Dropshipping only requires minimal capital to set up which is why it exploded in popularity over the years. The ease in which people can enter the industry leads to more and more dropshipping stores popping out every day. As the level of competition keeps on growing in dropshipping, the acquisition of customers is getting harder than it used to be. Sales strategies are more complex and the costs for advertising and marketing are way higher.
If you start a dropshipping business with a small capital, enough to make your store up and running and with a couple of weeks ad budget, you might be counting on the sale that you’ll be able to generate in the first two weeks to fulfill orders. You’re not alone in toying with this idea. Most newbie dropshippers are thinking the same thing but will it work? Let’s find out!
How long does it take to receive customer payments?
The payment period depends on the payment gateway that you use. It will take 2-3 days before you can use money paid through PayPal. Meanwhile with Shopify Payments, depending on your location, the payout will be 2-5 days and maybe longer if you’re in Japan. Stripe can be 2-7 days or 30 days if you’re in Brazil. Other payment gateways have their specific payment period as well.
Should you wait that long before fulfilling orders?
No. If you’ll wait for the customer’s payment to be cleared before you fulfill orders, you are already delaying order fulfillment for a few days. It is already eating days from the shipping times that you declared in your website. To avoid causing a delay in the fulfillment of orders, you should reserve a fund to pay the supplier for products ordered by your customers. You can use your money or get a credit card to fulfill orders with suppliers.
Isn’t debt bad for business?
Debt is a scary thought and many avoid is as much as possible due to the consequences it brings. However, debt is bad or good depends on how you intend to use the money that you borrowed. It’s bad when you use it for personal consumption that will not allow you to generate money. However, if you use a credit card to facilitate order fulfillment, you can gain profits which you can use to pay your debt later. That’s when a debt becomes good. You’re using it to earn more money and pay off whatever amount you owe.
Long shipping times are a known weakness in dropshipping and you wouldn’t want to cause the delay by waiting for your fund to get cleared. As soon as you get a low-risk transaction in your dropshipping store, process it to buy using your credit card from your supplier. If you look at it, you’re just using your own fund to bridge the processing time of the payments captured from your customers. You already have money to buy the product and a profit and just waiting for the fund to be credited into your account. Once the fund is transferred to your seller account then you can pay the amount charged to your credit card.
Using two separate accounts to accept payment and to pay for dropshipping products will fast-track the shipping process. Make sure that you reserve a fund to fulfill orders so that the flow of transactions from customers to your store and from your store to the supplier will be smooth and timely.
What if the customer requests a refund?
Refunds happen for many reasons. If you have a high-quality product and a reliable supplier there’s no cause for panic. If you’re getting lots of orders every day, a couple of refunds will not hurt your business because you are making more profits with each order. That should be enough to cover the loss due to refunds.
However, if refunds will be an issue, you should increase your product prices to include them. In case the product gets lost in transit or arrived in a damaged condition in the customer’s address, you can file a dispute in AliExpress to recover your payment from the supplier.
What if you make thousands of dollars in orders per day?
You should scale up your dropshipping business slowly to avoid leaping from $100 worth of orders a day to $1000 a day. Ensure that packages are not being held by customs and that they arrive on time to their destinations. To do this, monitor orders until they are received by the customers. Calculate your refund rate and profits. Only when you’re certain that there will be no problems with the packages reaching the customers on time should you decide to scale up and fulfill orders in a huge amount.
Being cautious when scaling up will reduce the risk of refunding a huge amount of money and paying off a big debt as a consequence.
Dropshipping can be a profitable business if executed in the right way. You should plan out your budget so you’ll have a fund to cover operational costs, marketing costs, and fulfilling orders. It is not smart to rely on your first sale to get order transactions flowing smoothly as this is not yet a stable source of funds. Use your own money at the initial stages of your business and only stop doing so once you have raised enough to pay the suppliers for what your customers ordered.
Don’t delay shipping times by not fulfilling orders on time because it will be bad for your business reputation. Deliver what you promise and customers will show their appreciation by becoming your repeat customers. Even if they don’t return to buy from you, by providing them a great buying experience, they are likely to give you glowing reviews and recommend you to other people.