Dropshipping has been the holy grail of online businesses for a long time.
No matter who you are, or how long you've been an entrepreneur, you've heard of dropshipping and maybe even tried it.
The first business I ever started was an eCommerce business that sold back stretchers.
Had it not been for my weak mindset and lack of self-control, that business could have been an amazing success story.
There are a ton of places one can go to learn about eCommerce for free; I was able to find a full A-Z course on dropshipping the first time I decided to learn more about it.
The low barriers to entry make it the perfect business that any new entrepreneur looking to start their own business should learn more about.
Add the fact that there are multiple ways to drop ship, including Amazon, Shopify, eBay, and Etsy, entrepreneurs have a plethora of options at their disposal.
However, given the fact that this business model is so popular all around the world, many still ask the question: 'Is dropshipping worth it?'
I've written multiple articles that explain the dropshipping process and whether it still works in 2022 yet I've never directly spoken about the pros and cons associated with the business model.
Is dropshipping worth it? Let's discuss.
Let's begin with the pros associated with dropshipping - what are the reasons one might decide to start dropshipping?
Simple to set up and start
Dropshipping is by far one of the easiest businesses to set up and run.
Of course, to succeed with dropshipping there's a lot more that goes into it.
For example, not every product will be a smashing success right out of the gate.
However, it's fairly simple to find the right product to sell - here are the criteria for a winning eCommerce product.
There's no tricky coding involved, no product development, all it takes is to choose a product, create the site, and start advertising.
We'll eventually discuss why this approach is not the best, yet the concept doesn't change too much even if you decide to build an eCommerce business the right way.
No inventory needed
Owning a business, especially a commerce business is fairly difficult.
Making sure that you've got room to store your goods or ensuring you don't run out of stock for the month is very important.
Once you do run out of stock, you need to reorder the stock and wait a while until it arrives.
With dropshipping, you don't need to worry about stock - at all.
As long as you find a reliable supplier who has systems and processes in place to ensure their stock levels are consistent, you should be good to go.
One of the biggest advantages to owning a dropshipping business is the fact that you don't need to keep inventory - ever.
Unless your business becomes a world-class brand, and people can't get enough of you, you're not going to need to worry about inventory for a long time.
Your supplier will handle both the inventory and the delivery of your goods directly to your customer.
Dropshipping is essentially a business where you're the middle man.
You advertise products directly from suppliers, and once you make a sale, you communicate this to the supplier who then ships the goods to the customers.
That's essentially it.
Low overhead costs
Aside from the fact that you don't need to physically hold any inventory yourself, dropshipping is a completely digital business that lives online.
While shop keepers pay thousands in rent every month, and some even struggle to keep up, you, on the other hand, need to make sure that you have around $30 per month to pay your 'rent.'
The main costs associated with operating your eCommerce business (aside from goods or marketing) is your domain and platform fees.
Most eCommerce businesses are run on Shopify - even massive businesses like Kylie Cosmetics.
Therefore, you'll need to pay for things like your Shopify subscription and your website domain.
Together, this is no more than $400 per year.
Compared to a physical store that has to pay thousands or even tens of thousands, dropshipping businesses have relatively low overhead costs.
This only makes the competition greater because many entrepreneurs start from the same roots - low on dollars, looking to find a breakthrough.
Given the fact that eCommerce dropshipping businesses are completely digital businesses, this makes it very easy to scale your business.
As soon as you start to make your first initial sales, you can quickly start to reinvest your profits back into the business.
This triggers a 'snowball effect' which gradually grows over time, each time compounding until it starts to grow at a staggering rate.
As soon as you start to take in sales, you have the freedom to grow your dropshipping business to any height.
However, there are a lot of things that must happen before you can take it to the moon, or else it'll feel like flying a plane into space - it'll simply break down on the way up.
At that point, you'll need to start thinking about officially branding your products, adding your own little touches to make the products different, and ordering your own inventory.
Even then, it's still somewhat simple to run the business.
While other businesses require massive changes to scale aggressively, you can comfortably grow an eCommerce business into the 7 and even 8 figures with a small number of people helping you out.
Compared to something like a SaaS business which will most likely require a team of sales reps and technicians, a dropshipping business is much more convenient for the average person.
Many marketing channels
Marketing is most likely the most important cog in business.
When that cog is not turning, your entire business may also not be turning.
This is because if nobody knows about your products, then nobody can purchase them.
Luckily for you, there are a ton of options when it comes to marketing a dropshipping business.
