Decide your Business/ Operation Model
How to start an online store? (2/7)

The next step in starting up an online business is ask yourself some questions...

If product you choose is available in other platform, why do your prospect want to buy from you?

What is your value proposition?  Would it be price? If yes, read our Step 1 again!

To aid your decision, you may first deciding whether your business / operation model, the business model does impact on your

1. Upfront cost

2. Customer Satisfaction

3. Branding

Let me first briefly explain three common business/ operation model.

1. Drop Shipping. Drop shipping is a supply chain management method in which the shop does not keep goods in stock but instead transfers its customer's orders and shipment details to either the manufacturer, another retailer, or a wholesaler, who then ships the goods directly to the customer.

2. Hold your own Products.  This is the traditional model which most retailer do. Buy (stock) and Sell

3. Third-party fulfillment providers.  Consider 3PL is something in between both business model which you outsource so operation task (such as warehouse, pick/ pack and package to a company).

Dropshipping

Dropshipping has become super popular, if you are a famous KOL, congratulations, this may fit you well!  In some ways, dropshipping can feel like the ultimate ecommerce store hack.

You don’t hold inventory, which means:

  • You don’t need capital to purchase your items

  • You can list more items on your ecommerce store, at zero risk (and cost)

  • No warehousing costs

  • No picking and packing activities

With dropshipping, virtually anyone can get into ecommerce.  Even a guy who’s too broke to move out of his parents’ home.  Even a schooler who still gets his allowance from mom and dad.  We have a client at age 12 able to gain $4000 monthly on this operation model.

Anyone.

But here are the not-so-good things about dropshipping: 

First, you have zero control over fulfillment.  When they screw up (such as product quality, shipping arrangement) (and they will, at some point or another), your customers will be pointing fingers at you.

For ecommerce stores who handle fulfillment in-house or managed 3PL, it’s easy enough to apologize, rectify the problem, and move on.  But dropshippers who have to communicate with manufacturers who are in a different city, or even country.... or someone you never met with.

Obviously, not as easy as you can imagine.  Product returns are also problematic, not to mention drop shipping won't help your e-commerce branding at all.   

Imagine your shipping experience, you can request for your supplier to not include any promotional materials inside the packages they ship to your customers, which makes it less obvious that you’re dropshipping.  But you most likely won’t be able to get them to use any kind of custom packaging with your company name or logo on it.

This means your customers won’t have the best unboxing experience.  Basically, they’ll receive a nondescript box with a few shipping labels slapped onto it.

There won’t be anything on the box, or inside the box, to indicate that it’s from your store.

When you want to build a brand, this is a major roadblock.

Hold your own product

The disadvantages are obvious:

  • Buying inventory costs money

  • Storing inventory costs money

  • Picking and packing costs time and/or money

Basically, holding your own products is more expensive and an all-around operation pain. 

But when you hold your own products, you’re responsible for everything, and there are a lot more pieces of the puzzle that need to come together.  

On the bright side, the benefits of holding your own products are awesome:  First, you get to make sure your customer’s experience is perfect.  One of our client charge 200% higher price than its competitor but still beat their competitor by far.

To ensure you don’t unintentionally flush that revenue down the drain, you need to step it up when it comes to customer service.

We’re talking…

  • Shorter delivery times

  • Well-designed packaging

  • Knowing your products inside and out

And, of course, fixing problems as soon as they arise.

Products delivered in well-designed, branded packaging are perceived to be more desirable and attractive.  If you got a battered, unmarked cardboard box (save for a shipping label in a language you don’t understand), how would you feel?

When you get the same product in a beautifully designed package, you’ll be a little more excited. There’s a reason people film unboxing experiences!

To Summarise

* Dropshipping requires no capital and is the easiest method to get started, but has the lowest profit margin and poor branding.

* Buying wholesale requires more capital up front and the need to pack and ship, but gives you a higher profit margin and better branding.

Once you’ve chosen a business/ operational model to work with, it’s time for the fun part - coming up with your business name and registering a domain.



Decide on your niche
How to start an online store? (1/7)