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.
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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.