7 Reasons To Rethink Dropshipping
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.
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.
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.