One of the emerging trends in e-commerce business is dropshipping. By definition, dropshipping is a form of business method where products are not being held in stock. The “dropshipper” posts the product on their website, generates sales through there, and then forwards the order to an external supplier where the shipping is processed from there.
While that may sound like an easy job, the dropship business is not exactly a walk in the park. Yes, it all sounds real simple, no keeping of stocks in your place. All you have to do is post the product, do some marketing, and gain profit. But the technicalities, the hassle of management and monitoring, and other things that could stand in the way of a smoothly-running business.
But don’t turn away from the opportunity just yet, because with the proper guidance provided in this article, you can easily maneuver your way to the top of the dropshipping business. A little disclaimer though: it is going to take time and a lot of patience on your part.
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As an initial business method, dropshipping is quite hard to get it up and running and may take a little while to generate you some sales. However, if you’re already experienced in the field, dropshipping could just be an addition to your services and another method of selling products.
Further in this article, I will cover many facts about the business that are not talked about much – both the good and bad sides of it. All cons aside, dropshipping can be a very strong suit in the e-commerce business if done right.
The Harsh Unspoken Truths about Dropshipping
Planning to invest all of your dough on the promising illusions of dropshipping, think again.
Profit Margin is not so great
One might think that because you don’t have to spend on extra costs with keeping inventory, that capital is a breeze. But here’s the thing: the returns are low as well. You sow a little, reap a little. That’s basically the system of the dropship business. Website management and maintenance, and regular marketing and advertising are needed to keep your store visible and active on the web. And even so with the advertisements, conversion rates are generally low and unstable. You have to pick a smart niche and then keep up with competitors. Your mark-up will be just around 20-25%, a small return compared to the initial costs mentioned. The challenging part is that your prices need to be in the low range to attract a decent sales volume, which is primarily dependent on the traffic that your website gets – which is why it is not recommended for newly-established websites.
There are tons of competitors in the business that have already established themselves as household names such as Home Depot, Overstock, and Wayfair. These famous brands have become largely popular. Add the mid-scale dropshippers that already have the advantage of experience. Internet traffic is divided among several websites. Hence, if you’re new, you’re likely to get the smallest piece of the pie. Business owners tend to overlook just how significant the impact of competition is in establishing a business. The lead-runners have the advantage of lowering their mark-up prices because they have already generated profits and can therefore afford to have it lower. For start-ups and smaller businesses, while being competitive with your prices is a good strategy, it won’t suffice when it comes to the capability of supporting further business costs.
Product quality is out of your hands
In a typical selling system, you can handle any issues about the products on your own. However, in dropshipping, you don’t get to have a hold on the products when they are sent out for shipping. You have no idea about their condition, no specific details about their quality, and yet, you are still held accountable and responsible in providing the customers that come your way with sufficient and accurate information. You can only do so much as a middleman between supplier and consumer, and all you can do is rely on the data that your suppliers provides you with, and they may not be there at your beck and call at any minute of the day. Customer service is integral in gaining customers and getting them to stay. It largely defines whether or not they will be a repeat customer. Any mishap in customer service is a red flag that drives customers away. Worse, if word gets out, it could jeopardize your entire business.
Brand building is next to impossible
Take note that the products you sell aren’t yours. You merely serve as a channel for other suppliers to advertise their products on. Nothing is your own. So if you’re trying to establish your own name in e-commerce, dropshipping isn’t really a step in the right direction. Like it or not, you’re a supermarket. And if customers enjoy what you sell, you don’t get any credit for it, the name on the container does. You could have an edge in terms of website experience, but that’s almost the extent of it. Again, traffic will be rate-limiting step here.
The Silver Lining
You’re probably discouraged at this point, but don’t go away just yet. In spite of its drawbacks, there are a few things that dropshipping can be good for. While it may not do much good in the frontlines, it can be a good support for online entrepreneurs looking for ways to expand.
Looking for a new niche? Dropshipping could be an effective way to gauge the demand for certain products. It can serve as a temporary method of sales generating and also determining how well a product sells online. This can save you the hassle of obtaining a product in bulk before you even try to sell them.
Sales isn’t always steady. There will be times when the market hits a low point and things will become quite rocky. Dropshipping can keep you safe from that danger of stocking up too much inventory that costs you more than you can gain. The amount of stocks you hold can be just enough for the average sales volume that you gain. If you get more than you initially expected, dropship the rest of the orders. If any danger may befall the place where you keep your stocks, you can still fulfill orders through that method.
If you are not capable of arranging a shipping system from where you are or its too costly for you, dropshipping can take that burden off your shoulders. Also regulatory factors can hinder some shipment processes, so dropshipping products can spare you the headache of actually dealing with those problems.
Products that require special handling
Storage is something to be considered in a business. If you are selling products with specific storage requirements beyond your capability, the next best option is to opt for dropship to save yourself the added responsibility of maintaining the condition of products that need to be in a kept specific environmental condition.
A Quick Guide for the Aspiring Dropshipper
Conduct a thorough research on the best products to dropship today. Get some information on the most in-demand products. There are a lot of niches you can choose from. Scout the competition. Find reliable suppliers and establish a strong business relationship. Also, ask the common questions such as how they deal with customer complaints, and problems in product quality or shipping. Always check their legitimacy. As much as possible, look for customer reviews.
This article is not meant to stray you away from the idea of a dropshipping business. In fact, I intend to educate you on the things that you would never think you’d need to know. This is to prepare you for the possible problems you might encounter along the way so you can come up with a solution beforehand.
One fact remains: dropshipping is not recommended for online businesses that are only starting. We advise that you establish a foothold on the web first, build your brand, and gain some awareness and customer loyalty before you delve into dropshipping.
However, if you’re confident that you can pull it off despite of everything you just read, by all means, GO FOR IT. I’m rooting for you.