Anders Karlsson's Valuable Insights on Dropshipping

One of the choices that new e-commerce entrepreneurs face is whether to go for dropshipping or not. Dropshipping is the solution where your suppliers ship directly to your customers, and it can be a bit tricky to get right. We have an interview with Anders ‘AndersIvar’ Karlsson, one of Sweden’s strongest advocates for dropshipping.

Dropshipping can be both easier and harder than it sounds. One of the reasons is that you actually have to convince a manufacturer or wholesaler to ship their products to multiple addresses instead of sending them to you. One of the strongest advocates for dropshipping is Anders Karlsson, who has built Barahandtag entirely based on dropshipping. Barahandtag initially, as the name suggests, only sold handles but now offers a wider range of products. Anders Karlsson also serves as the CEO of Tonerlagret in his day-to-day work.

You like dropshipping, why is that?

“I think it’s a smooth way for us at Barahandtag to focus on what we’re actually good at, while leaving things we’re less skilled at to others. We also avoid warehouse costs and the risks associated with holding our own inventory, such as obsolescence and similar issues. Just like we outsource our accounting, which we’re not the best at, we leave stock handling, packing, and logistics to those who are better at it. This way, we get more time to focus on what we actually do well, such as customer service, SEO, SEM, and selling, while keeping the risks associated with having inventory at bay.

Another advantage is that we don’t need to chase inventory or monitor it as much as those who have their own stock and product responsibility. Our supplier is one of Sweden’s largest for handles and knobs and supplies large kitchen manufacturers, which means input from them comes much quicker than we could ever manage ourselves.”

What is your best advice for someone wanting to get started?

“I think I’ve mentioned this before, but it’s worth repeating: a good dropshipping supplier will never just fall into your lap, so if you want to find something you’re interested in, reach out to the suppliers yourself. Pitch your idea and make sure they understand that you know your stuff when it comes to e-commerce, for example. If you’ve had a successful project before, that’s a feather in your cap and can make things easier.

Also, make sure you have an agreement in place for things that might come up, such as how returns will be handled, whether the supplier understands the importance of fast deliveries, how to track the items being shipped, and so on. For us, our order forms are also packed by the supplier, and we have custom-designed boxes with our logo, so it feels more like Barahandtag and less like the supplier’s, which is exactly what we want to achieve.”

Isn’t there a lot of administration involved, how do you handle it?

“We have relatively little administration. We get tracking numbers for all the packages shipped every day, and we have a template for this that we send to our customers. We use Klarna for all payments, so there’s minimal administration there as well. Then, we receive a monthly invoice from the supplier with everything itemized, so I think it’s really efficient.”

How do you find suppliers that are willing to dropship?

“First, decide what you’re going to sell, then look for a few suppliers that fit the product category. After that, it’s a lot of chasing—contact them, meet them in person, and make sure they understand the benefit of working with you as an online store selling their products. There are many companies today that are great at finding products, importing them, and managing inventory, and they may even have their own online store, but not everyone knows how to run the store profitably. And that’s where you, as a skilled e-commerce retailer, can make a difference. If you can sell far more products than they can, there’s room for both of you to make money, and that’s where you can build a sustainable collaboration.”

Do you think it works in all segments?

“No, I don’t think so. Or, yes, technically, I can’t think of a segment where it wouldn’t work, but profitability-wise, there are probably some segments where it’s difficult to make it work. There are many low-margin segments today where there isn’t room for another player to cut in, and it can be tough to make something that works for both parties. Because you shouldn’t forget that it needs to be profitable for both, not just for you or the supplier.”

How do you handle shipping and returns? Do you print shipping labels, or does the supplier do it?

“Our supplier handles printing the shipping labels, and we have an agreed standard price per package, regardless of size. We did this so it’s simple, and it creates a balance that makes things fairly fair in the end. Since our supplier also delivers to most large kitchen manufacturers, their traffic volume is much larger than ours, so they get relatively good shipping rates. As for returns, they come back to us, not the supplier. That means we hold a smaller inventory that we always use first, and if something isn’t in our stock, it goes to our supplier. Overall, about 5% of returns come from our own stock, and the rest ships directly from the supplier. If items stay too long in our inventory, we send them back to the supplier twice a year.”

Would you recommend other e-commerce businesses to look into dropshipping?

“Absolutely! But it also depends on how you want to work, of course. There are drawbacks to dropshipping too. You don’t have control over the entire process after you send the order to the supplier, and even though we have a very close partnership, it’s still another company, so if something goes wrong along the way, you can’t always fix it yourself—you’ll need to involve your supplier.

Also, if you like working physically, picking items, and are good at logistics, there might be a reason to handle that part yourself. For us, we’re not experts at logistics, but we’re good at making sure customers have a great experience, providing high service levels, marketing our store, and optimizing it in various ways, so we’ve chosen to focus on what we actually do well.”

What is dropshipping?

Dropshipping is a business model in e-commerce where the retailer does not hold the products they sell in stock. Instead, the retailer purchases the item from a third party, usually a wholesaler or manufacturer, who then ships the product directly to the customer. This eliminates the need for inventory management and reduces initial investment costs.

How does dropshipping work?

The process begins when a customer places an order in your online store. Once the order is received, you forward the order information to your supplier. The supplier picks, packs, and ships the product directly to the customer. You make money by earning the difference between the price the customer pays and the price you pay to the supplier.

Advantages of dropshipping:

• Low startup costs: No investment in inventory is needed, reducing financial barriers to starting an online store.
• Easy to get started: You can quickly launch your store without having to manage physical inventory.
• Flexibility: You can offer a wide range of products without needing to purchase them in advance.
• Scalability: Managing increased sales volume becomes easier as the supplier handles the logistics.

Disadvantages of dropshipping:

• Lower profit margins: Competition can push prices down, reducing your margins.
• No control over inventory: It’s hard to keep track of stock levels with the supplier, which may lead to backorders.
• Customer service challenges: Issues with deliveries or products can be difficult to resolve because you don’t handle them directly.
• Shipping complexity: If you work with multiple suppliers, shipping costs and delivery times can vary.

How to get started with dropshipping:

1. Choose a Niche: Focus on a specific market segment to target the right customer group.
2. Find Reliable Suppliers: Use platforms like AliExpress, Oberlo, or contact manufacturers directly.
3. Build Your Online Store: Use e-commerce platforms like Shopify, WooCommerce, or similar.
4. Market Your Store: Utilize social media, SEO, and paid advertising to drive traffic.
5. Monitor and Optimize: Track sales, customer feedback, and adjust your strategy accordingly.

My reflection

Magnus has tested dropshipping

Dropshipping can be an easy entry point for entrepreneurs who want to start an e-commerce business with minimal initial investment. Despite its advantages, it’s important to be aware of the challenges that come with the model, such as lower margins and less control over the customer experience. It can be easy to fall into the trap of thinking you can scale quickly, but careful consideration is required when it comes to product and supplier selection. Returns and exchanges are also something that need to be clearly defined when you start. If not handled well, you risk more of a fiasco than a big win.