Dropshipping is a form of eCommerce, where you do not need to support a physical store or warehouse. You are an intermediary between your clients and third-party suppliers, for example, vendors from AliExpress and eBay. The basics of dropshipping are not complicated: you provide your clients a convenient interface to order goods, transfer their orders to a vendor and then they get their orders shipped. (Read more about the basics here) This means, that your main efforts go to developing and promoting your website, finding a good niche, and selecting the items that will bring your profit.
This all makes dropshipping a good way to develop your business with a minimum initial investment. Even if you are a newcomer in the area of eCommerce, this approach will suit you, as there are several ready-made solutions, that make creating your first store fast and simple. To manage your business most efficiently, you need to know the basic terms and their meanings. This dictionary below will help you to navigate the world of dropshipping and to get the knowledge you need to start your business. You may read it through or jump right to one of the sections.
For your convenience, all concepts are described in several sections, each dedicated to a certain topic.
Acronyms and abbreviations
First, here are certain abbreviations you need to know.
AIDA is an effective marketing model. It is a combination of four words – Attention, Interest, Desire, and Action. These comprise the stages of the interaction with a customer, from getting their attention and informing them about your offer to call them to action, e. g. to buying something at your store.
API is short for Application Programming Interface. It is programming code that allows communication between different systems. For example, you use it to exchange data with AliExpress or to integrate certain plugins to run your website.
B2B and B2C are two main forms of selling products. In B2B you interact with other companies, and in B2C – with individuals.
BIN, or Buy It Now is a term, related to eBay purchases. While the common way to buy something from eBay is an auction, some items are sold on BIN conditions, which means the item can be purchased instantly, without a bidding process.
CPL is a term from marketing. It means cost per lead, i. e. how much does each lead cost to you in terms of advertising expenses.
EIN number is an attribute of any business operating in the USA. It is also known as Federal Tax Identification Number and is unique for each company. A business needs it to legally operate in the US.
MAP is Minimum Advertised Price. This is the lowest reasonable price to advertise your offer at. It represents the balance between your profit and customers’ desire for cheaper products.
MOQ, or minimum order quantity, is a minimum order size that the supplier will accept. It can be defined as the number of items or as the minimum sum of purchases.
MSRP or Manufacturer suggested retail price, is a price that the manufacturer recommends using when selling their products.
ROI, or return on investment, is a measurement of how efficient the business is. It describes, how much is earned for your investment.
S/H, or Shipping and Handling, are part of the expenses that are related to the cost of the shipping. It is how much money has to be spent for the item to be transported to the customer.
SAAS means Software as a service. Unlike the apps or plugins that allow you to buy a one-time license, these services always require a subscription. For example, if your store runs on Shopify, it will require periodic payments. But if you decide to use the Ali2Woo plugin, you will pay only once.
SEO is short for Search Engine Optimization. It means filling your website with the content that was created with current search engines’ algorithms in mind, so it will be easier for users to find your website. You can learn about the basics of SEO here.
TM, or a Trademark, is a sign, that identifies that the product or service is manufactured, produced or supplied by a particular company or an individual.
UPC or a Universal Product Code is a barcode that is used in the US and Canada to track and identify items of various kinds, most often books, magazines, and CDs.
UPS is a name of a leading US service that handles parcel delivery.
USP, or Unique Selling Proposition, is the defining concept for your store or product. USP differentiates you from your competitors and describes your advantages against them.
USPS is a government-run postal service in the US. You need to know what postal services provide their service in the countries where your store works to provide appropriate service to your customers.
VAT is a tax charged in UK and Europe on various goods and services.
Stores and Platforms
Amazon is one of the largest eCommerce stores in the world. While it has its affiliate program, it is very complicated to use it for dropshipping, because of its current terms and conditions of service and their restrictive rules. You can read more about it in this article. Thus, we recommend turning to eBay or AliExpress.
Brick and Mortar is a term to describe physical shops as opposed to online ones. In dropshipping, you do not need to have a physical shop for your store to operate.
