There is no doubting the fact that dropshipping business model remains one of the most reliable ways to make money online. This is due to how it offers sellers like you the rare chance of making huge profits on a consistent basis. Have you ever imagined it is possible to set up an online store and start selling within 30 mins? Do you know that no technical knowledge or skill is required to get started with this business model?
Having said all of the above, there is something you must know about dropshipping. This is the fact that although there are lots of benefits, it also has some shortcomings. Being aware of these will help you run a successful business. Well, you’ve come to the right place. This is because today, we will be talking about pros and cons of the business model. Read on to find out more about this.
Understanding the Dropshipping Business Model
As mentioned above, dropshipping business remains one of the best ways to start making money online without hassle. In this business, you setup an online store without bothering about having to hold up inventory. In other words, you are selling products that are not in your possession. Here is a clear explanation of how it works.
Let’s assume you discover a company that manufactures a high-quality electronic camera online. You contact them in order to know more about the product including shipping costs to customers who might buy from you. If the dropshipping supplier decides to sell for $35 per piece, you can sell for $235.
This means every order through your website brings in $200 as profit. Remember that the process of inventory management is taken care of by the dropshipping supplier (also called the product manufacturer). In this business, you need to focus on product quality.
Ensure you are selling something that is reliable to customers. This has been discovered to encourage repeat orders. For example, customers trust you when they purchase a product of high quality from your ecommerce store. Next, we will be discussing the various dropship pros and cons.
Bright Side of Dropshipping (Pros)
Low Startup Costs: This is one of the numerous advantages of dropshipping business over most ventures on the internet. Do you have a low budget? Are you aware that traditional retail businesses can put a hole in your pocket? For instance, you need to rent a physical store and stock it with products. Also, you will handle everything related to shipping costs.
However, all of these problems are completely eliminated when it comes dropshipping business. For instance, you can get started with as little as $50-$100. You don’t need to worry about the cost of buying products in a bid to resell them for profits.
The benefit of this is that you are spending little or nothing to sell products for very high profit margins. Dropshipping remains the most viable options for people with limited budget. You can start to selling any kind of product without bothering purchasing them. Just choose the right product and you’re good to go.
Flexibility & Freedom: Running any of those traditional retail businesses requires your time and commitment. For instance, in order to sell products, you must be present to meet the needs of customers. This means you can’t get engaged in other activities. Of course, the last thing you want to do is start a business that doesn’t allow you to do anything.
However, dropshipping is quite different because everything is done on the internet. Imagine being able to sell countless products while you’re sleeping or watching your favorite tv programs. Customers order for products from your online store, and your supplier handles the shipping.
You can even setup various dropshipping stores to make more profits. It is a set and forget system that runs on autopilot – from purchasing to fulling customer orders.
You will see how highly flexible this business is once you’ve found the right dropshipping stores.
Scalability: This is one of the reasons why dropshipping model has become very popular on the internet. If you’re running a brick and mortal business, it is always difficult to scale. This means you can’t do more of the same thing in order to make lots of profits. You will likely record low profit margins investing in this kind of business.
However, dropshipping is different. In this ecommerce business model, you can easily expand to any level possible. It is all about finding a winning formular that you can replicate over and over again for more profits.
For instance, you find a watch that can generate 500% profits once sold to the right people. At this point, you can decide to scale by creating different stores that can target various countries and languages around the world.
Furthermore, you can follow the blueprint to finding profitable products to set up various online stores. All of these can be done within few days or even weeks.
Wide range of products: The truth about dropshipping is that making lots of money is not straightforward. To achieve such, you need to know the secrets of experts. One of such secrets is dealing in a wide range of products. You can’t live the life of your dreams by selling one item. You will be out of business if such product begins to phase out of the market.
Dropshipping gives you the rare chance of being able to deal in different products. It could be electronic devices, fashion wears, automobile accessories, health related products and more. You just need to find the right ecommerce platforms. This is where you will meet reliable dropshipping suppliers.
It is not easy to sell different products in a conventional retail business. This is because you are likely going to suffer from capital constraints. Remember that dropshipping requires little or no capital to get started. When it comes to how many products you can sell, the sky is your limit.
Low risks: It is not enough to consider the profit margins of a business model. This is because there are times when the risks might outweigh the profits you can make. To make money online, you need a business that has minimal risk. This helps you to minimize loss and maximize profits. When compared to other business models in the aspect of risks, dropshipping is better.
For instance, you don’t have to bother about inventory management. Also, you won’t rack your brains on how the fulfilment process is being handled. If products get damaged while shipped to customers, your supplier will absorb the loss.
