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7 Reasons To Rethink Dropshipping

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I’ve long seen dropshipping touted as the pinnacle of self-employment. Blogs everywhere advertise dropshipping courses with photos of business men and women hanging out on beaches with their laptops, happily clicking away as the dollars roll in.

“You’ll be able to work from wherever, whenever!” they say. “It’s easy to make money with dropshipping, and there’s little risk involved!”

Well, I’ve got a few things to say to that.

First, I want to dispel the idea that everyone who works from home does so in a fabulous location while looking gorgeous. I’m a telecommuter myself, and I’m currently sitting at an ugly (yet ergonomic) desk with my hair in a sloppy bun and no makeup on my face. I am wearing real pants today. Please, hold your applause.

Secondly, and more importantly, I want to cast out the myth that dropshipping is easy and risk-free. While there is certainly less up-front financial risk to drop-shipping, it is far from risk-free, with hazards that include high shipping costs, low profit margins, and little quality control. And, while you may travel anywhere you like as a dropshipping merchant, you may find that you don’t have the resources to do so quite as quickly (or as easily) as you expect.

Before I go busting these myths, let’s first take a minute to define dropshipping. Stay with me.

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What Is Dropshipping?

Dropshipping is an order fulfillment technique in which the online merchant does not store or ship any of their own products. Instead, merchants enter into agreements with dropshipping suppliers–wholesalers and manufacturers who agree to pick, pack, and ship products on behalf of the merchant.

After the merchant receives a new order on their website, they simply notify the supplier, and the item is dropshipped direct to the customer. The merchant never touches the product.

Running a dropshipping website is appealing for a variety of reasons:

  • You don’t have to deal with the hassle of storing and shipping products.
  • You don’t have to worry about selling all of your stock; you only purchase what you sell.
  • All you really need is a computer and an internet connection.
  • There’s a low barrier to entry. You can get started in no time.

Good Reasons To Rethink Dropshipping

While there are definitely perks to dropshipping, there are quite a few downsides you should strongly consider before you take the plunge. Dropshipping is not easy, nor is it risk-free. Here are the top seven reasons you should reconsider dropshipping with your online store.

1. Dropshipping Is Not Easy

Running a dropshipping business is not the easy money maker it’s advertised to be. It’s work! There is so much involved in running online businesses, including dropshipping websites.

As a retailer, you are responsible for providing customer service, placing orders, maintaining your website, and bringing in online traffic.

This will all be time-consuming and difficult, especially if you aren’t well-versed in web design or SEO. Make sure you have a good grasp of business, customer service, and eCommerce technology before you begin.

It might help if you start off with an easy-to-use eCommerce solution that offers dropshipping features. Take a look at the full review of one of our favorite eCommerce platforms, Shopify.

2. There Are Low Margins When You Dropship

While dropshipping may be the most convenient way to go for fulfillment, it certainly is not the cheapest.

Yes, you will be purchasing products from a wholesaler, but they won’t come at wholesale prices. Because you won’t be buying products in bulk, but rather one-by-one, you won’t get the lowest rates possible for your online store.

What’s more, you’ll have to pay additional fees for the wholesaler to pick, pack, and ship each customer order.

Your profit margin will suffer from this loss. Most dropshippers make around 10%-15% profit.

Fun fact: Big ticket items typically bring in low profit, while cheaper, accessory products have higher margins. Try eCommerce Fuel’s article on dropshipping to learn more.

3. Dropshipping Is Competitive

Because there’s such a low barrier to entry, you will be faced with an overwhelming amount of competition, even within your niche. Many of your competitors will be taking the lowest-price-possible approach to selling, which can also impact your profit margins.

In order to come out on top, you’ll have to find a dropshipping niche without too many competitors and make your product listings distinct with quality descriptions. You can read more about how to dropship competitively on Shopify’s comprehensive guide (which is, by the way, a pretty good guide overall). Shopify also offers a fairly decent webinar on starting a dropshipping business.

Bloggers often advertise dropshipping as the risk-free approach to selling. And it’s true that up-front risk is very low because you don’t have to purchase inventory before you start selling. However, financial risk is inherent in all business, and dropshipping is no exception.

Here are a few of the risks you should consider before you make the decision to dropship:

4. You Lose Quality Control

Because you essentially outsource warehousing and fulfillment to your dropshipping suppliers, your products will go directly to your customers without ever touching your hands.

This is great for convenience, but not so great for quality control.

You won’t be able to inspect products to make sure they’re up-to-snuff. Perhaps of greater importance, you won’t be in charge of shipping, It’s up to your supplier to get products out on time. Your customers will blame any faulty products or delayed shipping on you (and, by choosing to dropship, you assume this responsibility).

In short, shipping products directly from supplier to customer may be convenient, but it also puts you at risk for negative customer feedback.

5. Returns Are Difficult

Returns are the unfortunate reality of eCommerce. At least 30% of all online purchases are returned, and with the unreliability of certain dropship wholesalers, you may find that your products are returned more frequently.

Some dropshipping suppliers are willing to take back faulty products (and may even pay for return shipping), but you shouldn’t count on it. If your customer is dissatisfied with your product, you may have to purchase a new product on their behalf and cover shipping expenses out of pocket.

6. Shipping Can Be Expensive

Shipping expenses can quickly add up when you choose to base your business on a dropship model, particularly when you fill your store using multiple dropshipping suppliers.

Here’s what I mean: Say you dropship clothing, and you use three different suppliers to stock your products. If one customer orders t-shirts from all three of those suppliers, you’ll have to pay for each individual shipment instead of just grouping those items together.

