Have you ever dreamt of opening your own retail store but never had the budget to do so? Or did the risks (Source: StartupNation) made it unattractive for you? We understand if so but what if someone tells you that it is completely possible to start your own online store at an affordable budget? Yes, it is completely possible. The answer is starting a dropshipping business in South Africa. Why South Africa? Oberlo says that South African dropshipping competition is still fresh, and that makes it a good environment to consider starting this business. It is a perfectly legit business model used by many aspiring entrepreneurs worldwide. In this article, we are going to simplify dropshipping for your understanding and explore the advantages and disadvantages, and the startup procedure.
What is a Dropshipping Business and how does it work?
In layman’s terms, dropshipping is basically owning an online retail store without having any inventory. Instead, you directly connect and set up ties with various manufacturers to form a supply chain. The initial investment usually goes in setting up your online retail store and (optionally) on advertising. The customers who visit your website can pay and place an order after choosing their desired items from your product catalogue. Once an order comes through, you – the dropshipper – will place a duplicate order to your relevant manufacturer/supplier. That is all. Your job ends here! Further packaging and delivery necessities are fulfilled on the supplier’s end.
The prices displayed on your retail store includes the profit margin per product you are offering. For example, if your business sells a smartphone for R5000 and if you are buying them from your manufacturer/supplier for R3750, that means you are making a profit of R1250 per product you are selling through your online store. Pretty simple, right?
In this business model, a customer is unaware whether they are buying a product from a dropshipper. When a customer buys a branded smartphone through your online shop and is happy with the product, they will know that your store is a good place to buy that particular smartphone brand. Maintaining a good customer experience is important in this business model, and hence you should choose your suppliers carefully.
Basic flowchart on how Dropshipping works:
Dropshipping and South Africa – How is the competition?
South Africa is the 37th largest market for eCommerce with a revenue of US$4 billion in 2020, placing it ahead of Malaysia and behind the Czech Republic (Source: ecommerceDB). Even Statista reports that the online shopping trends of South Africa are getting better and the revenue is only going to increase in the upcoming years. Internet services have improved greatly in recent years, and the awareness of media and technology has increased the overall number of smartphone and internet users in South Africa. In 2020, internet user penetration in South Africa was 56.3% and it is projected to be 62.3% by the year 2025.
Even then, dropshipping competition is rather on the lower side in South Africa. The e-commerce stats suggest that due to having a good potential and a fair environment, it’s good to consider starting a dropshipping business in South Africa in 2021. Low competition in the market means you get a head-start with a fair share of profit and a chance to go big.
Dropshipping – Is it good or is it bad?
We will let you decide that! We can just say that it is not for everyone. Allow us to list the major advantages and drawbacks of this business model and see how they work out for you!
Dropshipping model is fairly simple to understand and execute. The possibility of setting up a business within a day and the ease of selling the products makes this model one of the most lucrative business models to be considered by aspiring entrepreneurs. Let’s see the advantages if you are considering a dropshipping business in South Africa.
Low startup costs
One of the biggest advantages of opening a dropshipping store is low startup costs. In South Africa, setting up a retail store can be a high maintenance business as you have to manage inventory, pay rent and taxes, and so on. In dropshipping, all you have to do is pay the domain name and hosting costs and you are ready to set up your online shop. Or if you can buy pre-customised stores from Dropstore or Shopify. Furthermore, if you have more budget, you can invest in advertising your business for greater reach.
Low investment in the business makes it a lucrative model as it possesses low risks. To give you an idea, Oberlo has summed up the total costs in this article. Remember that this does not include advertising costs.
Allows Flexible Experimentation around the market
As you don’t have to maintain a physical inventory, you can experiment with various business niches for various products at a very low to no cost. Consider what products you want to sell and research their demand and supply in the market. You usually want to stay away from larger products such as furniture (unless you have bulk orders and if your profit margin is high) or very common commodities like soaps, brushes etc. For starters, you can explore the electronic market.
Low order fulfilment costs
A dropshipper doesn’t pay their suppliers before they receive an order. Once an order comes through, the dropshipper is paid by the customer. Then, the dropshipper places a duplicate order to their supplier. The shipping and packaging costs are managed by the supplier and the dropshipper does not have to pay for anything. In this way, all the dropshipper has to care about is to take the order, and pass it along to the supplier.
No inventory management expenses
As the dropshipping business has no physical inventory, it naturally eliminates inventory expenses. In a traditional retail business frame, inventory expenses are huge. You have to worry about buying and managing the inventory, whether the inventory will actually sell, and warehouse rent. The dropshipping model eliminates all these costs, allowing you to manage your finances and experiment with products around the market with minimal risk.
Low trust factor
One major thing to consider in starting a dropshipping business in South Africa is that your customer is almost always unaware that they are buying from a dropshipping store. Dropshipping stores are often poorly designed with certain elements that give out the fact that it is a dropshipping store. Furthermore, longer shipping times, bad customer services, and product quality can reinforce the negative trust factor as well. This can hurt your business overall.
Limited control over products
Limited control over products is another major drawback of this business model. Dropshipping involves third party packaging and shipping of the product that was ordered through your website. You have no practical control over the shipping time, the packaging, and the product quality itself. Bad products shipped under your name can quickly hurt your business and leave a long-lasting impact on your overall revenue and reputation.