Craigslist is a website for personal ads, for example, from people selling something. It is very popular in the US, but also has local versions for many other countries.
eBay is a marketplace where individual sellers and small businesses from all over the world can sell their items. There are different options, including auctions and BIN selling.
Etsy is an online marketplace, where individuals can buy and sell handmade items. Most sellers there have some items in stock, but also fulfill individual orders.
Silkfair is a marketplace that is similar to eBay but is specializing in handmade items made by personal orders.
Types of items one can sell
Authentic goods are original goods that a produced by a brand owner and sold by an authorized distributor. The alternative to it can be an imitation or a counterfeit item, that looks close to the original but has nothing to do with it and is usually way cheaper.
Counterfeit items are also called fake or knockoffs. They are illegal copies, the producers of which try to pass them as the original. The opposite of the counterfeit is original or authentic.
Designer Inspired Items are created to look like products for famous brands. But unlike counterfeit products, their manufacturers do not try to fool customers and say that their items are originals.
Refurbished items are second-hand items that sustained some damage but were restored. Refurbished gadgets or electronics should have a certificate proving that they are in working condition. Such items are significantly cheaper than new ones.
Replicas are items that are close copies of original ones. Good replicas are difficult to distinguish from authentic items.
Salvage are items that were damaged in some way and are sold for a very low price. Unlike refurbished items, these are not in working condition and are not accompanied by any guarantees.
Sales, Shipping, and Finances
Auction is a method of selling goods when all customers offer bids. The person who has offered the highest bid within the given timeframe pays it and gets the item. Auctions are a common way to sell things on eBay.
Authorized distributors are suppliers who were granted the legal rule to distribute the products of a brand owner.
Backorders are orders that are delayed because the supplier has run out of stock for the desired item. This means, that the customer who made the order has to wait until resupply. The store owner should watch the stock closely to stay in control and avoid such situations, which can be the reason for clients’ complaints.
Blind dropshipping is a type of dropshipping, when the supplier ships the goods directly to the buyer, but there is a retailer’s (i.e. a drop shipper’s) name on the label.
Closeout is a sale that is conducted to get rid of the stock of a particular item or the whole inventory. For example, if one wants to get rid of old goods at the start of the new season or plans to close their business or change their niche entirely, they can sell the old goods with a significant discount, to get rid of them quickly.
Consignment is a term, that describes a party of goods as a whole. If several different items are delivered to one receiver within one order, they are one consignment.
Custom brokers are professionals who help to manage international shipping because governments of various countries can set various norms for sending goods over the border. Sometimes you need a consultation with the broker to avoid additional fees or fines.
Customer returns is a term to describe items that were returned to the store by a customer. There could be various reasons for return – for example, the item does not meet the customer’s expectations, come broken, or is faulty. Sometimes people just change their minds after purchase, and you as a store owner should know how to deal with such situations.
Deadstock is items that you cannot sell. For example, if you have something that is off-season, got out of fashion, or is not in demand for some other reason, it is deadstock.
Distribution rights are the rights to sell the product. The seller can get distribution rights from the manufacturer.
Escrow is a service that is provided by a trusted third party to protect both customer and seller. The money spent by a customer goes to a said third party, and the customer gets them when they fulfill the order.
Expedite shipping is a process of priority shipping. It costs more but allows one to deliver the order much faster.
Freight Forwarder is a company that works as an intermediary in the process of delivering goods. It guarantees delivery within the arranged timeframe and the undamaged condition of the goods.
Fulfillment is finishing the process of delivering the order to a customer.
Gross profit is the profit of the business after you subtract all basic expenses, such as ion production or marketing.
Light bulk means that the wholesaler is ready to work with small orders, which is suitable for small businesses like your dropshipping store.
Liquidation is the process of converting various assets into cash. For example, if you conduct a closeout sale to get rid of all the inventory, it can be called liquidation.
A listing fee is a fee charged by a website from sellers who want to put their goods on sale.
Manifest is an item-by-item list of all the contents of the package that is used while handling the transportation, for example, at customs.