So long as you are partnering with the best dropshipping suppliers, be rest assured that you will have minimal risks. If there is any issue related to unsold inventories, such won’t be your concern. This is what makes dropshipping profitable.
Down Side of Dropshipping (Cons)
Low profit margins: It is true that you’re likely to make lots of money from this business. However, do not forget that sometimes, the cost incurred by suppliers can affect your profit. These could be cost of managing inventories, shipping to customers and others.
This is why many dropshippers have been frustrated in the past. They choose products with very high costs. In the end, they make little or nothing. To overcome this challenge, you need to communicate with your preferred supplier. This is because if supplier price is too high, your profit margins may get affected.
Find out about the price of such product including any additional charges suppliers might include during order fulfilment. Also, do thorough market research on the price of what you are selling. This ensures you don’t overprice or underprice as compared to competitors.
Learn to find dropshipping suppliers who can offer the most competitive prices. This may take time but it is worth all the stress. It is one of the easiest ways to avoid lower profit margins.
High shipping costs: This has been probably the most notable problem associated with dropshipping biz. Your profits can be adversely affected when shipping fees is considered high by customers. Have you ever stumbled upon any of those online stores where they are selling items for less than $10 but claim their shipping cost is around $100? Many customers are likely to consider this as unrealistic.
High shipping costs can significantly impact the customer experience. Therefore, it is always recommended to work out the perfect shipping plan for your customers. Partner with your supplier to ensure the overhead costs reduce.
Another way to eliminate this problem is selling high-ticket items. Customers won’t bother paying for the cost of shipping their expensive items. In other words, stay away from products are too cheap to dropship. They can cost very high to ship to customers.
Longer shipping times: The rate at which products are shipped can determine whether you’ll be successful or not in this online business. Remember that there are multiple factors to take into consideration when products are being shipped.
These could be reliability of the logistics company, supplier reputation in delivering items on time and more. All of these are beyond your control since you don’t have your own inventory.
Order fulfilment is successful when customers have received their products in good shape. Anything short of this could make you to start thinking about processing customer returns. One of the easiest ways to deal with this issue is working the credible suppliers.
Also, use the most advanced and sophisticated marketing tools to monitor when customers place orders on your ecommerce stores. These will enable you to commence the process of order fulfilment earlier. Customer experience can be greatly influenced by shipping times.
Limited control over customer experience: As a dropshipper, you want to ensure that the expectations of your customers are met without any compromise. This can help you make more profits as well as build a successful business model. However, the problem is that you have little or no control over your customers’ experience.
For instance, you may want to offer them high quality products to encourage repeat orders. However, suppliers may decide to compromise on the quality of such items. This happens when the products are very cheap on the supplier’s official website. While you may be thinking about making 100% or even 200% on every sale, your customers may not get the ultimate experience.
Even in order fulfilment and shipping, you have limited control. A supplier may decide to ship products late even when you’ve placed order on their website. This will cause late deliveries and lower profit margins.
High competition: Just like many other businesses out there, dropshipping has very stiff competition. Whether you are selling branded products or non-branded items, be prepared to deal with knock-offs.
One of the reasons why you will experience lower profit margins is when you and other dropshippers are dealing with the same suppliers. To overcome such challenge, you can come up with your own branded products. There are suppliers that will customize your products. This will make such items unique amongst others in the market.
Again, find dropshipping suppliers with the lowest inventory costs and overhead costs. Also, avoid implementing dropshipping product ideas that many people are already using. This is a recipe for failure. Instead, adopt unique marketing strategies to stand out.
How to address the common challenges?
In this section, we will be highlighting some ways to overcome the problems you can face as a dropshipper. Check them out below:
Find backup suppliers: This is very crucial if you’re going to run a successful business. Never make the mistake of depending on one supplier because something can go wrong. For instance, your sales can be affected if they run out of stock. Having multiple suppliers can help to fill in any gap whenever such is necessary. Thus, start looking for potential suppliers you can partner with in the future. above all, ensure your supplier prioritizes high product quality.
Diversify product offerings: It is wrong to dropship only one product. If the product declines in the market, you could experience lower profit margins. However, if you have multiple product offerings, your business can thrive. Your goal as a dropshipper is to ensure 100% customer satisfaction. Aim to offer different premium products on your online store.