This can lead to significantly higher shipping expenses, and it’s difficult to find a way to make up for those added costs. It isn’t a good idea to pass along that expense to your customer, as such a high shipping cost will likely cause customers to abandon their carts. However, neither is it a good idea to pay for separate shipping on three different items.

My recommendation: If you choose to dropship, limit your number of suppliers.

7. Dropshipping Inventory Is Not Guaranteed

It’s difficult to be certain of your stock under a dropship model.

Your ability to fulfill customer’s orders depends on your suppliers’ stock. If, for whatever reason, stock levels have dropped dramatically, and you’re unaware of it, you may end up selling products you don’t actually have on hand. That’s a recipe for very unhappy customers.

Granted, some suppliers offer APIs that give you real-time access to their stock levels, which resolves most of this issue.

How To Start A Dropshipping Business & Take Fewer Risks

At this point, you might be convinced that I am totally opposed to dropshipping, and you’re mostly right. I see dropshipping as a largely unsuccessful get-rich-quick scheme.

However, I am not against every aspect of dropshipping. I think partial dropshipping and outsourcing fulfillment can work very well for some merchants. Here’s what I mean:

Don’t Build Your Site On Dropshipping

Dropshipping works well when it is paired with traditional selling. Say, your store sells high-quality dog treats (which you store in your warehouse–or garage, whatever), and you want to branch out into selling dog toys.

You can easily flesh out your store with these additional products by using a dropship model. Having a few dropshipped products will keep your site from becoming fully dependent on your supplier, and you can still benefit from the simplicity of the model.

Sell Traditionally But Outsource Your Shipping

This is an excellent option for merchants who can’t store merchandise in their garages anymore and don’t have the time (or the personnel) to pick and pack all of their orders.

Outsourcing your warehousing and shipping to fulfillment providers like Shipwire and Fulfillrite can give you the same freedom that you get with dropshipping with less risk. You’ll enter into a contract with that fulfillment partner, so they’re responsible for shipping on time, and you can still be sure of the quality of your products.

The only downside? Fees. Fulfillment services can be quite expensive. You’ll have to crunch the numbers to make sure the convenience (and smaller staff size for your business) is worth it.

Sell Traditionally: Pick & Pack For Yourself

Perhaps you’re only just starting out, and you don’t yet have enough sales or products to justify a warehouse.

In that case, there is nothing wrong with fulfilling orders yourself! It’s cheaper, and you can make sure it’s done exactly the way you’d like.

Final Thoughts

If you’re thinking about building an online site for the first time, you should take a look at our full, in-depth reviews of the most popular eCommerce platforms. I’d recommend that you look first at Shopify (read our review) and Zoey (read our review) if you’re new to web development, and WooCommerce (read our review) and Magento (read our review) if HTML is your native tongue.

Whatever you decide, I wish you luck! I hope you find a metaphorical beach to relax on, in whatever form it may take.

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Liz Hull

Liz Hull

Liz Hull is an eCommerce Writer for Merchant Maverick. In her two years with Merchant Maverick, she has tested and reviewed over 40 eCommerce platforms and published two ebooks on the topic of online selling. Liz has also been published in Startup Nation and Home Business Magazine Online. Liz has a BA in English and Spanish from George Fox University.
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8 Comments

Responses are not provided or commissioned by the vendor or bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the vendor or bank advertiser. It is not the vendor or bank advertiser's responsibility to ensure all posts and/or questions are answered.

    Kenny

    Thanks for sharing this insightful information.

      Ivannah Cabrel

      1. Easy to begin – running an eCommerce kind of business is way much easier and simpler when you do not have to arrange physical products. With this dropshipping, you do not need to worry about:

      – Paying or managing a warehouse.

      – Packing and shipping the ordered products.

      – Tracking inventory for your accounting purposes.

      – Handling returns with the inbound shipments too.

      – Continually ordering of products and managing the stock level.

        Kiara

        Thank you for your insight. As a new small business owner I had considered drop shipping and starting conducting my research on this processs. I am thankful to have come across your article. It explained the dropshipping process clearly enough to understand what it is, and how you could one could be making a big mistake by not having the patience to go through the process of doing things right. As, a new business I can see myself wanting to have more control over my inventory and being able to view my products before they are sent out. Thank you again for the insight it is greatly appreciated!

          John

          Hello, Great article!
          you are complete right that drop shipping is not easy. The major problem in drop shipping is that with drop shipping, you unfortunately have very little control over your customer service. Since you are not in charge of product fulfillment,, so you are not able to control when a customer will receive their product.

            This comment refers to an earlier version of this post and may be outdated.

            Robert

            I started a “sort-of” drop shipping site and looked at your shopify recommendation. My concern is their monthly fees. Do you know of a POS that will NOT charge a monthly fee, and will only take a small percentage of every purchase up to a certain amount? Because of those fees, I will actually be losing money once the store opens up unless I sell way more product than I am actually expecting to sell. My site itself is for a product I make, and the drop shipping end is there to be a “one-stop shop.” Any ideas?

              This comment refers to an earlier version of this post and may be outdated.

              Jessica Dinsmore

              Hi Robert,

              There are actually a few good mPOS that do not charge a monthly fee. I think Square would likely meet your needs here, but you can take a look at our comparison chart and decide which one would best meet your business needs.

                This comment refers to an earlier version of this post and may be outdated.

                Carmine

                Dropshipping is good for newbies but I feel like there’s better business models to get into. I moved away from it and began selling my own products with way better results.

                  This comment refers to an earlier version of this post and may be outdated.

                  Jessica

                  What business model would you recommend?

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