Your guide to dropshipping with Alibaba
If you’re unfamiliar with the model, dropshipping might come across as an overwhelming process. That’s especially true if you’re unsure where to source your inventory.
In actuality, dropshipping is an excellent method for kicking off a new business or earning extra income on the side.
In this guide, we’ll cover everything your business needs to know about dropshipping, including its benefits and challenges, and offer helpful tips so you can move forward with your growing brand.
We’ll also cover why Alibaba, one of the world’s leading eCommerce platforms, is a top choice for your dropshipping needs.
[Related: How to scale your eCommerce business]
What is Alibaba?
Alibaba is an online marketplace, search engine and banking site that functions globally. The eCommerce platform splits into three sites:
Taobao, a consumer-to-consumer site
Tmall, a business-to-consumer site
Alibaba, the business-to-business (B2B) main site
These sites have millions of users and host millions of online merchants and businesses. It’s especially popular in China, its origin country, where Alibaba dominates approximately 80% of the online shopping market. Although it’s based in China, Alibaba is a global company that communicates in more than 18 languages.
As far as tech giants go, Alibaba squeezes in fourth place — right between Microsoft and Facebook — in terms of market capital. For the fiscal year ending in March 2022, it reported USD134.6 billion in revenue.
Alibaba mainly generates revenue from sales commissions, fulfilment services, advertising fees and other service-based fees. It also operates a cloud computing business, Aliyun, as well as multiple other eCommerce businesses and websites.
The site is so popular because it offers a wide range of products and features that assist with B2B sales. It arranges direct contact with reputable global suppliers that offer products at wholesale prices.
Another main advantage of Alibaba is a big one: Starting your account is free. You don’t have to purchase or pay anything to create or maintain your account as a buyer on its platform.
Alibaba’s ease and convenience make it an easy choice when it comes to choosing a dropshipping platform.
What is dropshipping?
But what exactly is dropshipping? It’s a relatively straightforward business practice and one of the most popular eCommerce revenue generation models.
Dropshipping is an order fulfilment method that has evolved into a favoured business practice. With dropshipping, you run your business and connect with customers via marketing. Then, your hired suppliers ship goods they order from you directly to customers once you process transactions.
There are three basic steps in dropshipping:
A customer purchases items from your online marketplace.
You order and purchase those products at a lower cost from your supplier.
The supplier ships the products directly to the customer.
There’s no need to manage inventory in your own home or storefront or to handle product delivery.
Benefits of dropshipping
Basically, you’re a middleman for your own business via dropshipping. You don’t have to deal with the extra hassle of holding onto and shipping products, and hopefully you’ll earn more profit by marking up products you purchase wholesale from suppliers.
Next, we’ll outline some of the main benefits of dropshipping.
Dropshipping effectively eliminates the startup costs associated with building a business from scratch. It requires very little capital and involves virtually no inventory costs. This means it also comes with a low overhead.
Dropshipping with an eCommerce platform like Alibaba is a flexible and easy way to operate a scalable business. You have the freedom to pick and choose the products you include and the suppliers you work with. And you can even set up automatic operations for when you may be unavailable.
Low barriers to entry
Dropshipping has low barriers to entry. That’s particularly encouraging for new sellers who want to launch online businesses.
It’s easy to set up, especially with the help of Alibaba’s eCommerce platform and some social media help. Sellers can test business ideas and experiment with little risk using dropshipping. You also don’t have to watch over your business every second of the day to put out potential fires.
Great idea for side income
Because of its innate perks (flexibility and lack of hands-on inventory management), dropshipping is an excellent side-income business idea. You can keep your day job or existing career and put in as much effort as you wish to earn extra passive income.
Risks of dropshipping
As with almost every business venture, dropshipping comes with a few factors to be wary of.
If you work with multiple suppliers to ship your products, you might find yourself dealing with complex shipping arrangements.
For example, if one customer purchases multiple products that come from multiple suppliers, you have to cover various shipping fees instead of just one. You might also have to deal with shipping delays and supply chain problems, which could make shipping times differ among multiple purchases.
Lack of control
While one dropshipping advantage is that you don’t need to be involved directly with your inventory, that also means a third party handles most of your business activities. Your control is limited, which may also limit your control of things like quality and customisation.
This is why choosing vetted Alibaba suppliers is crucial to customer retention (and therefore customer lifetime value) and your dropshipping success.
Customer support problems
Lack of control over a third party and less product quality control could also result in customer support issues. With dropshipping, providing excellent customer service support can be difficult if customers have questions about product quality or shipping issues. In turn, this can lead to retention woes.
Because dropshipping with sites like Alibaba is so simple and low-risk, you’ll encounter a lot of competition. In terms of market growth prediction, analysts expect the dropshipping market to hit around USD591.77 billion by 2027.
This popularity means dropshippers might need to work even harder to offer unique products in specialised categories from reliable manufacturers to stand out from the crowd. Alternatively, they may need a truly great marketing strategy to sell their products.
Tips for dropshipping
If you decide to start a dropshipping business, keep in mind the following tips to find success.
Have a good shipping plan
To avoid those previously noted shipping issues, you should focus on minimising problems and maximising user experience.
Understand your logistics and shipping process, how long it takes and how easy communicating with your suppliers will be during the whole purchase experience. That way, you can relay information quickly to customers.
