What is dropshipping?
Diving into the world of dropshipping can be an exciting avenue for business owners interested in simplified eCommerce.
Instead of handling and storing products on your own, you work with third parties to supply your customers.
There are plenty of interesting factoids to consider when becoming a dropshipper, which we’ll explore here.
What Is Dropshipping?
The simplest way to understand dropshipping is to look at it as a fulfillment method.
Instead of an individual store stocking its products, the store uses a third-party supplier.
Basically, you purchase products from this supplier, which they then ship directly to the customer.
Small business owners can often prefer this process, as you don’t need to worry about warehouse space.
Also, you won’t be responsible for managing to ship your products, which many find to be more convenient.
It’s usually recommended for businesses searching for a more hands-off approach to selling.
Entrepreneurs are most likely to find dropshipping to be advantageous because of its simpler business model.
Your primary responsibilities will be attracting new customers and processing orders, reducing your workload.
However, you will still be able to reap the majority of the profit from your sales, which can make it rewarding.
With that said, there are plenty of advantages and disadvantages to dropshipping, as with any business model.
Many entrepreneurs boast about all of the advantages, but there are plenty of hard truths to consider.
What Are the Benefits of Dropshipping?
There are several positive outcomes of starting a dropshipping business, which is why they are as popular as they are.
Let’s take a look at some of the most noticeable advantages you are likely to come across.
Compared to other entrepreneurial ventures, it is incredibly easy to start a dropshipping business.
As long as you can learn and understand the basic tenets of the process, anyone can do it.
You won’t need to worry about renting a warehouse or paying for a team to manage products.
With that said, it does not mean that dropshipping is something you can start doing in seconds.
You must learn about the most valuable tools to help you get started.
For example, you need to know how to find third-party suppliers, manage orders, maximize outreach, and more.
As you won’t have to worry about the hands-on aspect of managing products, scaling your dropshipping business is simple.
Unlike other business ventures, this avenue allows you to allocate the same amount of time and effort over the coming years.
You will likely have to focus more on marketing as your business gets more prominent, but managing products will stay the same.
Another considerable contributor to the scalability of dropshipping businesses is their limited costs.
Even as companies get larger, you won’t notice a significant increase in your overhead.
However, traditional brick-and-mortar stores will experience higher costs.
For example, you might have to purchase larger warehouses and hire more employees to manage your own inventory.
As a dropshipper, the most you will have to worry about is ensuring you find a supplier with enough inventory to meet demand.
Lower Immediate Investments
If you were to ask any dropshipping professional why they got started, their first reason is low capital.
It is unlikely you will need to come up with tens of thousands of dollars to get started as a small dropshipper.
Most entrepreneurs start their venture from their personal laptops without requiring significant investments.
Then, even as time goes on, the amount you put into your business will stay the same.
The significant advantages of lower direct investments are prevalent when comparing dropshipping to traditional business models.
When you own a traditional brick-and-mortar business, your hands will be tied in every area of the company.
You’ll have to manage marketing, inventory, selling, customer experience, shipping, and more.
Even with a team, it is likely you will feel like your hands are full of responsibilities.
Dropshipping, on the other hand, helps improve your flexibility as a business owner.
The majority of the day-to-day inventory tasks are managed through the third-party supplier.
This process allows you to focus more on marketing and outreach, growing your consumer base.
Another significant advantage of its flexibility is that you maintain complete control over your time.
Business owners can come up with strategies without needing to double-check with other owners.
You also have the opportunity to automate the majority of your processes, allowing your business to run itself over time.
The Hard Truths About Dropshipping
Now that you have an idea of the benefits of dropshipping, it’s important to consider the disadvantages.
As with any business venture, it is not the perfect model for everyone looking to make a liveable wage.
Let’s take a look at a few of the most discussed issues with a dropshipping business.
Lower Profit Margins
The most significant issue with dropshipping is that your profits are likely to be considerably lower.
It is important to note that although third-party suppliers streamline processes, they also need to be paid.
Every product you sell will have a percentage going to your supplier and the rest you use for yourself.
A chunk of your profit will also need to be reinvested into new products with good business practices.
Likely, you won’t be making a significant amount of money when you first start your business.
When working in highly competitive niches, such as affordable electronics accessories, profits are even lower.
There are several components that you need to consider when it comes to calculating your profits.
You will need to account for additional expenses, cut your profits that go to the third party, and competitive prices.
This point is crucial within competitive niches, as other sellers can quickly undercut your costs.
Many dropshippers suggest that the discounts you get from wholesale products make up for your loss of profits.
However, it is likely your discounts will be less than 20%, which isn’t considerable enough to make a difference.
Also, as most of your sales come from direct site traffic, a lot of time and money must be invested in online marketing.
