Dropshipping is a unique method of supplying retail products to end consumers or buyers. This method has several distinct advantages over traditional retail operations. But, dropshipping also has some disadvantages that can make it very difficult to be successful if not accounted for. Today we’re going to dig deeper into the dropshipping business model and discuss all of the positives and negatives about it.
What Is Dropshipping
In my last post discussing eBay vs. eCommerce, I briefly mentioned dropshipping. Basically, dropshipping is a method of selling retail products to consumers where you take the order from the consumer first, then go to your wholesale supplier and order the product. The supplier ships the product directly to your customer and it generally looks like it came from you and your business. You never touch the product or deal with any of the hassles of inventory or shipping.
As you can imagine, there are several advantages of this type of business.
There are several things that make this type of business very attractive. Some of them are:
- You don’t have to stock any inventory. All of your products are ordered from your suppliers after your customer orders from you.
- No inventory means less space required. Since you don’t have to warehouse a bunch of products and inventory, you don’t need as much space to run your business. In fact, a dropshipping business can easily be run from your house.
- Minimal start-up costs. Since you don’t have to buy a bunch of products to stock or need a lot of space to run the business, your start-up costs are usually significantly less than those of a traditional business. Some brick and mortar businesses can spend hundreds of thousands of dollars in inventory alone just to be able to open their doors. That’s before their first customer ever walks in the front door. Talk about starting out in a hole.
- Day-to-day operational costs are also lower. With no inventory and no need for an off-site office or warehouse, you can really minimize your daily operational costs. All you need is a computer, internet access, and a phone. No extra insurance or rent to pay. No big start-up loans to pay back. You don’t have to pay for a bunch of employees and all the costs associated with payroll.
- You can run your business from anywhere in the world. As long as you have a computer and internet access, you can keep your “doors” open and keep your customers coming in, regardless of where you’re at or what you’re doing.
These advantages are pretty impressive. Take a minute to talk to anybody that has started a traditional business and they’ll tell you how much easier it would’ve been for them if they hadn’t had to deal with all of the things mentioned above. But, that doesn’t mean that it’s all peaches and cream. There are some strong disadvantages to dropshipping, also.
Nothing in life is perfect, it just doesn’t exist. So, even though there are some huge advantages to dropshipping as a business model, there are also some fairly significant disadvantages that can destroy your business if you’re not careful. Some of the disadvantages are:
- Lower start-up costs means higher competition. It’s a simple fact of life that if there are low barriers to entry into any activity or business, there’s going to be a lot of competitors in that business. If people can get in easy, more will try it out.
- Higher competition means smaller margins. With more businesses to compete with, you have to charge less for your products to stay competitive yourself. That means there’ll be less profit in each sale. There are some niches where the margins are razor thin simply because there are business owners who can afford and are willing to provide their products for pennies on the dollar. But, it’s not always about the price, which is a topic of discussion for another day.
- Finding quality suppliers can be difficult. Try running a Google search on the term “dropship suppliers” sometime. You’ll get a ton of results back, but the problem is, many of those “suppliers” are not true wholesale suppliers. The dropshipping industry has gotten so popular that a bunch of suppliers have popped up claiming to supply products at wholesale prices. In reality, they’ve simply inserted themselves in the supply chain and are charging almost full retail. All this does is further cut into potential profit margins. And some of these “suppliers” are pretty shady to boot.
- You have to monitor your suppliers for inventory and price changes. When you don’t stock products yourself, you have to continuously monitor your suppliers’ stock of products to make sure they’ll be able to fulfill your orders when they come in. Also, you have to watch for price fluctuations. A small move in the price of a product can eat up any profit you might have had. I learned this lesson the hard way, and it cost me a couple hundred dollars, but that’s the nature of business.
- You need to have a large number of products listed. In most cases, to be successful, you need a bunch of products listed in order to meet the needs of your niche. With my ecommerce site, I had approximately 80 products listed, but I really needed several hundred. It takes a lot of time to research, locate, and list products. Then, going back to #4 above, you have to keep track of price and inventory for all of those products you have listed. It can be extremely time consuming if you let it take over your life.
- You have to get traffic to your storefront. Just like a brick and mortar business, if you don’t have customers coming in, you don’t have sales going out. For a web-based business, you have to generate web traffic to get enough people to look at your offerings in order to generate sales. Just like listing products and monitoring inventory, generating traffic can be a time-consuming task.
As you can see, dropshipping is not some Utopian business model that’s all positive with no negatives. But, it is still a great, and quite profitable, type of business. It’s an excellent way to make money online. It just takes work. But that’s probably one of the biggest problems with any business that can be run from home in your spare time. Because it’s so easy to get started, and doesn’t require constant attention to get going, people tend not to treat it for what it is, a business. If you don’t work it consistently, you won’t grow a successful business. Of course it would be a little easier if you could avoid some of the disadvantages I listed.
Well, I’ve stumbled upon a program that can do just that. It’ll show you exactly which suppliers to work with. It’ll show where to list your products so that traffic won’t be an issue. It has a way to automate inventory and price tracking. It will even show you how to list products so that competition and profit margins are not an issue.
You still have to do the work, it can’t do that for you. But, it can make the rest of the problems go away so that you can focus on doing the work and being successful.
If you’re considering starting a dropshipping business, you owe it to yourself to check it out. Click here to watch a short video that explains how you can avoid many of the problems I mentioned above. That’s an affiliate link, by the way.
What About You
Have you ever thought about starting a dropshipping business? If you did, how did it go? If not, what prevented you from giving it a try? Do you think that a program that could help you avoid many of the pitfalls might be advantageous to you? Take a minute and leave a comment. I’d really like to hear your thoughts. Also, please take a second to share this post via the social media buttons to the left. I would really appreciate it!
Until next time…