Are you wondering what’s with all the hype about dropshipping? Trying to learn more about what is dropshipping and whether it’s worth starting a dropshipping business? If yes, you’re in the right place.
In this article, I’ll take an objective look at the current state of dropshipping, along with its positive and negative aspects that you should be aware of.
What is Dropshipping?
Dropshipping is an approach that allows a business to sell products with no need of keeping inventory and without even purchasing the product they intend to sell.
On the contrary, the order is fulfilled through another party, who delivers it straight to the buyer. The other party in question can be a seller, distributor or even a producer.
For example, let’s say you are working with a supplier who is selling a product for $40 per piece. You build an online store to sell the same product under your own brand at $50 per piece.
When you get an order on your website, you’ll get $50. Then you’ll place the order with the supplier at $40, keeping $10 as your profit margin. The supplier will then handle the delivery and everything else about the order.
The dropshipping business model sheds the worries and expenses of handling stock, order management and logistics of products that may or may not sell.
In other words, you could say that dropshipping is you handling the selling aspect of a business, not the whole business. Your main job is just to get lots of orders.
So as a dropshipper, the most important thing on your plate is to plan and execute a brilliant customer-acquisition strategy to entice sufficient buyers.
Should You Dropship?
Now you already know what dropshipping is, and I already wrote about some of the benefits of a dropshipping business above. So you might be thinking, is dropshipping worth it?
On the outside, Dropshipping seems like it doesn’t require much intervention and promises countless perks.
However, know that it is way more tricky than you might think and is constantly getting difficult with every passing hour.
With dropshipping, you have no control over manufacturing, delivery times or customer service. You’re just the seller but it’s your brand name on the line if something goes wrong.
Other than that, e-commerce giants Amazon have been unsettling many dropshippers. The assurance of a lightning fast delivery, availability of independent delivery vans, and regular innovations are tossing its competition out of the race.
Sure, Dropshipping has been working great for some businesses who put in the right effort and managed to get into the right niches. But like everything, it too isn’t free from glitches. So, let’s get to more details on its pros and cons.
Benefits of Dropshipping
Some of the advantages are obvious from the definition of dropshipping. A dropshipping business doesn’t demand huge capital or expenditure to initiate and its operational costs too aren’t a worry. Let’s take a look in detail.
Easy To Set Up
You can start selling with just a website and hosting. There are numerous platforms that can aid your endeavours of selling your goods. You can make use of software like WooCommerce or Shopify to build your own online shop.
Even its maintenance doesn’t cost you a fortune. This allows you to retain the overhead charges to the lowest.
On the other hand, in a bricks and cement retailing outlet, you’ll have to rent a site, purchase an accompanying insurance, hire workers, security guards, cleaners, maintain a stock list, put in place a point of purchase structure, among others.
Traditional sellers ought to expend thousands consistently, whereas a dropshipping enterprise can easily operate on less than $50 per month.
No Risk Of Inventory
Dropshipping is a relatively safe business. Maintaining a stock list can be counted among the chief hazards of traditional business.
Retailers often tend to write-down and write-off the commodities that don’t see enough buyers because of various issues like erroneous sales forecasts, poor promotion, logistics mismanagement, damages, alterations in customer demand etc.
Dropshipping model doesn’t require you to maintain a stock-list so the hazards of stocktaking lie with the distributor. Dropshipping, therefore, is the perfect fit for an individual reluctant to take risks and who knows how to sell.
In addition, being liberated from stock hazards allows the vendors more freedom to invest in other departments, such as employing an advertising firm to run a quirky ad campaign/drive.
Since dropshippers needn’t care about maintaining an inventory, this allows them the freedom to vary the products they sell at will.
In comparison, conventional traders ought to retain even the loss-inducing goods and somehow clear the stock. Sticking to such poor performing goods on the stock list negatively impacts the performance of your other products.
Several Product Sourcing Options
The number of goods you can choose from to sell are in millions. For example, mainstream dropshipping supplier websites like Wholesale2b, Oberlo and AliExpress, host more than 25 genres of products along with over 100 accompanying subsets of the same.
Each subset further comprises products alternating in brands, prices, sizes, models, colors, ratings etc. There will forever be items to be sold irrespective of the niche you cater to.
Suppliers are in the count of millions. Dropshippers enjoy infallible availability of a host of suppliers. Major supplier platforms have their product pages, company profiles accompanied by the feedback ratings of their goods.
These particulars aid the task of locating and purchasing products from credible traders. It’s also common practice among vendors to procure goods from China, however distributors can be found anywhere and everywhere around the globe.
Imagine you’ve put up in Canada. You can always look to the vendors in your vicinity to deliver your products to your shopper.
No Need To Purchase In Bulk
When running a dropshipping business, there is no need for you to order products in bulk, nor do the suppliers have any such conditions. Distributors, more often than not allow dropshippers to purchase a single unit/component to accomplish a consumer’s order.
Growing Market Demand
E-commerce is still largely untapped. Online sales contribute just a portion of retail trade internationally.
E-business is relatively comfortable, smooth and increasing at a brisk pace globally, because it’s far more convenient to browse a website than go shopping in a real market.
Risks Of Dropshipping
With all the upsides I just went over, it’s easy to think of dropshipping as a piece of cake. But as you may have realized, when things are too good to be true, they probably aren’t.
Despite the enormous possibilities on offer, and over millions of e-businesses in existence, only a few can be deemed as forces to reckon with.
For instance, Amazon has an overwhelming presence in the space. Many of its rivals including Best Buy, eBay and Walmart are left wandering in the single digits. Not to forget, there are countless traditional traders in the equation as well.