Choose local suppliers: This is a very powerful strategy once used correctly. It involves choosing suppliers that are close to your target market. For instance, if you are targeting a group of potential customers in the US, there is no need partnering with a third party supplier that is located in China. This is because shipping costs and other overhead costs could be very high. Combine this formula with high product quality and your success is guaranteed.
Consider branded dropshipping: There is less competition when you are dropshipping your own branded products. This is because the competition isn’t as high as when you are selling a general product like others. Although creating private labels on your products will cost you additional money, it is highly recommended.
How to Set Up a Dropshipping Business
Choosing the Right Dropshipping Suppliers
Without being able to find dropshipping suppliers that can meet your customers’ needs, your chances of succeeding in this business is very slim. This is the first step to take in order to setup this business correctly. Here are some tips for choosing a trusted supplier.
Research dropshipping suppliers: You need to sign up with the various dropshipping platforms like Alibaba, Amazon, Aliexpress, and others. These dropshipping companies will give you access to suppliers that you can partner with on different product categories.
Find out about the reputation a potential supplier before making any commitment. Finally, ask questions about their shipping process, inventory management and more. The golden rule is to avoid fake suppliers.
Evaluate supplier fees: Suppliers will always vary based on their fees. Therefore, you need to dig deep to find out the right suppliers who can help you make maximum profits.
It is advisable to compare suppliers based on their return policies, shipping fees and product prices. Choose the one that will likely favour your customers.
Read reviews: It is risky to partner with a supplier who hasn’t been used by other dropshippers before. This is like shooting yourself in the legs without knowing because you may end up losing customers once they fail to deliver on their promises.
To find out about the reviews on a supplier, visit third party websites. There are dropshippers who are ready to give their honest and unbiased opinions on a supplier. Their reviews will be of great help.
Creating an Online Store
Without an online store, you can’t be a successful dropshipper. This is because it helps you function as a link between suppliers and potential buyers. Let’s look at some tips that can help you create a high converting store online.
Choose an ecommerce platform: You need to choose the right platform. This must align with your business goals. There are lots of platforms like Shoplazza, Dropship.io, Zendrop and Aliexpress. Look out for their payment options available to your potential customers.
Also, consider features like product listing, shipping management, third-party integrations and automation capabilities.
Set up product listings: There are several steps you can take to achieve this. For instance, ensure your product images are attractive. Also, write engaging product descriptions to convince customers into ordering.
This can be achieved by converting features into benefits. In other words, tell potential customers how such product can help them. Products should be explained in self-explanatory terms.
Configure shipping options: This is very important for every dropshipper. It is all about setting your shipping options, rates, and stating times for delivery. If you do these properly, potential customers won’t have to guess on how much they are paying upfront for shipping fees.
Conclusion
It is very clear that dropshipping is a business with numerous pros and cons. You need to have adequate knowledge about these benefits and drawbacks before making any commitment. The advantages are low startup costs, flexibility & freedom, scalability, wide range of products and low risks.
On the other hand, some drawbacks of the dropshipping business model are low profit margins, high shipping costs, longer shipping times, stiff competition and limited control over your customers’ experience.
We managed to reveal how you can deal with these challenges for long term success. These are working with local suppliers, selling branded products, and diversifying your product offerings.
Finally, we talked about how you can get started with your own store. This is not as difficult as many experts are always trying to sound. If you can find the right platform and supplier, your success will not know any bounds.
FAQ
Is dropshipping actually worth doing?
Of course, dropshipping remains one of the most profitable business models around. Imagine not having to worry about managing shipping, inventories and returns. What about the cost of getting started? It is quite minimal compared to a conventional traditional online retail business.
Why do most people fail at dropshipping?
There are numerous reasons why people struggle in dropshipping business. For instance, they lack the knowledge on how to find evergreen products. Also, they always struggle to enjoy long term customer loyalty. This is due to not being able to find the right third party supplier who can help them succeed.
There is also the challenge of depending on one supplier. This can ruin things for you especially in a situation when there is low stock.
What are the problems associated with dropshipping?
There are many of them. However, the most notable challenges are high competition, low profit margins and limited control over products your customers may be purchasing. If you can overcome these nightmares which many dropshippers seem to be struggling with, your success will be guaranteed.
For instance, do not sell a product that is too common in the market. Instead, try to find unique products within the same niche. Furthermore, always choose a tested and trusted supplier. Their products may be expensive. However, your mind will be at peace knowing they will deliver for your customers.
Can I Start Dropshipping For Free?
This is very possible today. In other words, you don’t need to break the bank in order to get started in this business today. There are lots of platforms on the internet that can offer you free trial. Just use Google to look out for them.