It’s wise to set up a clear policy that can include shipping options based on time frames or product types. You might also find a flat-rate option that works for you. It’s crucial to balance your shipping policy between being profitable to your brand as well as attractive to future customers.
Be a leader
Take initiative concerning your dropshipping business. Even if you aren’t directly involved in handling and shipping products, you don’t have to be an absent manager.
Schedule regular inventory checkups. You might make sure you can source your most popular products from multiple suppliers so that you don’t run out of stock. Define a fulfilment method so that you can plan your orders depending on supplier availability and location.
Stand out from the crowd
Because dropshipping is such a popular and easy eCommerce method, it’s crucial to find ways to stand out.
Here are a few tips:
Devote time to making your listings thorough and unique.
Find your own eCommerce market niche.
Watch for which products are really selling in your store, and then order those products from reliable suppliers in advance.
Use quality digital marketing techniques that include search engine optimisation (SEO), social media and website development to make your store something customers truly seek out.
Treat customers well
All the aforementioned tips can help you retain customers, but it’s also important to go the extra mile.
Send thank you emails, use live chat features or have a support email that encourages customers to communicate and provide feedback.
And it never hurts to cultivate positive customer relationships. When you have a positive online presence, you can boost your business’s reputation.
Why use Alibaba for dropshipping?
If you’re considering dropshipping, Alibaba is the go-to platform to see your brand succeed.
Alibaba is wholesale-focused, meaning it provides endless product options, as well as raw materials and branding customisation options. You can also request quotes for products with a number of specialisations, and that can help narrow your hunt for the right suppliers.
The free marketplace allows you to browse more than 1 million quality dropshipping products in a huge range of categories with no minimum order requirements. This makes it simple for small and medium-sized businesses, especially startups. Product categories include beauty, home and garden, electronics, toys and fashion, among others.
How to use Alibaba for dropshipping
It’s incredibly easy to set up shop on Alibaba and get your business off the ground quickly. In fact, it takes only a few steps to get started.
Create your account and connect your shop
First, create a free buyer account on the website and connect it with your existing store. Then, enter your eCommerce store’s URL from Shopify or elsewhere to synchronise.
Find and import products
In the dropshipping centre, browse the wide range of categories and products. Once you’ve found products suitable for your store, select “Add to Import List” to create an inventory import list.
You can also customise the products here. Review your import list, and select the products you’d like by clicking “Push to Store.”
Finally, import in bulk, and start selling from your store!
Fulfil orders automatically and track shipments
Once you start receiving orders, pay your supplier. The supplier will ship your products to customers. You can track shipments through Alibaba’s simple synchronisation tools.
How to find reliable suppliers on Alibaba
As we noted earlier, Alibaba divides suppliers into two categories: Gold Suppliers and Verified Sellers. This is based on Alibaba’s verification process and respective certifications.
Gold Suppliers are Alibaba premium members that have paid a fee and passed a verification check confirming they have commercial or industrial capabilities.
Verified Sellers are Gold Suppliers, and a third party has inspected, certified and assessed their products.
Do your research
Check for these badges on sellers’ pages, and see whether they offer Trade Assurance.
In sum, Trade Assurance is Alibaba’s built-in payment protection and order safeguard for those who pay through the website’s payment portal using credit or debit card, wire transfer, Apple Pay or PayPal.
Additionally, you can ask suppliers to provide their business licence, compliance certifications or other official documentation, including photos of their warehouses. You can also verify their business address online and check customer reviews to make sure they’re legitimate — and for further peace of mind.
How to pay Alibaba suppliers
Paying suppliers on Alibaba is simple, and you have a variety of payment options to choose from.
Using a bank transfer, the supplier receives the full payment before production starts. This is a high-risk option, and we don’t recommend using it when dealing with an unknown supplier. If something goes wrong, you might be unable to receive a refund for missing payment.
A Western Union payment is another risky payment method that we don’t particularly recommend when paying suppliers. That’s especially true if escrow doesn’t protect the payment. You should typically use Western Union only when dealing with people you know personally because you have no recourse if something goes awry.
Another payment option is using escrow services. Escrow services involve a third party that holds the buyer’s money until the buyer confirms satisfactory delivery of the order. This is a fairly low-risk option because it protects both the buyer and supplier.
Airwallex Global Business Account
If you’re looking for a secure, efficient and low-cost method to pay your Alibaba suppliers, and collect multi-currency payments from customers, your best bet is Airwallex.
Lightning-fast payments no matter where you or your suppliers are located
A multi-currency account which allows you to accept payments in multiple currencies without converting to your home currency, saving on FX
Access to the interbank FX rate, with just a small, transparent margin on top no matter the size of your payments — our rates are considerably cheaper than the big banks
Absolutely no monthly fees — set up your account for free today!
Watch your eCommerce business succeed with Airwallex
Starting your dropshipping business should be a simple and effective way to grow your brand globally. Why complicate it with complex payment methods that provide little to no support if you run into challenges?
Create an Airwallex Global Business Account to handle international payments and streamline your finances without unnecessary fees.
If you’re ready to watch your eCommerce business soar, sign up for free today.
How accounting firms can ride the 'outsourced CFO' wave
Q&A with Airwallex’s new Australia and New Zealand GM