Maybe you've seen videos circulating online of people who have quit their corporate jobs to pursue a dream of entrepreneurial success. One of the most popular forms nowadays revolves around a concept in e-commerce known as dropshipping.
Dropshipping is a business model that allows entrepreneurs to sell products to their customers without ever having to stock inventory themselves. In this growing niche, the retailer is a middleman between buyer and supplier.
There are many advantages to this method. According to a dropshipping explainer from e-commerce company Shopify, the model allows entrepreneurs to take more risks on products. Because there is no overhead for storing the product, retailers can experiment with different products and product lines. Retailers are also not tied to a physical location, meaning they can sell products to any market in the world so long as they can find a supplier who can ship to that market.
However, there are also several pitfalls. The barrier to entry is quite low, meaning that anyone with enough money saved up can enter the market, increasing competition and making it harder to stand out. The margins are also low. Because the retailer does not store nor own the product, they have to pay the third party, collecting a fraction of the selling price.
Tom Cormier, or eCom Tom as he is known, is the co-founder of Dropshipping University. Cormier, who graduated with a degree in chemical engineering in 2016, was looking for a way to earn some extra money along with his paycheck. "I was like, I want some money on the side. And I think I always just had the idea that I never wanted to work full time for a job ever."
Cormier's journey into dropshipping started with re-selling old video games and eventually lead to reselling cell phones — until an exchange went south and Cormier was robbed. The experience made Tom reconsider how he would earn extra money.
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eBay, Amazon, Facebook
In August of 2017, Cormier bought an online course on dropshipping and opened his first store on eBay. His first sale came the next morning, when he sold an $11 iPhone case for a $1 profit.
Cormier says as the space gets more crowded success becomes more difficult to achieve. In 2017, dropshipping was still a fairly new concept and there is a lot more competition today.
Platforms like Shopify, Amazon, and eBay are all established sites that can make it difficult to stand out. Cormier calls Facebook's Marketplace the "Wild West of dropshipping" because it's still in the "beginning stage."
Cormier says he earns around $5,000 a month from his business, which comes out to $60,000 a year. As co-founder of Dropshipping University, he also teaches students how to get started and grow their business. "I have students that are absolutely killing it like $40,000 profit, like first two, three months," he said.
For people interested in starting a dropshipping business, Cormier recommends starting on eBay because of its reach and ease of use. "eBay brings the traffic in, you just have to be selling the right items … eBay is what I would always say to get started off with because it's beginner friendly, it's easier."
Dropshipping can become the first step into a much bigger e-commerce business. Entrepreneurs who are successful may want to create their own online store and advertise their products on social media. U.K.-based sports apparel brand, GymShark, became a $500 million business by tapping into influencer marketing networks after starting out as a dropshipper.
Online pricing, success tips
Cormier's education doesn't teach students how to purchase ads or how to build a website because he believes the most important aspects to dropshipping are selling the items and finding reliable suppliers. "What I've always taught is it's about the items, the pricing, and just showing up every day and putting in the work," he said.
A focus on niche products is a great way for retailers to separate themselves from the competition. One case study examined Dark Horse Marine, a niche vendor of stainless steel anchors. While about 10% of the products are sold through dropshipping, the company said dropshipping provides several advantages, from testing new product lines to saving space by not having to store large heavy items.
There tend to be two common misconceptions associated with dropshipping, according to Cormier. Some people think it is illegal because the seller does not handle the product, but it is the fact that dropshippers are the ultimate middlemen that allows them to create a business that can turn a profit.
On the other hand, some people believe that they will become overnight success stories once they open an online store. Cormier calls this "shiny-object syndrome."
"It's basically, 'Oh, I just found out about dropshipping.' They get all into it. And then like two weeks later, they see something else. 'Oh, I'm gonna go do Shopify dropshipping. ... Now I'm gonna do Amazon FBA [fulfillment by Amazon]. ... I'm gonna go do wholesale now. ... And I'm flipping cell phones. ... Now I'm running an Instagram marketing agency."
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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.