Dropshipping has become one of the most popular ways to start an online business because it doesn't require a large initial investment. It can be a great way for anyone, regardless of their current financial situation, to get into the eCommerce game without having to invest money upfront.
This article will look into some of the pros and cons to dropshipping that you need to consider before you get started. Of course, every business has the good, the bad and of course the ugly sides
What Is Dropshipping?
Dropshipping is a business model where online entrepreneurs don't keep products in stock, but rather they send orders directly to their customers and rely on wholesalers (suppliers) to ship the items straight to their customers.
When someone places an order through your website, you place the order with your supplier. They send the product directly to your customer and charge you a fee for doing so. Then, you pocket the difference between what your customer paid for the item and what you actually had to pay.
Pros For Dropshipping
When it comes to weighing up if DropShipping is worth it, you have to look at both the Pros & Cons. As previously mentioned, DropShipping is a unique ecommerce concept, which for many is a sensible, and easy way into the world of eCom.
There are a number of Pros that help make DropShipping an attractive prospect.
Low Startup Costs
Another benefit to dropshipping is that the start-up costs are much lower than other small business models. With dropshipping, you don't have to invest in a ton of inventory or have a warehouse to store all of it in.
Most eCom businesses can cost $10,000+ to order your first wholesale order of products (depending on what you are trying to purchase). DropShipping you order the products as you go, meaning you can spend a few hundred $'s to fulfil the first few orders, before then using the cashflow from your business to pay for the next order.
You can use sites like eComHunt or DropShip Spy to find those low cost products.
Small Business Opportunities
One of the major benefits to dropshipping is that it gives people who are interested in starting a small business an opportunity to do so without requiring them to invest a lot of money upfront.
Build A Solid Reputation -
Dropshipping also gives entrepreneurs an opportunity to build a solid reputation and client base without having to purchase expensive ads or PR campaigns.
Owners can utilise viral ads, videos or social media to build the brand, focusing the money saved from not having to buy wholesale products on profitable campaigns.
Building a great customer support base is often one of the biggest challenges small business owners face. However, with dropshipping you can focus your time on ensuring customers are happy by ensuring their questions are met and requests actioned.
As you don't have to deal with shipping, and many items are given tracking numbers, emails and updates can negate many of the questions people may have.
Returns And Refunds -
Dropshipping also makes it easier for businesses to offer returns and refunds, which is important as 60% of customers say that good customer service is the most influential factor when making a purchase.
With dropshipping, businesses are able to provide their customers with high-quality customer service and returns/refunds because they don't have to manage a large inventory.
Due to the costs involved, a lot of dropshippers are able to offer full refunds, or new products sent to customers without eating into campaign profits.
Dropshipping also makes it easier for people to start a business in a less competitive niche. Many eCommerce entrepreneurs start out in a competitive niche like fashion, shoes, and furniture.
However, even these crowded niches can be great for dropshipping because it's easy to get started and there are fewer competitors in comparison to other online business models like affiliate marketing.
There are thousands, if not millions of products out there, with hundreds of niches for new entrepreneurs to choose from. With such a low cost to market, you can quickly shift focus to new products if you find a drop in demand.
Dropshipping is a great business model for entrepreneurs who aren't interested in managing and maintaining their own inventory.
This can be a big benefit to those who don't want the responsibility of handling their own large quantities of inventory. Warehouses and shipping costs can eat into profit margins for many businesses, so not needing to actually own or handle the inventory reduces those costs and of course headaches.
Another benefit to dropshipping is that you're not locked into a specific niche. Unlike traditional eCommerce, you are not tied into the Kitchen Niche, or Fitness Products if they don't work out.
You can create a store with Shopify or AliDropShip and import products from a particular niche, with niche specific branding in a matter of hours. If you decide that the products you have tried to sell don't work, or you don't enjoy the niche, you can find a new domain (or keep it if it's quite generic), import new products and have a whole store ready to start selling relatively quickly.
Again, as mentioned before, a whole rebrand or niche change won't cost you thousands, more likely a few $$'s.
Customer Acquisition -
Dropshipping is also great for entrepreneurs who are looking for a cost-effective way to acquire customers and build a client base. Dropshipped products have a lower cost which means you can acquire customers more affordably.
Many DropShipping companies end up building huge brands, even creating custom products and designs. Companies like Wish or Made have built empires out of their DropShipping efforts. Creating branded merchandise and products within their niches to help build their brand.
Cons For Dropshipping
Of course, there are Cons to this particular fulfilment method. As with any business venture, nothing is 100% without downsides, and DropShipping is not different.
A Chance To Get Scammed
The biggest downside of using dropshipping is that there's a chance you could get scammed by your supplier if they take off with your money and don't send the order.
Most people see this as a problem for the end customer, but for you as the 'vendor' this can become a huge headache for you. If you have 100 orders for a product, use your own money to purchase them and your supplier simply walks away without sending them, your customers go after you, not your supplier.
Taking the time to find decent suppliers, using tools such as Salehoo can reduce this chance, as they actively seek out real, legitimate companies, plus they offer insurance on the companies they recommend.
An issue I have seen first hand, is the risk of fraud or fraudulent products. This does go hand in hand with the point above, and the point below, but it's worth understanding that there are people out there, actively trying to defraud you.
Either by simply not sending products, sending inferior products, or even trying to steal your customers by telling them where you got the items from.
No Control Over Product Quality
You have no control over the quality of the product or how it is made. This means that your supplier might send you a counterfeit item, and it's impossible to tell without opening the package.
One way to counteract this is of course to purchase the products before and check to see what the quality is like. Sadly, some vendors will send 1 product to you, and different products to your customers.
Limited Control Over The Customer Experience
Another downside to dropshipping is that you have limited control over the customer experience. Even though you have the ability to show tracking or chat to your customers, you have limited control over low-quality products, late shipments, or even send the wrong product altogether.
This can be extremely detrimental to your reputation and your brand image. Even by offering to refund, or re-send products, it can actually shorten the life expectancy of your brand and your store if it happens a lot.
Dropshipping typically has low margins, especially when compared to other online business models like affiliate marketing. Though, DropShipping does have higher margins than normal eCommerce businesses, affiliate marketing, or Drop Servicing can offer higher margins, with less stress.
Is Dropshipping Worth It? - The Conclusion
Dropshipping is a great business model for entrepreneurs who want to get into eCommerce without having to invest a lot of money upfront. It's also a good option for entrepreneurs who are looking for flexibility in their business model, and those who want to acquire customers at a lower cost.
However, there are some things you need to consider before starting a dropshipping business, such as the risk of getting scammed by your supplier and the potential for fraud.
You also have limited control over the customer experience, product quality, and inventory management with this business model. Additionally, margins tend to be low when compared to other online business models. If you're looking for a hands-off or automated business model, dropshipping may not be the best option for you.
As with any business, you should always look at doing your due diligence to fully understand both the positive and negatives. A lot of the negatives can be negated by ensuring you have good suppliers (Look at using platforms or tools to help) or by spending a little more money to get items shipped and checked.
I started this blog around 2017, after realising that I wanted to let people know about all the different ways someone could make money online. From DropShipping, Affiliate Marketing, Network Marketing and more.
This blog has now grown to review and explain a variety of different tools and platforms, in the bid to help you.
This blog contains affiliate links, and I will get a commission for purchases made through these links. It doesn’t change anything for you and will on occasion save you money! Enjoy, James.