Making money online in Kenya has never been easier. There were times you would have had to spend a vast fortune on setting up a website, domain names and hosting, buying in and storing vast amounts of stock and all the hassle of filling and shipping the orders. Criss crossing the Nairobi CBD just to meet your clients needs.
Fortunately, the advent of dropshipping takes care of all that by taking the hassle and the hard work out of your hands and sending the money rolling into your bank account overnight. So, what is dropshipping?
What is Dropshipping
Dropshipping is a fulfillment model that enables you to purchase products individually from a manufacturer, wholesaler, or other supplier and ship them directly to your customer. This means that instead of selling goods to your customer in a traditional way,
where you would purchase the stock and ship it to your customer from your warehouse, you can expedite the process and have it shipped directly to your customer from the supplier’s warehouse.
In a nutshell, dropshipping provides you with a way to become a “middleman”, a way of selling to the public without actually holding on to any stock whatsoever. The risks are much lower; all you need to do is find the suppliers, advertise the goods, and send your
orders to the supplier. They send you the difference between the charge for their product and the price you sell for, allowing you to make money easily with the minimum amount of risk and work.
Dropshipping is by no means a new scheme; it was in use in one way or another long before the internet was born. The internet just makes it much easier, faster, and opens up the market to more people.
How Does It Work?
Dropshipping is a method by which you, as a retailer, sells products to the Kenyan public without actually holding on to any stock or product. That means, when you sell a product, you send the order directly to your chosen supplier; they ship the product, process the payment, and then send you the difference between the charge they make for the product and the price you charge. You never see the product, you never handle it and you don’t need to handle or process any payments.
While you don’t need to handle the payments, there are some suppliers that will allow you to process your own payments and even some that will allow you to contract your own shipping company e.g G4S, Courier e.t.c However, utilizing these choices actually defeats the purpose of choosing to run your business using dropshipping.
There are many differences between a normal ecommerce business and a business using the dropshipping model. Some of those differences include the operating margins, operational logistics, operational costs, profit velocity, and barriers to entry.
I have managed to explain the differences individually as follows.
- Operating Margins: The operating margin is the ratio that is used to measure a company’s pricing strategy and operating efficiency. It is the measurement of the proportion of the company’s revenue that is left over after paying for variable costs of production. The operating margin for a company that uses dropshipping is always going to be lower than that of a typical ecommerce company because you don’t have the
burden of carrying inventory or shipping product.
- Operational Logistics: If you are running a business in Kenya using dropshipping, you don’t need to carry any inventory or ship any products, which gives you the freedom to run your store from virtually anywhere in the country or in the world. When you are running a typical ecommerce store, you need to consider the logistics of running a warehouse and replenishing your stock, as well as coordinating shipping.
- Operational Costs: If you are running a traditional ecommerce business you must consider the cost of paying for your warehouse, paying for the staff to run your warehouse, paying for the stock, shipping, and handling customer service. In
comparison, the cost of running a business using the dropshipping method is limited to just customer service to take orders and send them on to the wholesaler or manufacturer.
- Profit Velocity: While the hands-off nature of dropshipping is incredibly attractive from an operational standpoint, carrying inventory is a much faster way to ramp up profitability. This is because the profit margins are much higher when you have the option of purchasing product in bulk from an overseas supplier using Jumia global and selling them at a higher cost.
- Barriers to Entry: Barriers to entry include the existence of high start-up costs and the other obstacles that prevent a new competitor from entering an industry. A company that is using dropshipping like Jumia in Kenya is a lot easier to copy and start up than a company that carries and ships its own stock.
A Real Kenyan Example
Let’s assume that you choose to sell Smartphones. With a traditional store, you would need to buy in physical stock so you buy 30 smartphones and store them. Then you would need to find customers who want to purchase the smartphones. Let’s say that you sell only 5 smartphones and then sales drop off.
You go out of business and end up with a shelf full of smartphones that you can’t sell and no money in your bank account.
With dropshipping, life is much easier:
- You set up a website with an online store to sell the phones. Remember you really don’t need a website
- You sell a “Samsung” smartphone for Kshs 30,000
- You receive an order for one Samsung phone through your online store
- That order is sent to your supplier – the manufacturer or wholesaler that you have chosen to work with
- They charge you Kshs 20,000 for the Samsung phone plus Kshs 800 for them to send it directly to your customer
- The supplier will then pack the order and ship the smartphone to your customer
- You make Kshs 9,200 on the sale
- Repeat as much as you can and watch the profits grow.
In some cases, the payments will be processed by the supplier and they will send you the difference between your price and theirs, less any shipping costs.
While there are many advantages to choosing to build and run a traditional ecommerce business instead of creating a business that uses dropshipping, there are significantly less risks associated with using dropshipping.
Not only are there less risks, the start-up expenses are also significantly lower which means you will begin making money from
your business faster than you would from a traditionally run ecommerce store.
A business that uses dropshipping is also less stressful and requires less of a time commitment than running a warehouse and carrying stock, at least until it grows to take over your full time job (and becomes your sole source of income).
If for some reason you are not making any sales, or make significantly more sales than you anticipated there are also no issues with holding the stock you can’t sell, or running out of a popular
product; these problems lie and are the responsibility of your supplier.
If your supplier runs out of a product, you always have the option of relying on a back-up supplier.
While dropshipping can give you the perfect opportunity to start up a business here in Kenya, especially if you have little in the way of finances and experience, it should not be seen as a get rich quick scheme.
To be successful you have to approach it like you would any
business opportunity – with professionalism. You must have a solid plan and you must definitely decide on achievable goals.
Often, if you have one main goal, it can be helpful to split it into a series of smaller ones, goals that you can achieve on a weekly or
monthly basis. This is vital if you are to see whether the business is going to be a success or not.
Alternatively, if you find that you are not reaching the place you want to be in, you can revise your position and all your options in comparison with your plan and how the business is progressing. You can also make changes to your plan as and when necessary.
I know you are wondering from where do I get all these dropshipping information. Apart from reading several books and blogs , I also have practical experience with dropshipping business. If you feel that you need more information on how this industry operates just comment below and I will assist you accordingly.
In the mean time, I have shared with you these two books that have helped me a lot in understanding how dropshipping works. You will also save yourself from reading many contradicting information here in the internet