Drop-shipping is a method of selling products online, without needing a physical stock or even a warehouse or a physical store. Every time a product is ordered, the drop-shipping shop simply creates an order on a third-party shop or supplier who then arranges the rest of the order.
This will benefit both parties: the drop-shipping shop and the product’s original supplier. Especially since the drop-shipping shop sells the product at whatever price they want and gains a margin or percentage on each order made. The product supplier, on the other hand, gets more exposure as their products appears on more than one website and more orders.
Either way, don’t rush things:
It’s not clear for many people if owning a drop-shipping business can help them meet their financial goals. There’s a widespread idea that having a drop-shipping business can generate a big income quickly. This may lead to people quitting their fixed jobs before having a consistent plan. That’s why you should approach dropshipping the right way to see if it’s the right thing for you and if it would turn out more lucrative than your current job.
Is drop-shipping lucrative or even worth the try ?
At first, glance, owning a dropshipping business may sound like owning a successful online store, but with less work involved. Yes, indeed, you wouldn’t have to invest as much money to start a drop-shipping business as you would with an online store.
You don’t have to spend money in the production of the product or in the managing of a warehouse to store it, but you also would earn a really small cut from selling that product as most of the profit would go to the original supplier.
However, one expense you would have in common with an online store is the marketing and advertising, maintaining the website, and managing the sales. Also keep in mind that advertising that product is not going to benefit you “alone and forever”; like it would with a product you made and own the rights of. That’s because regardless of all the ads and marketing strategies you have to promote your store, someone can still go buy it from your rival drop-shopping store if it’s cheaper there.
Because of this, you would have to calculate if your profit margin in the long run would even be enough to cover your expenses, let alone produce an extra profit.
You will have to keep in mind that this is a very competitive business area. Yes, you may calculate the ideal profit margin that you would have to get for your business to be lucrative, but you should also have in mind that many other drop-shipping businesses may ruin your plans and set lower prices for the same exact products.
Drop-shipping and competition go hand in hand. A drop-shipping store lowers their cuts of sales in all cases. More product suppliers choose them this way and trust them to sell the most products because the supplier has a fixed original rate for all drop-shippers they sell too. So it only makes sense for the supplier to choose the lower-rates drop-shippers and maybe strike a deal with them and only exclusively sell to them to ensure they sell more in the long run. In this case, you risk losing your entire business!
It may sound harsh, but if you want to create a drop-shipping business, you should be prepared to have a very low margin of profit in the beginning at least, so you can be seen as an interesting offer to display products.
You don’t control the quality:
Since you don’t own the products you’re selling, much less produce them, sometimes it is hard to ensure their quality or guarantee it. One of the key elements, when you have a business that involves selling goods to the public, is to keep customers happy. It’s obvious, but sometimes we forget that, if we couldn’t satisfy the needs of a customer, they would never return and possibly go to our competition instead next time.
You might be very willing to solve order issues that your clients may have, but you have to take into consideration that unless the issue is related to the functioning of your website, or shipping; then it may be beyond your control. Much like the unhappy customers, you will see yourself contacting the product supplier, you completely depend on and try to get them to raise the quality or do something about the product. You’ll be pushing your luck then, because they may get upset or feel like you’re insulting their product.
Paying for marketing can be too expensive:
We have already established that this is a very competitive business area, but we didn’t address all the reasons. Yes, you need to lower your profit margin to be chosen. But how are you even going to be chosen at all if your website is hard to find?
It’s hard to create a recognisable brand; when the credit for the products you sell goes to the product owner or supplier anyway. That’s why you need to make a lot of research on how to build a recognisable brand that will be exclusively associated with your products.
Before you invest in drop-shipping:
It is way too easy to find few rare and “old” exceptions that made it in the drop-shipping world before it became so famous and before every other Dick, Tom and Harry tried their luck at it.
However, keep in mind that the people that made it in this industry, either found a rare product that they could buy the “exclusivity” to sell, or started early when it was still not very much understood. So you may want to keep this in mind and consider it before you go spend your life savings or your loved ones lives savings on nothing but a costly life lesson!
In the end, now you know the risks of drop-shipping and you can tell if this is a viable way for you to make money. If you think that you have what it takes to invest in the right things to make your drop-shipping business successful, then you should do it. Either way, Drop-shipping will always have the advantage that you won’t overproduce a product that will sit on your warehouse shelves for decades.