Is Dropshipping Worth It? How To Make The Right Choice In 2022
Is dropshipping as profitable as it seems? Find out whether dropshipping is right for you and see what you need to make your dropshipping business a success.
Dropshipping has been hailed as a great side hustle idea for years now. Since sellers don’t technically need to manufacture, hold, or ship any products themselves, people have called it an easy passive income stream. Before you sign up for that online dropshipping course or decide to find a dropshipping supplier, it will help to have as much information as possible.
Keep reading to learn more about how dropshipping works, if dropshipping is profitable, and whether you should consider some of the alternative online money-making ventures we offer here.
Table of Contents
- Is Dropshipping Worth It?
- How Does Dropshipping Work?
- Dropshipping Products Popular To Sell
- What Is Shopify Dropshipping?
- Is Amazon Dropshipping Profitable?
- Dropshipping On Facebook Marketplace
- 8 Reasons To Rethink Dropshipping
- 5 Reasons Dropshipping Could Be Right For You
- Alternative Dropshipping Ideas
- FAQ: Dropshipping
- Building Your eCommerce Business: Next Steps
Is Dropshipping Worth It?
If want to make a lot of cash in a short amount of time, dropshipping is probably not the best move. But if you have the time and money to invest in the beginning, dropshipping can pay off for you and turn into a great side business or more.
How Does Dropshipping Work?
Dropshipping is an order fulfillment technique in which online businesses do not hold or ship the products they sell. Rather, they contact their product supplier (a manufacturer or wholesaler) when they get a new online sale, and the order is shipped from the supplier directly to the customer.
Dropshipping Products Popular To Sell
Some of the best dropshipping products to sell in 2022 are:
- Phone accessories
- Ring lights
- Essential facial oils
- Gaming headsets
- Leggings (with pockets!)
- Sustainable cleaning supplies
- Ergonomic desk chairs
- Rice cookers
- Electric tools
- Pet leases, toys, and supplements
- Air purifiers
- Jewelry making supplies
- Hair growth oil
What Is Shopify Dropshipping?
Shopify dropshipping is a way to sell products and fulfill orders through a Shopify store. Sellers create a store and connect their store to a dropshipping app from the Shopify App Store. When a new sale comes in, the order is automatically sent to your supplier to fulfill.
Read up on the best Shopify dropshipping apps before opening your online store.
Is Amazon Dropshipping Profitable?
Amazon dropshipping is profitable if your profit margin is above Amazon’s seller fees, which includes a percentage of each sale — around 15% of what you charge for the item, plus shipping, on average. There’s also a $0.99 per-item fee or $39.99/month subscription fee, depending on the Amazon seller plan you choose.
Percentage fees can vary from 6% to 45%, depending on the product you’re selling.
Dropshipping on Amazon is different from the Fulfillment By Amazon (FBA) program. With Amazon FBA, you store products in Amazon fulfillment warehouses, and products are shipped by the fastest delivery network in the world.
With Amazon dropshipping, the products you sell go straight from the supplier to the buyer. There are shipping caveats involved in Amazon dropshipping that you should be aware of.
- Related: Note sure whether to go with Shopify or Amazon for your dropshipping needs? Read our Shopify VS Amazon comparison to figure out which eCommerce option is right for you.
Dropshipping On Facebook Marketplace
Dropshipping on Facebook Marketplace is an attractive option because seller fees are minimal ($0.40 for items under $8, 5% of the purchase price for items over $8), and there is a built-in audience. This particular marketplace isn’t as saturated as ones like Amazon, and you can expand your reach by posting your items in relevant Facebook groups.
It should be noted that Facebook Marketplace initially sets geographical bounds for user search results, so local offerings will show up more often than dropshipping ones.
Note: Facebook Marketplace is suspending all seller fees until June 30th, 2022 to support small and midsize businesses affected by the pandemic.
8 Reasons To Rethink Dropshipping
While there are 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.
These are the top eight reasons you should reconsider the dropshipping business model.
1. Dropshipping Is Not Easy
Running an online business is not simple, whether you’re shipping your own products or not. You are the one responsible for processing payments, fielding customer service issues, maintaining your website, and getting people to notice your product offering.
This can 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 with an easy-to-use eCommerce solution that offers dropshipping features.
2. Dropshipping Offers Minimal Profit 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. However, since 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.
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 decent webinar on starting a dropshipping business.
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 are the quality your customers deserve.
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).
- Related: This is how to find a reliable dropshipping supplier so you can protect your reputation and retain your customer base.
5. Returns Are Common
Returns are the unfortunate reality of eCommerce. In 2021, the average online return rate was 20.8%, on par with previous years, with fashion and health/beauty items showing the highest rates.
With the potential unreliability of dropshipping suppliers, you may have higher than average return rates.
Some suppliers are willing to take faulty products back (and might 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.
