, choosing the wrong supplier can doom your business.
While your supplier handles the 'behind the scenes' work, you are the face your customers see. If they have the habit of sending the wrong products or sending products late, you will be in trouble.
That is why you need to work with a supplier whose work ethics you can trust. You can test them by ordering a few products from them yourself or getting your friends to do so.
Steps to Creating a Successful Drop shipping Business
Now that you know the mistakes people have made, let's move on to how you can create a successful one.
Step #1: Get your motivations correct
Know how much you need to work
As I mentioned before, drop shipping is not a way to make passive income. Like any business, you need to work hard to build your drop shipping empire. Once you have set your mind to do whatever it takes to succeed, you likely will.
Sell only what you know
If you are a man with no interest in beauty products, you may not be able to sell products. No matter how lucrative the business may be, you may still fail if you do not know how to best serve your customers.
Step #2: Pick the right supplier
Picking the right supplier can determine whether you succeed or not. Here are a few criteria you can use to decide whether you want to work with a supplier:
Are they local?
People who shop online expect to get their products fast [source link]. Though overseas suppliers may supply you cheap products, they fail to deliver fast.
If you want them to deliver fast, then the sale is no longer worth it. The cost of shipping will make it hard for you to earn any profit from the sale.
Pick a local supplier so that your customers can get their products fast. Fast delivery will encourage them to order from you again.
Can they send the right products on time?
As a marketer, you are only half the equation. Your supplier can destroy your hard-earned reputation by making a mistake.
As a minimum requirement, your supplier should be able to send the right products quickly to your customers. In Malaysia, the expected delivery time is between 2-4 days. More than that, the customer may consider ordering from another seller the next time around.
A good supplier will be able to deliver the right products within the expected time frame 99% of the time. You do not want to work with a supplier who is sometimes fast and sometimes slow. If they do this, you may end up losing half your customers.
Good profit margin
The main purpose for you to start drop shipping is to gain profits. Before you work with a supplier, ask yourself, 'Is the cut they give me worth my time and effort?'
For example, if you are gaining 15% per sale, is it worth selling? Or if you are only gaining 5% per sale, is it worth selling?
There is no right or wrong answer. The answer depends on the situation. You need to do calculate your costs and weigh it against the money you stand to make. If you get an overall profit, then proceed with the supplier. If not, feel free to look for another supplier.
The key here is to not settle for a supplier who gives you a cut that is too small for you to sustain yourself.
Provides good support in case of wrong product or faulty product
You must be aware that bad things can and do happen in business.
Your supplier must be one that:
- has the experience to fix any problems that come along the way
- willing to do it at their own cost - if you had to fix the problems at your cost, it would eat into your profits. Remember that you are a marketing agent. Your fee only includes your service as a marketing agent. Your supplier must do everything else.
- you can communicate with them in real time to have the problem fixed... it would be bad if you had to wait for many days for the supplier to get back with you on the issues.
Suppliers who are unwilling to provide support can be detrimental to your drop ship business as the profit margin they provide you may not be sufficient to cover the cost of rectifying faults.
Step 3: Create a Brand
Many drop shippers overlook this step of creating a brand. They spend little or no time thinking about what their brand is about.
Without a brand, your customers are likely to buy from a cheaper seller when they find one. To prevent this from happening, you need to create a brand your customers can identify with.
- What makes my brand different?
- What benefits can I give my customers that my competitors cannot?
These questions will help you create your business's unique sales proposition (USP). Your USP will be where you can form your brand.
Step 4: Become a Marketing Expert
As a drop shipper, you must be a marketing and customer service expert. If you do not have any idea how to do marketing or customer service, I recommend investing some time (and money) to learn.
Here's my guide to e-commerce SEO to get you started learning how to get traffic from Google, Bing and Yahoo.
If you're interested to learn how to run successful Facebook Ads for your Shopify or e-commerce business, I recommend this course.
Step 5: Take action daily
Let's face it: if you're only willing to put in a minimal effort to grow your drop ship business, you'll likely fail.
The more time and effort you put into your business, the faster you will see results. If you want to make serious money from drop shipping, you need to look at it like a full-time job (even if you already have a day job).
It is not realistic for you to expect a high income from drop shipping if you only work on it a few hours a week. Most successful drop shippers work 40 - 60 hours a week at the beginning of their business to get it up and running.
Like any other business, the only way to succeed is to put in your time and effort. If you let too many excuses get in your way, your drop ship will fail.
Step 6: Measure and optimise
"If you can't measure it, you can't improve it." - Peter Drucker
Measuring your performance can mean the difference between succeeding or failing. But most drop shippers don't do it because it is hard, especially at first when the numbers are small.
To separate you from failed drop shippers, you need to start measuring from Day 1.
Create a spreadsheet to track (in order of importance):
- Your monthly sales revenue - is it increasing or decreasing?
- Your average order size
- The number of followers you have on your social media accounts - is it increasing fast enough?
Only when you measure from month to month can you see if you are making progress (or not). When you find that you are not making progress, find out why. Then make changes to your business and measure it again to see if your changes help.
This way, you'll be able to optimise various parts of your business to keep growing it to a five, six or even seven figure business.
Frequently Asked Questions about Drop shipping
Below I've compiled some of the most common questions I get from readers about drop shipping. Hope you'll find the answers helpful.
(If you have more questions not covered in this article, feel free to send me a message or write a comment below.)
Q: Where do I find a drop ship supplier?
If you are looking for local suppliers, my suggestion is to look for them manually. This means contacting them one by one and making arrangements with them to help you drop ship.
Unfortunately, I can't recommend any of the current drop shipping websites in Malaysia as I've found out that one big named one doesn't even have stocks in Malaysia for most items they list.
If you're planning to use Shopify, the most popular drop shipping app is Oberlo.
Update: My goal of US$1,000/day with Shopify Drop shipping just started. Follow my journey here!
Drop shipping is a popular way to start a business. This is because you do not need a lot of capital to start. Your supplier will package and ship your customer order. All you need to do is sell.
Though it may seem simple, many still fail to make a sustainable income through drop shipping. This is because they make common novice mistakes in drop shipping.
That does not mean that drop shipping is passive income. To succeed, you have to treat your drop ship business like a serious business.
Follow the steps outlined in this article and learn from mistakes you and other people make. All the best and I look forward to your success!
Have you started a drop shipping business? Let me know how it's been going for you in the comments below: