Dropshipping is often lauded as an easy way to get into the ecommerce business. You set up a store and whenever an order comes in, you simply email the supplier. They package up the item and ship it to your "customer," and you keep the profit. Just sit back and watch the money roll in. You never even have to spend time or money keeping and tracking physical inventory.
This sounds great in theory. But like all formulas that promise to print money, this one is too good to be true. Its not as easy to be successful as many make it out to be. Here are the reasons why.
1. Low Barrier for Entry
It is relatively easy to get into dropshipping. You can get a site up and running that sells all of the latest electronics if you want, or all the latest televisions. It's so easy, in fact, that at least a thousand other people are probably doing exactly what you are doing. Your market is already saturated before you even think of it.
Without a large moat, anyone can replicate what you are trying to do, and they probably already have. That makes it harder to break through the noise to get customers, and automatically adds a premium on any of your marketing costs.
2. Hard to Come Up with a Unique Selling Proposition
Why should visitors buy from you, and not from the other 100 sites selling the same product?
Since you don't handle actual product fulfillment, and your own product selection is limited to what suppliers will let you dropship, it's hard to answer this question. It's hard to distinguish yourself via customer service and shipping speed, since you don't have the product and are not involved in shipping it. It's hard to distinguish yourself via your products because...well...others are selling those exact same products.
You can try to be the cheapest, but that is a losing game. There is always someone else willing to go cheaper, and margins on dropshipped items can be tiny to begin with. You don't have a whole lot of flexibility. On top of that, many suppliers will have a Minimum Advertised Retail Price anyway.
On the other hand, with a traditional ecommerce business, your suppliers and inventory can help set you apart from your competition, instead of keeping you down in the pit of mediocrity.
3. You Don't Actually Save Much on Time, Effort, or Cost
The promise of easy riches is what draws a lot of people into dropshipping, and the inflated expectations eventually pop like a weak balloon, dropping them down to earth with a crash. The internet is littered with abandoned hopes, the soil of dreams salted with hard reality. This isn't limited to just dropshipping of course, but running an online business in general as well.
But dropshipping in particular is hard. It requires almost all of the work of a traditional ecommerce business, but doesn't offer as many of the benefits.
- To do dropshipping right, you'll need to write unique, extensive product descriptions for every product. This takes time and/or money, and more than if you were selling truly unique products. If you just end up using the default product descriptions from the manufacturer, you might as well just pack up and go home before the race even starts. Duplicate content is a death sentence for any website.
- The images provided by suppliers can be too small or just awful in general, so taking your own photos might be required if you are to have a chance at success. This means buying the products yourself (at a discounted price, at least) and hiring a professional photographer. Or, less recommended, learn to take the photos yourself.
- Your marketing efforts and/or cost will be higher, because you have to try harder and/or spend more to stand out from the sea of sameness.
- Managing the store. You still need to upload the text and images to whatever shopping cart solution you choose. This sounds easy, but it can be grueling and monotonous. You also need to field customer questions and offer support, if you are serious about running a business.
- A custom design and professional branding are required to help you stand out. Using a template is an option, but it can really hurt your sales. Your design is your first impression. Take advantage of it.
As you can see, this can be a crushing amount of work for someone not expecting it, or someone expecting they are going kick back and relax while their business runs on auto pilot. And instead of the high margins that result from keeping your own inventory, you are limited in your product margins if you want to compete. If you instead but this effort into a traditional ecommerce business, with your own inventory and fulfillment, the rewards would be greater, especially down the line. In addition, there are ways to get some of the hands-off benefits of dropshipping by outsourcing to a fulfillment center like Shipwire.
4. It Can Be Difficult, and Sometimes Impossible, to Scale
What happens if, despite all of the obstactles listed above, you've worked hard and overcome them. Sales are growing. But what happens if you grow too much?
Let's say suddenly you get 50 orders in one day. What happens? Is your supplier prepared for that? Are they willing to take on that much volume for you? Will they hold extra inventory for you? Will they get all these orders out on time?
If you handled the fulfillment yourself, you could work overnight if needed to get everything ready for shipment in a timely manner. After all, you're dedicated to your own business. But you're supplier might not be. And if they drop the ball, your customers will think its YOU who dropped the ball.
Do these reasons mean dropshipping can never work, or that it's better not to try? Certainly not. Just as long as you are not expecting to sit back and retire on a beach somewhere while it rains money in your bank account, dropshipping can be a good tool in your business arsenal. You just need to have the right expectations.
Our next article goes over the good reasons to dropship.