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 upfront financial risk to drop-shipping, it is far from 100% safe. Hazards 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 directly 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 purchase only 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, and with very little money.
7 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 an online business, and that goes for dropshipping websites as well.
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.
If that doesn’t sound like you, consider starting off with an easy-to-use eCommerce solution that offers dropshipping features. One of our favorite platforms is Shopify.
2. Dropshipping Offers Low Margins
While dropshipping may be the most convenient way to fulfill orders, it certainly is not the most lucrative.
Yes, you will be purchasing products from a wholesaler, but they won’t come at rock-bottom wholesale prices. Because you won’t be buying products in bulk, but rather one-by-one as your customers order them, 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, and your profit margin will suffer accordingly. Most dropshippers make around 10%-15% profit. Big-ticket items typically bring in the lowest profit, while cheaper accessory products deliver higher margins.
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 in 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 the upfront 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.
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.
That 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 more importantly, you won’t be in charge of shipping, It’s up to your supplier to get products out on time, but 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 about factors that are literally beyond your control.
5. Returns Are Common
Returns are the unfortunate reality of eCommerce. Up to 25% of all online purchases are returned, with fashion and health/beauty items showing the highest rates. With the potential unreliability of dropshipping suppliers, you may find that your products are returned more frequently.
Some suppliers are willing to take faulty products back (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 add up quickly when you choose to base your business on a dropshipping model, particularly when you fill your store using multiple dropshipping suppliers. Suppose you dropship clothing, using three different suppliers to stock your products. If one customer orders a t-shirt from each of those three 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 availability under a dropshipping model.
Your ability to fulfill customer 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.
When Is Dropshipping A Good Idea?
Even with all the potential downsides to dropshipping, it’s a business model that can make a lot of sense — and money — when it’s done right. Here are a few situations where you can feel good about dropshipping.
- Your website offers professional services, and you want to sell a few related products from an online store to a naturally receptive audience. For example, a food blogger might add some kitchen gadgets, while a lifestyle coach might add organizing tools.
- Your online store offers items that you create and ship yourself, and you’d like to add some accessories or additional products to flesh out your line. If you sell handmade cards, for example, you might offer your customers personalized embossers they can use on your envelopes.
- You’ve discovered a unique product or two that you think you can sell successfully to your existing customer base, and you have a reliable supplier in mind.
- You’ve researched dropshipping, you understand the risks and drawbacks, you have a developed business plan, and you’re ready to give it a try.
How To Take Fewer Risks With Dropshipping
At this point, you might be convinced that I take a dim view of 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 how I think dropshipping can work:
Use Dropshipping As An Add-On, Not Your Base
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 use a dropship model to flesh out your store with these additional products. 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 without being fully dependent on it for your store’s profits.
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 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, but with lower 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. Once you have an established customer base, you can look to dropshipping as a way to expand your offerings — and your profits.
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 and Zoey if you’re new to web development. If you’re fluent in HTML, check out WooCommerce and Magento.
Whatever you decide, I wish you luck! I hope you find a metaphorical beach to relax on, in whatever form it may take.