What Is Reverse Dropshipping and How Does It Work?

ByDanica Jovic
February 28,2022

You probably already know what dropshipping is, but just in case you are not familiar with this type of business, here’s a short explanation: Dropshipping is an online business model that enables you, as a seller, to sell products without the obligation to ship them or stock the products on your own. Basically, your role is to list a wholesaler’s product on Amazon, eBay, or your own dropship website and find the right audience for it.

When it comes to reverse dropshipping, it’s an even newer business model and as such, unfamiliar to many online sellers. So if you’re wondering “What is reverse dropshipping?” that’s the next topic we’ll cover in our SmallBizGenius guide.

Reverse Dropshipping Definition

Reverse dropshipping is a business model in which online sellers procure high-quality products for customers whose countries usually house mass-production sites, like China, Indonesia, etc. Products sold through reverse dropshipping are made in the US, UK, or other countries which usually outsource their mass production to Asian countries.

If you are wondering why an industry giant like China is a hotspot for reverse dropshipping sellers, there’s a logical explanation. Many Chinese consumers are seeking fine products, but finding them inside their own country is difficult. The result of China’s high-production level is lower quality for most domestically made products. Therefore, Chinese consumers, especially the rich ones, must find other ways to buy products that would satisfy their expensive taste.

If we want a more precise reverse dropshipping definition, we would say that a reverse dropship means buying high-quality products produced in the West, and selling them to wealthy, primarily Asian customers through your eCommerce website. Reverse dropshipping is a business model similar to regular dropshipping, with one significant difference. Instead of obtaining lots of poor-quality stuff that comes at a lower cost, reverse dropshipping companies procure top-notch, artisanal products. Hence, when it works, reverse dropshipping comes with much higher margins.

How Reverse Dropshipping Works

We introduced the basics of reverse dropshipping, meaning that the next thing we will explain is how it works. Generally, if you know how regular dropshipping works, you won’t have any problem understanding the concept of reverse dropshipping.

The only thing you need to have in mind is that reverse dropshipping involves expensive and high-quality products produced in Western countries that are sold to rich Asian customers.

As an owner of a dropshipping company, you will collaborate with domestic dropshipping suppliers. They will be responsible for manufacturing and storing products, packing them, and distributing orders to your customers.

On your website, you will create a gallery with the products, set the price for them, and manage the inventory. You will be responsible for advertising your offer and finding customers.

For example, you can choose a product available on eBay, Etsy, or some other eCommerce platform and sell it on your site. You’ll need to set a price that will cover both the dropshipping supplier’s price and marketing costs, and bring you profit.

For example, if a product you choose to sell costs $30 when bought wholesale, you can display it in your store for $75. The wealthy customer will order a product from your site and pay your price. Then, you forward the order to your manufacturer and pay the wholesale price, keeping the rest as profit. Your manufacturer will be in charge of distribution. You can decide if you’ll leave the shipping costs with the customers, or pay them yourself.

Dropshipping Pros and Cons

If you’re asking yourself: “Is dropshipping worth it?” the answer is yes. In 2020, China purchased $99.9 billion-worth of goods and services from the US.

There are lots of reasons why you should choose reverse dropshipping over regular dropshipping. One of the most important reasons is that reverse dropshipping comes with higher margins. A regular dropshipping business works with low-quality products which are cheap for you to buy, but also cheap when sold. Reverse dropshipping sellers work with high-quality products and rich customers willing to pay more than someone ordering pants in bulk from Wish.

Another good reason to choose reverse dropshipping over traditional dropshipping is a less competitive market. If you decide to open a dropshipping service, you will have only a few competitors, as this niche section of eCommerce has yet to fully develop.

However, you need to be more prepared than when entering a regular dropshipping business, meaning that you’ll need to know everything about the trading laws and regulations of the countries you’ll ship from and to. For example, many countries have strict policies on which products can be sold. In some countries, people can buy food and beverages only from domestic suppliers. There are also country-specific rules when it comes to selling medication. If you consider starting a business with food, drugs, or alcoholic drinks, reverse dropshipping is not the kind of business model that will be good for you.

Bottom Line

In our opinion, reverse dropshipping is a good option for business owners ready to find the right buyer for high-end products and find dropshipping sources that are allowed to operate in Asian countries. Especially now, while the market is still very far from saturated, getting into reverse dropshipping may just be the best move an aspiring eCommerce businessperson can make.

FAQ
What is reverse dropshipping?

Reverse dropshipping is a business model similar to traditional dropshipping, except that a seller sells high-quality products from Western countries to wealthy people from countries which usually house mass-production plants.

Is reverse dropshipping real?

Yes, reverse dropshipping is real. You can create your own dropshipping platform with a list of products you want to sell. The prices should cover your supply costs and marketing expenses, as well as offer a decent margin.

Is dropshipping illegal?

No, dropshipping is a legal business. When it comes to reverse dropshipping, it’s also legal, but since it’s dealing with much more expensive products, the laws keep a tighter grip on it. All sales need to be in accordance with the regulations of the country where you are planning to do business. You can read our “What is reverse dropshipping?” article to find more about this dropshipping business model.