Most people immediately go into Facebook advertising and Instagram advertising.
Although this is effective, almost every drop shipper and their stepdad is doing this.
Not to worry, there are still dozens of channels that people are not using.
Google and YouTube are likely the most effective marketing channels for dropshipping.
TikTok is the easiest and fastest way to reach millions of people at scale.
All it takes is one, short video to take off and your business will be completely different.
Better yet, TikTok can be completely free - all you need to do is order your own product and start recording some clips to throw on.
These clips can be used for TikTok, for influencers, for social media, and for adverts.
If you'd like to learn about marketing on Facebook, here's a simple article that explains how you can set up and run your first Facebook Ad Campaign.
That was a lot to go through.
However, it's now time to look at a few reasons why you might decide to stay away from dropshipping and instead look for alternate business models, for example, the digital marketing agency model or the SaaS model.
Long delivery times
One of the biggest problems with dropshipping is the long delivery times.
This is a primary reason why a lot of people fail with dropshipping as it's probably the main growth limiter.
Social media seems to enhance humanity overall, however, it also has its downsides.
One of those downsides is our patience and attention spans which are factually lower than a goldfish.
In today's day and age, almost all online shoppers choose Amazon as their primary method of shopping due to the extremely short delivery times.
As a prime member, you're able to get unlimited products shipped the next day, for absolutely free.
However, there are some dropshipping stores that charge customers for faster shipping which does not seem logical to many people.
Add the fact that Amazon is the largest eCommerce business with essentially every possible physical product available, it becomes extremely hard to compete with.
On average, sellers on Amazon earn $200,000 to $300,000 per year, and so it might be a smart idea to dropship via Amazon.
However, this will require you to order inventory in bulk which can increase your costs by a lot.
Other than this, there are almost no better options for dropshippers.
You can always find a local supplier, however, local suppliers in Europe or the USA can be extremely expensive compared to somewhere like China.
That's why it's important that you test your business model by dropshipping and quickly make changes to your business such as white labeling and ordering in bulk quantities to ensure you stay competitive.
Lack of control over quality/consistency
Another problem a large majority of dropshippers face is the steep return rate.
Many customers might find themselves hooked into an ad on Facebook which leads them onto a dropshipping store.
After their purchase, customers are left waiting weeks or even months for a product that does not match their expectations.
Furious, the customer then asks for a return which can be a big headache for dropshipping business owners.
However, there's a massive step that you'll be missing which can cost you greatly down the line - that is ordering samples of your product to confirm the quality and durability.
A lot of suppliers on Alibaba and Aliexpress are used to finding newbie dropshippers from who they can make a quick buck.
They advertised cheap, low-quality products and lure dropshippers in with the low price points only to then find out their products are terrible quality.
Although issuing returns is completely up to you, customers can report you to both Facebook and Shopify which can lead to much higher costs in marketing or Shopify shutting down your store for scamming.
That's why it's very important to order samples to check the quality of your products before selling online.
Don't make the mistake of finding a supplier and selling their products with minimal communication.
While some suppliers might be happy to cooperate and help you sort out refunds and returns, others will only be there to take your money and leave you high and dry.
Low profit margins
While dropshipping might be an extremely attractive business model, people rarely ever tell you about all the costs associated with the business.
Let's imagine you're selling a product for $50.
This product can be sourced from Alibaba for $20 per unit including shipping.
This is where most people stop - "$30 in profit is great, I'm going to be rich!"
That's where you're wrong.
There are still many fees and costs that are associated with dropshipping that no one talks about.
Firstly, there are the domain and monthly operation fees - this is only $30 per month, however, it can eat into your profits if you're a very small business.
Next, there are your marketing costs.
If you're running Facebook ads or any type of ads to acquire customers, you're going to be spending money to make money back.
For a product that costs $50, you might be looking at a $10-$15 acquisition cost.
Therefore, your $30 profit is now down to $15-$20. It's starting to look bad...
That must be it, right?
There are still processing fees per order.
This is around 2.9% of transactions plus 30 cents on top (from what I recall), meaning you're losing another $1.75 in profit to PayPal and Shopify.
Your profits just dropped down to $13.25-$18.25 - let's hope my maths is correct!
This means that we went from an expected profit margin of 60% all the way down to a true margin of 26.5%-36.5%.
This, actually, is pretty good for an eCommerce store. I'd avoid selling anything with a profit margin lower than 30%, although you can always become more efficient over time.
Those were all the main pros and cons to dropshipping. Was there any I missed?
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