You may adopt any business model, still, the first and firstmost issue any newcomer needs to take on is customer acquisition — differentiate yourself from competition, bring in customers and win their trust.
Being a dropshipper, value addition is difficult. A great deal of customers from countries like Russia and Brazil, prefer to purchase straight from AliExpress.
Furthermore, they may tend to acquire goods from merchants like Costco, or some other in their own region, considering they offer cheaper rates.
Dropshippers thereby offer value addition by developing a convenient site for users, employ attractive designs to add aesthetics to it, offer several transaction methods and ensure no hassle returns to consumers.
Dropshipping business owners ought to remain one step ahead of their contemporaries to draw and keep hold of consumers.
Cost of Marketing
Practically, paid endorsement is nearly a necessity. With the exception of an exclusive product or catering to a relatively limited clientele, you probably will have to expend thousands every month to bring in sufficient visitors.
Search result placements are getting expensive, while organic reach on Facebook is nothing to write home about. For this reason, there is now a compulsion to spend on ads or you’re risking a collapse for your enterprise.
According to ProfitWell, overall customer acquisition costs (CAC) have been steadily rising for B2B and B2C companies. Over the last five years, overall CAC has risen almost 50%.
Less Control Over Your Brand
Establishing an eminent brand is no mean feat. Developing a name for your business is indeed an arduous task.
When a merchant/dealer manages their own logistics, and has an order handling routine in place, they tend to enjoy a greater command over their business covering everything from production to order supply.
Since they control more of the customer experience, they have more control over how the customer would think about their brand.
Dropshippers may not have that luxury. Even returning a purchased item is actually tricky for dropshippers. It isn’t as convenient as Amazon, where consumers simply have to repackage their purchased items and dispatch it back to the seller.
Lately, a great deal of online vendors have adopted Amazon’s technique to make it easier for themselves. However, returning dropshipped items to a third-party can turn out to be a worry, in particular for the businesses who run their operations abroad or in a different language.
Tip: Examine and compare the return policies offered by online shops in your niche. In addition, pay precedence to ensuring a favourable experience to your consumer. Then proceed to contemplate ways to simplify the process of returning a product.
Less Room For Profit
Another risk of a dropshipping business is that dropshippers have to shell out more money out of their pocket for each unit relatively to vendors who generally tend to acquire large volumes.
This leaves the dropshippers with little room for profits but maintain a competitive rate. Due to the fact that dropshippers acquire goods one at a time, they encounter vulnerabilities in the form of surge in cost and inconsistent pricing.
Longer Delivery Times
Most suppliers are not in a position to deliver the orders placed in just a couple of days, like Amazon is able to do. Lengthy delivery times can lead to purchasers losing interest right away.
Dropshippers need a time frame of weeks or sometimes even months to deliver products depending upon whether the order is local or international.
Such delivery times won’t be of any help in today’s times, especially when the consumers demand delivery on the same day itself.
If a product takes too long to get delivered, the customer begins looking at other options, even if it requires them to pay an extra amount to get their products delivered sooner.
To mitigate this issue, you can retain a few of your top selling goods in your stock at all times to speed up local deliveries at least.
Dependence On Suppliers
Suppliers can be unreliable at times. For example, product images provided by vendors can be misleading. Vendors aren’t photography experts, and most of them provide pictures just to fulfill their compulsions.
In consequence, you may have to take pictures on your own. That adds to the task list, which will then include ordering the goods, taking their photos and at times some image editing as well.
The point is that dropshippers have to rely on others. The dropshipping business model asks you to show faith and trust in people, whom in all likelihood you haven’t known or met in person.
Even though vendors are just as keen to earn money, that doesn’t necessitate that you can trust them with closed eyes. Merely, one or two poor performing vendors who fail to synchronize with your demands are enough to hurt your business. .
Learn how to work with suppliers. Scrutinize your list of vendors and consider consumer feedback to be sure that you associate with dependable individuals. Plus, run reviews on the inside to see if your vendors are delivering on your goals.
No Control Over Operations
Dropshippers have no control over how raw material is procured, products are made or delivered. So they don’t have room for being able to improve anything and lower their costs.
You just can’t better those processes to reduce manufacturing expenses. Whether or not your suppliers are cost-effective and competent, you’ll have to purchase goods at their original prices.
In contrast, an importer or manufacturer can look for methods to enhance the process, cut down costs and administer efficiency.
Tip: There is no way you can interfere with the vendor pricing, unless you purchase the goods in batches or large volumes. Nevertheless, be aware of the drop in costs or rebates on offer by other vendors.
Political & Economic Volatility
Trade wars/disputes disturb the course of a business. Thus, severely impacting the functioning, sales and earnings. Dropshipping desires political and economic harmony around the globe.
Vendors can’t operate under such threats. For instance, Donald Trump’s hostility with China and the rest of the world had an adverse influence on several businesses globally.
Introduction of fresh tariffs and the surge in costs had damaged business routine between American and Chinese enterprises worth billions dollars.
Tip: Stay updated with news and affairs concerning your trade to act accordingly and evade such disturbances.
My intention in this overview is not to discourage you from starting a dropshipping business. But you should know exactly what dropshipping is and what you’re getting into.
All the hype around this topic may have led you to believe that it is some get-quick-rich scheme, but the reality is quite the opposite. And your store is as much likely to fail if you’re not careful.
When done correctly, dropshipping can be profitable. As I mentioned, the two factors that are the most crucial for success include picking the right products to sell, and knowing your way around digital marketing.
Are you planning to start dropshipping? How will you go about it? I’d love to hear your thoughts. Feel free to share your views in the comments section below.