Dropshipping has been around since the 1950s, but the scheme really took off for the past couple of decades. It’s an attractive business model that maximizes the profits but is not in any way a get-rich-quick type of thing. With dropshipping operative expenses substantially cut to the minimum, but there are still many problems and hurdles to overcome. Even though the business format is pretty straightforward, any people tried and failed in the first couple of years from starting the business.
On the other hand, a few business people who thought of it as long-term entrepreneurship invested a lot of money, time, and effort to succeed. How exactly dropshipping works, is there any overhead, is the model still going strong in 2020, and what makes one business flourish while others go down the drain? Let’s tackle each issue separately and see.
The definition of dropshipping
Dropshipping means carrying out the customers’ order where the seller has no inventory but passes the order from the buyer to the supplier. As a middleman, there are no stocking expenses and there is no need to have offices or warehouses.
The supplier ships the items to the buyers, and the drop shippers’ job is done. Basically, drop shippers sell other people’s goods and take their cut. Seems like easy money, but there are some drawbacks to account for. First of all, doing just dropshipping is not going to get you far, since there is no way to attract people to visit your website.
Developing a thriving business by being a middleman is going to take a well-established e-commerce website that sees a lot of traffic on a daily basis. Only then you can introduce dropshipping, and possibly completely make the switch over time. As you can see, there is a lot of work to be done before you can take a shot at dropshipping.
The harsh reality of the dropshipping business
Before investing your life savings into a new business, there are a few thighs you should keep in mind.
Even though there will be no costs regarding the inventory and renting, there are still some expenses involved.
First, you’ll need to have a high-traffic website in order to achieve sales volume. To get this far, a good marketing tactic is necessary as well as the cost that goes with it. Advertising will take up much of your profits but it’s a crucial part of gaining any return at all.
Secondly, the majority of the sales profits will go to the supplier leaving you crumbs. This is understandable since they are the ones with huge manufacturing and stocking expenses.
Further, you should be aware that the dropshipping business is a tough industry. Competition is harsh and oftentimes you’ll find to cut into your profits in order to stay competitive on the market. If you stick to making your 10% or 20%, other e-commerce businesses will kick you out of the game quickly. This flexibility can and will cost you but sometimes there is no other way to stay afloat.
Lack of control
When you own an online store with the merchandise in stock, you are in complete control of how the customers are treated especially regarding returns and shipping times and methods. Choosing to work as a drop shipper you’re going to take the backseat, and let the supplier handle every problem that might occur. This is probably not something to look forward to if you’re not familiar with the suppliers’ way of handling business. For this reason, many drop shippers test the supplier’s work ethics and business handling before putting their products on the website. By working with professionals like 365 Dropship, you can be sure that the whole process is going smoothly beforehand and spare yourself a lot of headaches down the road.
Jeopardizing your brand
Maybe jeopardizing seems like a harsh way of putting it, but your brand will definitely suffer once you start redirecting your customers to the suppliers. Some business owners claim that the website they’ve been building for years seems to become invisible due to the customers’ focus shifting to the companies that are actually sending them merchandise. There is truth to this, but it’s a cost of doing business without having to worry about items being in stock or bother with the shipping process. Like everything else, it has its advantages but it also comes with a downside.
How to do it right?
There are several ways to do the dropshipping right and make it work for you instead of just watching it from the bench.
- Market research. Like in every business when a new product comes out the end result is uncertain. Instead of piling up stuff in your warehouse, put the dropshipping scheme into work for your market researching purposes. Let the supplier bear all the risks of the selling, and you just watch and learn. If the product is not selling, you’ll just end up with fewer profits but no costs. On the other hand, if the product starts flying off the shelves, you can always take over and deal with the supplier yourself instead of customers.
- No risk of overstocking the product. Overselling forecasts often fail, especially with seasonal items like Christmas ornaments and Halloween costumes. Another good example is the 2020 pandemic that took many retailers by surprise leaving them with the overstocked merchandise and no customers. Dropshipping can protect your online business from unforeseeable circumstances that can forever damage your reputation and shrink down the sales.
- Trying out a new market. Growing your business outside the state lines, or across the borders, comes with a great deal of risk. Shipping alone can be problematic due to the different laws and fees that can diminish your profits and potentially find yourself in hot water, especially with customs. If you want to try out the uncarted territories, the best way to go is dropshipping. Suppliers are familiar with the shipping times and paperwork needed so that the customers will always know what to expect. This process will give you an insight on how to spread your sales across the globe effectively.
- Special products. Some products are so bulky and hard to store and ship, that they might end up as too much of a hassle for a rather small return. Some items are so heavy that they cannot be shipped by regular mail, like some construction equipment, car parts, etc.; or too fragile to be shipped by regular means of transport; or needs to be handled extremely carefully because of its high value, like paintings, jewelry and such. Bringing in the suppliers who can handle these orders in a timely manner without damaging the products can make you seem professional to your consumers while earning some profits.