“Is dropshipping dead？” “Is dropshipping still worth it?” These are the questions frequently asked by people at the door of drop shipping. For young people hoping to start a business, dropshipping is a good choice to save you from raising money and handling inventory. However, the growing traffic fee, fierce competition and low margin can also scare small businesses away.
In this post, questions about dropshipping would be thoroughly demonstrated. I bet you will have an answer after reading it. The article can be divided into four categories as follows. Jump to any part you are interested in with a simple click.
1. What is drop shipping and how it works
To begin with, what is dropshipping? Dropshipping is an E-commerce model where you sell physical products without carrying inventory, without renting warehouses and without dealing with any shipping. Basically, your supplier handles all fulfillment for you. Once you receive an order, your supplier would pack and ship the goods on your behalf.
Here are some simple steps to start.
- Set up a website or platform to receive orders.
- Find dropship wholesalers or distributors and partner up.
- List items on your site and take orders.
Here is the mechanic of the dropshipping business.
- Customers place an order on your website.
- You collect the money and forward the order to your supplier.
- Your supplier ships the products directly to your customer as if shipping from you.
- You pocket the difference between wholesale and selling
2. Pros and cons of dropshipping
Recently there are many different voices over drop shipping. Some people believe it’s quite profitable and encourage more doing it while some are pessimistic about dropshipping announcing it is dying. People who are new to drop shipping or people who are thinking about starting a dropshipping business might get confused. To find out is it dead or vital, first, we have to be aware of both sides of the coin.
The advantages of drop shipping are quite obvious.
1) Zero cost
There is nearly zero upfront cost at the initial stage. With no inventory cost and warehouses cost, you can literally start a business with under 3 bucks. No other business model costs less to start.
2) Low risk
Little to invest, little to lose. You receive an order, then you ship out the goods directly from suppliers. With no products in stock, you have no pressure to sell.
3) Huge inventory list
You are free to list a bunch of products on your platform without carrying any inventory. It’s your choice to carry single or thousands of goods. You can find almost every item you want in trade markets.
4) Location independent
For drop shipping business, you don’t need an office nor any employee. You can start a business anywhere you want. As long as you have a computer and Internet connection, you are good to go.
It may sound too good to be true. There are 4 downsides of drop shipping.
1) Low margin
To start with, you are not gonna get the lowest price. It’s not hard to understand that suppliers prefer to sell in bulk at once than one or two items each time. And the packing and shipping work would be reflected in your wholesale price.
Approximately, you are gonna get a 10-30% margin while that of traditional e-commerce is 50%. With a relatively low margin, your price won’t be competitive. Besides, Low margin does no good to your ads on Facebook or Instagram and your customer support.
2) Extra shipping fee
If you work with two or more companies at the same time, you would be charged by multiple companies. Clients may order products from different distributors in your store, receiving separate packages at door. You can choose to charge additional shipping fees or eat the cost.
3 ) Customer service headache
Even though the distributors are doing all the work, you are the face of your business. Thus you are the one talking to customers and apologizing for any problem arise. The time saved from fulfillment logistics would be spent on increased customer service.
4) Handling returns and refunds could be troublesome
Customers don’t know about your suppliers and you are the supplier to them. If a customer asks for a return, the process could be quite troublesome. The customer contacts you and you contact your supplier. Then you send the address of your supplier to the customer. When the package is received, you collect the refund and pass it to the customer.
What’s worse, you may have to deal with the restocking fee from your supplier. And if the products ordered are out of stock, you have to talk to customers asking them to wait or refund the money.
3. Dropshipping in big picture
Apart from drop shipping’s characteristics, we need to see it in the big picture. Here are 4 opposite opinions on the fate of drop shipping. First comes to what make dropshipping dead.
1) Amazon making drop shipping less attractive
As the CEO of Amazon Jeff Bezos said, people like low price, big selection and fast delivery. They are gonna be true for ten or twenty years from now. These three things are what amazon putting energy into. With irresistible limitation, dropshipping can hardly beat amazon on any of these aspects. People are much likely to purchase on Amazon for lower price, bigger selection, faster delivery and also better customer service.
