Dropshipping is a powerful eCommerce model where a business or individual sells an item to a consumer and then purchases from a third-party company to fulfill the order.
Dropshippers don’t have to buy or manage inventory, allowing for profit without the standard risks of a retail business.
And while dropshipping usually involves purchasing low-quality, inexpensive products from China and sending them to more wealthy countries, there’s also an alternative method called reverse dropshipping.
So, what is reverse dropshipping, and how does it work?
Here’s what you need to know.
What is Reverse Dropshipping?
Reverse dropshipping is just like regular dropshipping, only it works on the opposite premise – you sell higher-quality, more expensive items to fill demands in countries that typically sell lower-quality products.
This usually involves purchasing products from U.S. or European suppliers and selling them to wealthy Chinese residents. These residents are willing to spend more money on better quality merchandise that they can’t find locally.
If you’ve never heard of the concept before, it can be a bit confusing. So, let’s break this down in a very easy-to-understand way.
Here’s how reverse dropshipping works:
- You research the market and determine a high-quality product you want to sell
- Next, you find a dropshipping supplier that can provide and ship the product when you get an order
- You create a website or list the product for sale for more than you’re paying the supplier
- When you get an order, you forward it to your supplier, who will ship it
Your primary role as a reverse dropshipper is doing market research to determine what product to sell, finding a suitable supplier, and then attracting customers to your e-commerce website or product listing.
Pros and Cons
Like any business, there are some solid pros and cons with reverse dropshipping. While this model can be highly profitable for the right person, it’s not for everyone.
Here’s why.
Benefits of Reverse Dropshipping
There are a lot of benefits to reverse dropshipping – namely, in the form of high-profit margins and low competition. Here’s a look at all pros of this business model.
High-Profit Margins
One of the most attractive qualities of reverse dropshipping is the high-profit margins.
Let’s say you’re selling a well-made fleece sweatshirt. You find a supplier who sells the sweatshirt for $25. You turn around and list it on your site for $60. When you get an order, you forward it to your dropshipper. Your dropshipper then sends out the merchandise to your customer.
Your profit is the price you listed the sweatshirt for, minus the actual cost of the merchandise and shipping.
There’s a lot more profit here than, say, buying a $5 journal from China and selling it for $8.99.
With reverse dropshipping, you have to sell far fewer products than a regular dropshipping business to make the same amount of money.
You Can Quickly Get Started
While it does take time to pin down the perfect product and find a dropshipping supplier, reverse dropshipping is a business you can start quickly, especially in comparison to a brick-and-mortar store.
You’ll need to invest time in product and supplier research. Other than that, you’ll just need to build out your website and focus on finding customers. If you have previous experience with eCommerce, getting products listed is an easy process.
Low Competition
Let’s be honest here – reverse dropshipping is MUCH more complicated than the regular version, mainly because of language and marketing barriers. This means the competition is also much lower.
If you’re familiar with the country you want to market it to, you’ll have a huge advantage.
You Don’t Need to Prepurchase Inventory
Perhaps, one of the most significant benefits to any dropshipping business is that you don’t have to purchase inventory. When you get an order for the item you’re selling, you simply forward it to the supplier.
You can even cut out this step by integrating apps that do the forwarding for you.
You Don’t Have to Worry About Shipping Products
With dropshipping and reverse dropshipping, you don’t have to worry about shipping any products – your supplier will do it for you.
You also don’t have to store anything. You’re simply the middle man.
Not having to deal with the intricacies of international shipping is a huge plus – just make sure you work with a supplier who knows what they’re doing.
You Can Easily Scale Your Business
Once you have your business up and running and see the first few sales rolling in, you can quickly scale. You can add more product listings, find better suppliers, and make more money.
Getting your business started is the hardest part. But, once you master the sales and marketing process, the sky’s the limit.
The Cons of Reverse Dropshipping
Even though there are high-profit margins in this business model, it doesn’t mean making sales will be easy. Here’s what you need to know.
You’ll Have to Relearn Marketing
Do you feel like you have a solid grasp on Google SEO, Facebook, and Instagram ads?
If your answer is “yes,” I have some bad news – you’re not going to be able to use those skills if you’re marketing to wealthy Chinese residents.
One of the biggest cons of reverse dropshipping is that Google, Twitter, Instagram, and Facebook are banned in China.
This means you’ll need to develop a new way of marketing to reach your intended audience.
Instead of your usual marketing efforts, you’ll need to submit your site to Baidu, China’s leading search engine, and learn the most effective marketing tactics for it.
It may be challenging to learn the best marketing tactics for a country other than your own, especially if you don’t have any contacts that can help.
You Need to Understand the Market and Work Through Language Barriers
We’ve already established that Chinese residents don’t have access to the same search engines and social platforms as the U.S. and many other countries do.
So if you’re not familiar with the market and ways you can reach your intended audience, it’s going to be tough to land sales.
Plus, you’ll have to deal with the language barrier. Less than one percent of the Chinese population speaks English. So if you’re not fluent in Mandarin, the language barrier can be enough to steer you away from this business model altogether.
Regulations and Tariffs
Every country has different guidelines on what can be shipped internationally. When choosing a product, you need to check customs requirements.
And also, be ready to pivot if regulations change, which can happen on a dime’s notice.
Another factor to consider is tariffs. Tariffs are essentially a tax on imported goods and vary wildly by item and country.
Working with Multiple Suppliers Can Get Complicated
If you’re only selling one product from one supplier, you can easily calculate shipping costs and factor them into your price. However, if you work with more than one supplier, the waters can begin to be muddied.
Since different suppliers charge differently for shipping, it can be hard to estimate these costs when a buyer purchases multiple products from multiple suppliers.
If you’re new to reverse dropshipping, your safest bet is to get comfortable with one supplier before adding a product from a new supplier. Because in the end, if you don’t correctly calculate shipping costs, you can eat away at all of your profits – which is the last thing you want to do.
You’re in Charge of Customer Service
Dropshipping and reverse dropshipping are fantastic because you don’t have to store products or fulfill orders, but you do still have to handle customer service.
So, what will happen when a customer is not happy with a product or needs to make a return?
The good news is that with reverse dropshipping, you’ll be working with companies that are more likely to offer returns. However, these are things you should plan for before starting your business.
You Don’t Have Full Control of the Product
As a dropshipper, you’re a middleman. You don’t have control of a product, its branding, or its instructions.
Since you have no control, you need to vet products before standing behind them. Also, if you’re ordering products from English-speaking companies that require directions, you need to make sure those directions come in Mandarin.
Ideally, you’ll want all labels, packaging, and instructions to be in the Chinese language, which can be very hard to find.
Less Educational Resources
If you want to learn about traditional dropshipping, you have thousands of YouTube videos, blog posts, and courses to choose from.
You cannot say the same for reverse dropshipping.
In comparison, this business model is still unchartered waters. In terms of competition, this is great, but not so much in terms of support and resources.
Conclusion
Reverse dropshipping is a great business model for the right person. However, it’s not something you want to go into blindly. At a minimum, you need to know the market you want to sell to, their regulations, and how to break down the language barrier.
If you are in a position to start a reverse dropshipping business, you’ll face low competition and receive high-profit margins, making the income potential phenomenal. It’s best to get started by working with one supplier and branching out after you’ve learned the ropes and found some success.