Manufacturer is the company who produces the goods that a wholesaler or a retailer sells and then you (a dropshipping store owner) deliver to the client.
Middleman, or an intermediary, is someone who buys some product in big quantities from the wholesaler and then sells them to the individual purchasers.
Multi-Channel Retailing means, that the retailer works with multiple channels of attracting customers at the same time, so the total conversion rates will get higher.
Opt-in is permission given by a customer to a store so that the store can send various communications to them. It can be information about new discounts or new products. In most countries, it is illegal to send advertising communications without opt-in permission.
Order Fulfillment is the process of delivering goods to a customer viewed from the store’s point of view.
Payment gateway is a service you need to use to provide your customers with an opportunity to purchase something at your store. The payment gateway accepts their payment card data and other necessary information and sends it to the bank. There are several services of such kind on the market, so you need to choose one of them.
PayPal is one of the most widely used payment systems. Many online stores accept it because it makes your store available to customers from more than 30 countries.
Residual income is the income received by the business after the completion of the income-producing activity.
Restocking fee is a fee that a customer has to pay if they want to return some items to the store. Usually, this covers shipment or some other expenses.
Return on sales is a way to measure the efficiency of the business. It describes, how much profit each sale brings.
Wholesaler is a business that buys goods in bulk, usually from a manufacturer, and then sells them in smaller batches to retailers.
Wire transfer is a way to transfer money without using cash. The money goes “by wire” from one bank to another.
Marketing
A/B testing is a way to compare two versions of advertising, a newsletter, a product description, or similar content. You show different versions to different customers and then compare, which of them brings more sales.
Abandoned Cart is the name for the situation when a visitor to your website has added some items to their card but then hasn’t completed the order and left the site. For this case, you need to have some measures to recover the cart, for example, send reminders to the customer.
Affiliate Marketing is a marketing method that is based on getting benefits from promoting the product. For example, the influencer, such as an Instagram blogger with lots of subscribers, promotes the product to their audience, getting some percentages from each sale or some fixed reward.
Bounce rate is the percentage of people who visited your site but left it without any interaction.
Compare at Price is a method to attract customers’ attention and show them the “old” and the “new” (discounted) price. This makes them more willing to buy the goods, as they think they are sparing money,
Conversion is a percent of all the visitors to your website who eventually make a purchase.
Cross-selling is offering customers more goods based on what they already have bought. Offer drawing accessories to someone who buys books with drawing tutorials or related tools and accessories to someone buying a bike, to increase your profits.
Domain name is the address of your website, which is used to visit it. You need a well-sounding and catchy domain name, that will stand out, so customers will remember your store address and easily find it even if they lose the link. You also have to make a website convenient for your users.
Feedback is comments and reviews from customers. Pay attention to positive or negative feedback to develop your store in the right direction.
Filtering is a way to choose from different options while browsing a catalog of a marketplace. The customers want to have different options for filtering, most important, by delivery type and price.
Keywords are the words that represent the most important concepts of your content. They are used for Search Engine Optimization, making it easier for your potential customers to find your website.
Niche is a small segment of the market that is attractive to a particular audience. You need to find a profitable niche for your dropshipping store to thrive.
Open rate is a percentage of people who opened the letters you send to them, for example, reminders about an abandoned cart, notifications about order status, or newsletters about new offers.
Pop-up is a small window that appears on a web page while the user is browsing it. Pop-ups can be used to remind customers about your special offers, encourage users to register or subscribe or offer them a discount code. It is important to make pop-ups not annoying, or they will cause negative reactions.
Price margin is the difference between the initial price (the price at which the retailer buys the product from the supplier) and the price for the end customer. The price margin depends, on how high the profit of the retailed will be. But if the price margin is set too high, it can scare potential customers away.
Target marketing is a marketing strategy aimed at a particular segment of the audience. If you understand their needs and preferences, this makes your marketing more efficient.
Upselling is a marketing strategy when you offer the customer a product related to the one they have chosen.
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