About the author

Danica’s greatest passion is writing. From small businesses, tech, and digital marketing, to academic folklore analysis, movie reviews, and anthropology — she’s done it all. A literature major with a passion for business, software, and fun new gadgets, she has turned her writing craft into a profitable blogging business. When she’s not writing for SmallBizGenius, Danica enjoys hiking, trying to perfect her burger-making skills, and dreaming about vacations in Greece.

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By Vladana Donevski · February 02,2022
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Since it is predictable, you can also automate many remaining tasks, for example, by using order fulfillment software. It is not something you can do as quickly with the drop surfing model. All you have to do is provide exceptional support, handle an occasional return or two, and work on updates to improve the customer experience.  Cons of Dropshipping As mentioned before, the major downside of dropshipping model is that a major portion of your business is out of your control - the product itself. You cannot control its quality, how it will be shipped, and many other significant aspects of the dropshipping business itself. You should test each provider, but you’ll have to compromise on some aspects. Still, once you manage to score a good supplier, you’re set. Compared to the drop surfing method, the most significant con of dropshipping is the slim profit margin. After all, since it is effortless and cheap to get started, you’ll be facing a lot of competition. They will be offering the same products for next to nothing in an attempt to attract customers. While you can provide your customers with the best shopping experience, nothing stops them from comparing your prices to those on other sites.  You should expect to lose a significant portion of your budget-savvy customers to these sites.  Pros of Drop Surfing The primary positive side to drop surfing is the opportunity to change your profit margins per product by outsourcing the order to a different supplier to get the best price for each product. You are also not tied up to a particular set of products. Instead, you can and should change them as often as possible to get more sales and increase your profits.  It makes for a much more hands-on experience and gives you a faster turnover pace, making it better than dropshipping for some people. “Riding the wave” will undoubtedly skyrocket your sales, especially if you have a knack for marketing. If you have enough customers and market knowledge, you can even become the one setting the trends.  Cons of Drop Surfing First off, drop surfing is a time-consuming effort, and you can’t really do it part-time. It requires constant research and always being on the hunt for cheaper and better products. Also, some aspects of this type of business are a bit difficult to automate. Also, the field of research constantly changes. If you want to maximize your profits, you’ll have to dedicate enough time to your drop surfing eCommerce business. This means dedicating enough time to compare suppliers’ prices for each product manually, as that’s the only way to ensure you’ll have the highest profit margins. Keep in mind -  suppliers tend to change their prices often, so you’ll have to do this repeatedly to achieve optimal results. As your business scales, this will require a much more substantial time investment.  It is also a considerable gamble as you’re not creating long-term relationships with either suppliers or customers. Since your offer constantly changes, you might have to start multiple drop surfing eCommerce websites to accommodate the new trends outside your niche.  Furthermore, once you start changing your selection to accommodate the newest trends, you’ll have to spend a considerable amount of time managing those changes and getting the best deals from your suppliers. It won’t leave you with much time to focus on your marketing efforts, so attracting new customers might prove to be a challenge. Which Method is Better? Since drop surfing is essentially a sub-class of dropshipping, it’s impossible to separate the two business models from each other. When setting up your dropshipping store and adding new products, you are effectively drop surfing. On the other hand, every drop surfing business follows the same order fulfillment model as dropshipping. Both require an eCommerce platform or website to operate. So, there is not exactly a lot of difference between the two to make one intrinsically better than the other. The main difference lies in how much time you have available for your business. You can do drop shipping part-time, but full-on drop surfing requires your complete dedication, especially as your business grows. With standard dropshipping, you can make a decent selection within a chosen niche. You can expect to eventually cultivate a loyal customer base that looks to you for the product(s) they need. You also have plenty of time for focusing on marketing efforts and further improving your customer experience by implementing credit card or crypto payments, for example.  Of course, you can always employ drop surfing software or hire someone to help you out with these parts of your business so that you can focus on finding the best deals or improving your customer support. It all comes down to profit margins - if your business grows enough, you can either expand your dropshipping model with people hired to do drop surfing for you or, alternatively, do that part yourself and leave customer support to someone else.  Which Business Model Should You Choose? When deciding which of these two business models is better for you, think about the following questions: How much time do I have to invest in this? How much do I want to earn?   In this situation, one answer heavily influences the other. If you have enough time and are comfortable doing a lot of research and constantly hunting for a better deal, then one of the two drop surfing models is the perfect choice for you. The ultimate model would undoubtedly be a combination of dropshipping and drop surfing. A careful selection of products and suppliers is a must. However, if you could get a better deal with another reputable provider, there’s no reason why you shouldn’t take it. The same goes for finding new products and niches. You should always watch for trending products that could work with your website and the current selection you have on it.  On the other hand, if you are getting into dropshipping as a part-time gig, then a more traditional dropshipping model will work better. After all, once everything is set up and done, you don’t have to spend too much time on stuff like finding new products to rotate on the site. If you have an excellent selection of products that bring decent revenue, you should have more than enough time to focus on scaling.    Whichever method you choose, keep in mind - a happy customer is a returning customer, and you need as many of those as possible to earn a living. Compromising your product quality, not answering inquires from worried customers, or providing poor-quality products for the sake of increasing your margins is never a good idea.
By Vladana Donevski · March 01,2022

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