Is Dropshipping Worth It? 7 Reasons To Rethink Becoming a Dropshipper In 2021
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 claim. “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. Is dropshipping really worth it in the long run? It may depend on how much risk you’re willing to absorb.
Let’s first take a minute to define dropshipping. Stay with me.
Table of Contents
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.
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 (including accepting payments, customer service, and more), 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 businesses, 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.
Here’s How Dropshipping Can Work For Your Business
So far, we’ve taken a realistic view of dropshipping that happens to focus on the potential downsides of this business model. What about the positives? Here are a few:
- No-Hassle Sales: You won’t have to deal with the expense and effort of storing and shipping products. Because your overhead will be low, you can keep prices down and keep more profits for yourself, too.
- Low Risk: You don’t have to worry about selling all your stock; you purchase only after you’ve secured the order. That means you’re not taking a great risk, no matter how sales pan out.
- Low Barrier To Entry: You can get started in no time, and with very little money. All you really need is a computer and an internet connection.
- Follow The 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.
- Customer Satisfaction: Dropshipping lets you test related products that your customers might like buying. Your online store can expand quickly to meet all their needs, and even offer some sidelines they didn’t know they needed, all at very little risk and low cost to you.
Alternatives To 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 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. 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. If your online store is built on the Shopify platform, you even have an in-house fulfillment option. Read about our take on Shopify Fulfillment to see if it might be a good choice for 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 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 choose this more traditional route, you can still take advantage of some tools to simplify the sales process and make your life easier. One solution: Use shipping software to make everything easier once customers place orders. You can find reasonably priced shipping software you can use to integrate with your eCommerce platform and make it a snap to calculate shipping rates, print shipping labels and packing slips, and even access discounted shipping rates to save you money.
Building Your eCommerce Business
If you’re thinking about building an online site for the first time, you should take a look at some of the most popular eCommerce platforms. To save yourself some valuable time, I’d recommend that you look first at our in-depth Shopify review as well as our Zoey review if you’re new to web development. If you’re fluent in HTML, check out our WooCommerce review and our Magento review too.
If dropshipping seems like a good fit for your eCommerce plans, check out our complete guide for how to start a dropshipping business. If you like a little of what you see in the dropshipping model but also like the security of creating an online store using a tried-and-true website builder like Shopify, take a look at some of the Shopify dropshipping apps that are available for you to use. You might find that’s the best way to get your business started.
Whatever you decide, I wish you luck! I hope you find a metaphorical beach to relax on, in whatever form it may take.