You are purely relying on your partners for products, which gives you limited to no control overall.
Limited Branding and Customisation
Having no control over product manufacturing, packaging, and delivering, you really don’t get much room to promote your own brand in the process. Even if the supplier/manufacturer can accommodate your customisation request to a certain extent, you may have to show that a particular product is selling well and is in high demand. The manufacturer has to accommodate the costs for such customisations while considering the profit factor.
Brand loyalty is hard to build in this model. As your business is selling products from various brands and even providing customer services for it, the product brand (i.e. manufacturers and suppliers) could get all the credit, giving you limited room to expand your business as your own brand.
Competition Issue and Low-Profit Margins
High competition can be a negatively affecting factor in making a profit. Considering the low-cost startup factor, many entrepreneurs get into this business model, hoping that they would make some quick profit. While doing so, they deliberately set the profit margin low to make a quick sale. As it is a business with low investment, the risk of loss is also low. This enables them to set the profit margin low. To stay with the competition as a starter, the profit won’t be as per your expectations.
However, in South Africa, the competition is fairly low. This promotes a safe environment to promote your brand and earn a reputation, which will help you stay ahead of the competition before the competition gets high.
How do I start my dropshipping business in South Africa? Mistakes to avoid.
Starting any business requires extensive market research, and dropshipping is no exception to that. You must understand the supply chains, and the supply and demand in the market very well before you consider beginning dropshipping as a business. Understanding the demand will help you curate proper products and target a demographic in South Africa accordingly.
Secondly, consider choosing your niche to focus your business and attract the right customers. This will help you make a better profit and name for yourself in the long run. Try exploring less popular areas to see how you can make a profit in that field. Don’t just rely on the ongoing trends. Devote yourself to market research before you practically start your business. This will help you make a better profit and name for yourself in the long run.
This Shopify article talks in detail about finding your own niche!
Most young, enthusiastic entrepreneurs avoid this step, find random suppliers, quick-set a website, and start selling online, hoping that they would make some quick profit out of this business model.
Connecting with suppliers
After understanding the market, contacting and connecting with the relevant suppliers/manufacturers should be your next priority. Most aspiring dropshippers immediately ask about how they can connect with AliExpress in South Africa. Avoid using AliExpress as your option. While the platform is really famous for dropshippers worldwide, the cost of shipping, taxes, shipping time are some of the major issues you will face using AliExpress in South Africa.
Look beyond! There are many supplier options in South Africa such as Computer Wholesalers, ParcelNinja, BuyFast, Take-a-Lot, and many more. Furthermore, you can also explore the local market, connect your business with aspiring businesses and help grow each other. Following famous platforms also could mean that you are just offering what most dropshippers are offering in South Africa and worldwide. Be unique and explore more ideas for a long-term profitable effect.
Setting up your Online Store
A fairly easy part, yet a crucial one. We recommend using WordPress to set up your online store as there are over 60000 plugins and themes to help you create your unique online store. Digital Lime Green can help you setting up your online store according to your needs and instructions. WordPress also offers cheap domain names and competitive prices for hosting your website. This can be set up within a few minutes and you may even start selling within a few hours.
Setting up a proper website with a good design matters. Your website plays the immediate role of gaining your customers’ trust as that is their primary medium of purchasing products from you. If your website is poorly designed, difficult to navigate, has improper, copy-pasted content, then it is likely to drive a customer away. Think like a customer visiting a website before you start setting up your online store.
Advertising will help you grow your business (of course!) especially if you are new in the competition. You can choose to advertise on various platforms such as Google Ads, Facebook and Instagram advertisements, and so on.
It is better to research your market before you advertise. Don’t sell anything just because it is in high demand in the market because you may find yourself in a big competition. Consider what do you want to sell primarily, and focus on that. The reason behind this is that it will help establish your identity in the market. For example, if you focus on selling electronic devices such as smartphones, build a reputation as a seller, then your visitors are going to know that your brand specialises in selling those particular products. This will reinforce the trust factor as well as build up your reputation. Targeted advertising will help you greatly in promoting your business.
Even though technically you are not related to it, any product-related issues are going to be addressed to your business. You should have an efficient customer service system in your business model. Bad or non-existent customer support is going to hurt your business really quickly.
Good customer service includes treating your customers politely and respectfully, helping them to resolve their queries as soon as possible, and to maintain their happiness level and satisfaction with your services. A happy customer with a great customer service experience is likely to come back and spend more time and money on your business.
Many dropshipping aspirants make the mistake of ignoring this factor in the greed of making a quick buck out of this business model. This will impact them negatively, even after their business shuts down. It will be most likely very challenging for them to start another business. Consider this as your personal investment rather than a deed you can ignore in growing your business profitable and reputable.
Even though a low-cost, low-risk business model, dropshipping is still a form of business and should be treated as a regular business. Remember that it is always a responsibility and there’s nothing like earning a quick buck in any business model. You should plan your business accordingly, invest your resources in proper research and advertising, consider and finalise your niches, and provide excellent customer service. With your consideration, dedication, and devotion, starting a dropshipping business in South Africa will certainly become easier for you in the long run.
Know basics on how you can start a business in South Africa with our article here!