For example, 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’s not 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.
In general, if you plan on dropshipping, limit your number of suppliers, and try to find suppliers that offer a range of products under one roof.
7. Dropshipping Inventory Is Not Guaranteed
Your ability to fulfill customer orders depends on your suppliers’ stock. If their stock levels have unexpectedly dropped dramatically, and you’re unaware of it, you may end up selling products that aren’t even available.
That’s a recipe for very unhappy customers.
Some suppliers offer APIs that give you real-time access to their stock levels, which resolves most of this issue.
8. Supply Chain Issues Affect Your Business
A lot of the time, the inventory is there, but getting an item shipped to a customer is difficult. Items get held up at international customs checks and domestic warehouses for several reasons:
- A lack of labor to process and transport items
- Increasing international shipping requirements and restrictions
- Efforts are being made to decrease shipping emissions, meaning that, on the whole, there’s a decrease of shipping vehicles on the ground, sea, and sky (lowering emissions is a good thing, but global shipping logistics need to update to account for these changes)
Customers, especially in a world dominated by Amazon, expect fast and seamless shipping. Dropshippers may not be able to guarantee that kind of smooth delivery without the backing of a shipping giant.
5 Reasons Dropshipping Could Be Right For You
So far, we’ve taken a realistic view of dropshipping that happens to focus on the potential downsides of this business model. Here are a few positive aspects of dropshipping.
1. Low Barrier To Entry
You can get started in no time, and with very little money. Equipment-wise, all you really need is a computer and an internet connection.
Many eCommerce platforms make it easy to get a website up fast, along with an inventory and shipping management solution. So, if you don’t have the money to invest in products, consider using dropshipping to fulfill your online orders.
2. Low Overhead Costs
You won’t have to deal with the expense and effort of storing and shipping products, so you can keep prices down and keep more profits for yourself. If you’re not quite ready to start storing your own products, dropshipping could be for you.
3. Low-Risk Business Model
All you need to buy to start a dropshipping business is a domain name, web hosting, website security, and eCommerce platform subscriptions. Sometimes, you can get all of these bundled together for one monthly price.
Since you only purchase an item from a wholesaler after you have lined up a buyer, you will never get stuck with a bunch of unsold products or cash flow issues. If you are nervous about taking the dive and selling your own products, start with dropshipping to figure out how to get a steady stream of customers.
4. You Can Follow Trends
Because you’re not sinking everything you have into manufacturing a single product or line, you’re free to see where the market takes you.
When sales of one of your dropshipping products start to lose steam, you can add a new product to take its place and even keep the old one in your catalog if you’re interested in doing so.
Plus, you can easily scope out social media for trending items and quickly post those items for sale on the same platforms where those items are gaining popularity.
5. You Can Conduct Product Testing & Expand
Dropshipping lets you test products that your customers might like buying. Your online store can expand quickly to meet all their needs.
You can even offer some related items that customers don’t even know they need, all at very little risk and low cost to you.
Alternative Dropshipping Ideas
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 opposed to every aspect of dropshipping. I think partial dropshipping and outsourcing fulfillment can work very well for some merchants. Here’s how:
Use Dropshipping As An Add-On, Not Your Base
Dropshipping works well when it is paired with traditional selling.
For example, say you sell high-quality dog treats online (you store these products in your warehouse — or garage, whatever), and you want to branch out into selling dog toys. You can easily use a dropshipping 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 relying 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.
If you outsource your eCommerce order fulfillment to fulfillment providers like Shipwire and Fulfillrite, you have the same freedom that you get with dropshipping, but with lower risk levels.
You enter into a contract with a fulfillment partner, so they’re responsible for shipping items on time, and you can still be sure of the quality of your products.
If your online store is built on the Shopify platform, you even have an in-house fulfillment option. Read more about Shopify Fulfillment and how it works to get an idea of how this fulfillment option could benefit your business.
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 your online business is 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 choose this more traditional route, you can still take advantage of shipping tools to make order fulfillment easier. For example, you can use shipping software to calculate shipping rates, print shipping labels and packing slips, and even access discounted shipping rates to save you money.
Read up on the best shipping software to integrate with your eCommerce platform, then create a streamlined product delivery strategy.
Building Your eCommerce Business: Next Steps
If you’re leaning towards starting a dropshipping business or just incorporating dropshipping into a more traditional eCommerce business, read our post on how to start a dropshipping business.
If you’re shipping any items yourself, use these shipping hacks to get the cheapest shipping rates possible.
Whether you decide to dropship products from a supplier or sell your own products (in-house or from a fulfillment center), you need a powerful eCommerce platform to start your online business. The platform you choose should be easy to use, allow you to sell a variety of products, and include inventory and shipping management tools.
Read up on the best eCommerce platforms in 2022 before you dedicate yourself to one online store builder.