Highly Competitive Avenues
You can guarantee you are not the only person in the world who has ever considered dropshipping.
In fact, it is one of the fastest-growing eCommerce industries in the world.
With that said, most products that you think are an excellent idea for dropshipping are highly competitive.
Not only are you competing with sellers in your immediate area but around the world as well.
It is easy for first-time entrepreneurs to get overly excited about the low overhead of dropshipping without considering competitiveness.
You will need to offer competitive pricing, an easy checkout experience, and high-quality products simultaneously.
Also, you will be competing with dropshipping companies with established, loyal audiences unlikely to jump ship.
The larger your competitors are, the easier it will be to reduce their pricing to stay at the forefront.
As a small startup, you are likely to have higher prices, limiting your competitiveness in top-tier niches.
Lack of Control
Business owners who prefer to have a hands-on approach to their business aren’t suited for dropshipping.
In fact, if you want to maintain control over the main aspects of business, it’s not the right avenue for you.
You will have little say in fulfillment speeds, the quality of your products, or even return policies.
All of these aspects are the responsibility of the third-party supplier, which can be challenging to manage.
This point is significant to consider if you use international suppliers.
You won’t be able to visit the warehouse for in-person appointments, and there are often significant language barriers.
The most that you can do with the majority of suppliers is register complaints with the company.
You will then be at their mercy to hope that they improve their efficiency or product quality without assurances.
Relying so heavily on another company can be disastrous, especially if product quality is a significant concern.
Customer service is a significant part of eCommerce, and with poor consumer experiences, your reputation becomes worse.
Knowing how vocal customers are, you might begin incurring negative reviews before getting a handle on the issues.
This reason is why some of the best dropshippers work with local wholesale manufacturers rather than international options.
Another considerable disadvantage to dropshipping that’s often overlooked is accountability.
Remember, your company is not responsible for manufacturing, packaging, and shipping the product.
You are simply connecting consumers with another company’s items that you’re selling and taking a cut from.
With that said, any issues consumers experience with products will feel like your direct responsibility.
If a customer has an issue with quality control, it will be seen as your fault.
Products that arrive late due to poor shipping efficiency could also result in negative reviews.
In these cases, you will not only have to accept responsibility as the merchant, but you’ll also have to rectify the situation.
If this does not seem like something you’re interested in, then dropshipping is a business practice to avoid.
How to Make the Most of Dropshipping
As you can tell, there are plenty of pros and cons you’ll experience with dropshipping.
Having top-tier business practices can help make the task far more enjoyable and streamlined.
Let’s take a look at some of the key tips dropshipping entrepreneurs suggest you take into account.
1. It’s best to make dropshipping your side job.
Although it can be tempting to throw a bunch of money into a new venture, quitting your day job isn’t ideal with dropshipping.
Once you establish a solid customer base and start acquiring more income, transitioning to full-time work could be possible.
While it is a source of consistent income for many beginners, the profits are likely to be small at first.
The most important thing to consider with a side hustle is to ensure your primary employer doesn’t have restrictions.
Ensure you didn’t sign a non-compete agreement and ask HR if there are any guidelines about side businesses.
If you are in the clear, it is a great way to make a few extra dollars on the side to build a good nest egg.
2. Take a lot of time to source high-quality suppliers.
One essential task for any dropshipping business is to make sure they work with quality suppliers.
Not only will you want a manufacturer with good products, but one that also has sound business practices.
Avoid companies that use trademarked logos and slogans and those that pay unfair wages to their employees.
It is also important to find suppliers with many years in the dropshipping industry, ensuring they’re prepared for anything.
They should have an efficiently streamlined packing and shipping process as well as inventory management protocols.
The better your supplier manages day-to-day operations, the less of a headache the process will be.
3. Always maintain an open line of communication.
There’s no doubt that you will need to contact your supplier regularly to manage inventory and sales.
It should be easy to contact the business if you have any questions, concerns, or updates.
Dropshippers recommend finding manufacturers that have more than one method of contact.
By keeping an open line of communication, resolving issues will take significantly less time.
The more efficiently you can rectify concerns, the happier your customers will be, resulting in better reviews.
Ideally, choose a supplier with email, phone, and online chat support for quick access during business hours.
4. Don’t forget the importance of online marketing.
It’s important to remember that, with this business venture, all of your sales will be due to internet traffic.
Unlike brick-and-mortar businesses, dropshipping is an entirely online process.
As such, you’ll want to invest the majority of time and money into marketing, attracting more customers to your brand.
Once you’ve developed a good audience, you can then impress them with the quality and efficiency of the buying process.
The more positive experiences you provide, the better your reviews and reputation become.
Knowing what is dropshipping can open many doors if you want to get into eCommerce.
You just need to find the perfect supplier and focus on online marketing to start a user-friendly business.