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You may know what dropshipping is. However, are you aware of what is reverse dropshipping? It is a new kind of business model. Interestingly, the innovative business model is based on having niche products and a small targeted group of customers. This article will explain what the reverse dropshipping model is, how it works and its benefits.
Dropshipping, reverse dropshipping, reverse logistics, these are all modern concepts of logistics and transportation services that aims at bringing efficiency in goods transportation. Along with the other key activities in logistics management, dropshipping and reverse dropshipping have also gained prominence over the years, with many businesses adopting it as a business model for growth.
What is reverse dropshipping?
Reverse dropshipping is a business model of sourcing high-quality products from countries that generally imports them and selling them in markets that exports them.
For example, although India is an exporter of textile, reverse dropshipping involves souring high-quality textile from importing country like the US and selling it in India. Higher quality is a key element here. If your business model is reverse dropshipping then you will have to target audience with enough disposable income and interest in fine quality products.
Question is, why do these customers want to purchase these products? The answer is that often, they are looking for fine quality that they do not get in their own country that mass produces the same product.
Note: Reverse dropshipping should not be confused with reverse logistics which is a form of returns and refunds management usually used in eCommerce and online businesses.
How does reverse dropshipping work?
Here are the steps involved in the reverse dropshipping process:
- Listing of products: The seller lists the product on a marketplace like Amazon, Facebook marketplace, etc., targeted at the relevant audience
- Order placement: The buyer sees the product and places an order
- Forwarding the order: The seller forwards the order to the supplier
- Shipping: The supplier then directly ships the product to the buyer
- Payment: The payment is made to the seller, who keeps his margin and then pays to the supplier
In a nutshell, as a reverse dropshipping business owner, you are responsible for finding right audience and marketing the products. It is also advisable to check with professional logistics companies on their services (especially for international shipping) to keep your options wider.
Highlights of reverse dropshipping
- High quality, high prices products: It deals with high-quality expensive products
- Higher profit margin with limited audience: Target audience is limited however you may have higher profit margin
- Dependency on government regulations: Government decision of banning import of some products or websites may directly affect the business
- Finding right audience is the key: You need find the right product and right audience for making this business be sustainable.
Advantages and disadvantages of reverse dropshipping
Like other business models, reverse dropshipping also has its advantages and disadvantages. Here are the pros and cons of the reverse dropshipping:
- Higher profit margins: Since you deal with high-end products, the profit margin in reverse dropshipping is usually high.
- Higher quality goods build reputation: Since you deal with higher quality products, customer satisfaction is relatively easy to attain. As a result, it helps you form a reputation for your business.
- Less competition: This is a relatively new business model. Additionally, masses are not the target audience. Hence, not many businessmen choose to delve into this business model. As a result, you have comparatively lesser competition.
- Finding right target audience: In reverse dropshipping, finding right target audience is difficult. You need to find audience that has money and will to buy high-end products that you are offering.
- More marketing efforts: Since finding these customers is difficult, you may have to make more effort to market your products to the right audience. Depending on your product, you will need to find marketing channels.
Rules and regulations: There is always the risk of government banning certain goods that may affect your business adversely. Alternatively, government’s decision of banning apps/marketplaces where you are listing your products may impact your business.
Dropshipping vs reverse dropshipping
|Quality||Products are mostly of average or low quality||Products sold are of high quality|
|Quantity||Dropshippers deal with bulk quantities||Quantity is lesser|
|Target audience||Masses||Limited target audience|
|Profit margin||Margins are lower||Profit margin is high|
|Marketing||Comparatively easy to market products since they are for larger target audience||Targeting specific audience is comparatively difficult|
Reverse dropshipping is a fairly new concept in India and there are not many competitors yet. That opens new opportunities for many. You can find your niche, collaborate with suppliers, decide your target audience and start marketing. As your business gets more stable and you have more returning customers, you will be able to generate more profit.