Take delivery as an example, there is a successful service provided by Amazon called Amazon Prime. Customers can literally order any item on the site, receiving the package within two days. But for drop shipping, it takes ten to two business days to deliver the package which may cause increased customer service from complaints, bad customer feedback score and lower website conversion rate. Dropshipping delivery might be acceptable ten years ago when not so many people using amazon. Nowadays, however, few people have the patience to wait.
2) First mover’s advantage be gone
Since this business has been there for a while now, you’ve missed the first mover’s advantage. Next to no competition, you have all customers to yourself ten years ago when the market was not saturated. Dropshipping is easy to start with the help of Shopify or Woo-commerce. Too easy that every winning product only enjoys short-term success before others rushing in and sharing the pie. You would want a higher threshold to the market to filter those unqualified players.
There was a higher profit to make back to where it started with lower cost on ads and everything. Advertising can be quite expensive these days since more and more people are becoming savvy at it. To scale your business, you have to buy traffic on platforms like Facebook and Instagram and you have to run ads constantly to keep the traffic. But on Amazon, once your product got ranked, you don’t have to worry about ads anymore.
3）Guru overpraising drop shipping for course selling
Nowadays, a bunch of gurus are popping out on YouTube, announcing how great drop shipping is and how fast you can make money out of it to sell online courses. People who are looking for shortcuts to gain profit are most likely to be allured into buying those courses. However, they don’t know that sales can be faked and expenses can be partially concealed.
4）No quality control
Since products are directly shipped from supplier to customer, you have no chance of touching the product, let alone assuring its quality. When there is a problem, you can just refund the money with no opportunity to correct the product since it would be shipped directly back to the supplier. Brand equity can never be built this way.
There are also voices supporting it. Here are 2 opinions contrary to the points above.
1）Market not saturated
In some countries, dropshipping is a brand new business model. There is still space for new stores as long as you are willing to do the work. Your business would certainly be dead if you keep all things the same. Your goal is to find new customers, new products and continuously updating your websites according to the changing market.
Compared with the cost of ads ten years ago, today’s advertising is surely more expensive. However, if you look back ten years from now, you would also be amazed at how cheap today’s advertising is.
2) Some gurus aren’t doing the right thing
People may wonder if drop shipping is that profitable, why there are so many gurus selling courses online. Some of them are not trying to do it the right way. If your sole focus is to make money with little effort, you would fail. As long as you keep updating your site, product and your service according to the changing time, working with integrity, people would love to work with you.
4. How to do dropshipping in today’s world
There are many ways to use drop shipping to your advantage. If you are brand new to e-commerce, dropshipping can be your stepping stone into the business.
Dropshipping is a good vehicle for product validation. You can list a variety of products to conduct a research and then pick one winning product to buy inventory, getting a high margin. Dropshipping allows you to carry a large variety of products on a small budget.
Here are 2 scenarios you should avoid drop shipping.
If you want a personal brand.
Doing drop shipping, you are selling others’ products. It’s hard for you to build a brand and develop brand recognition. There are times that people are not buying the value of products but they are buying from you.
If you are a expecting high margin.
If you want exclusivity. The majority of people buy for low price, big selection and fast delivery. But when it comes to, let’s say, affordable luxury, things are different. With more reasonable choices, people still pay for products like Apple. Why? They are paying for the experience and superiority to own the products. If you can do that with drop shipping, there might be a promising future.
To do drop shipping, you have to pay attention to the following 3 points:
Find trustworthy suppliers
You have no control of logistics and inventory, things on the supplier chain. Your business lives or dies with your supplier. It’s essential to build a partnership with someone you trust.
Build a great image
Words travel fast. If people are satisfied with your products and service, new clients will be coming one after another.
Care about customers
To sum up, you are gonna fail with the tunnel vision to only make money and don’t care about the customers at all. In this way, you are only selling products that people buy on impulse and regret later instead of life-changing products. You would have a bright future in this industry only if you are willing to go extra miles to help customers.
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