Dropshipping is a method for fulfilling orders that does not allow a company to store goods. The store then sells the product and sends the order to a third party vendor, who then sends the order to the customer.
But dropshipping is not a get-rich-fast system, contrary to common opinion.
Of course, it sounds like easy money — you sell products of others and take a coup for yourself — but it’s far from easy when you deal with all the drawbacks, challenges and day-to-day management.
But by using the proven strategies below, dropshipping can still help you develop a productive company … just not as quickly as you would have hoped.
Let’s put this: when you are just hopping, it will be difficult to get your company off the ground; but you can use dropshipping to supplement your current services and boost your company if you are already established with ecommerce.
In this guide, we go through all the problems with dropshipping, which are not as common as their advantages. However, given its limitations, dropshipping can still be a powerful tool for ecommerce brands, as long as it is correctly used.
We will also clarify how we can hipped correctly and will highlight some case studies from businesses to demonstrate what we are talking about.
If you are an enthusiastic novice, you may want to test the FAQs below before reading the bulk of this guide. We venture into advanced topics, so it is easier to have a history.
5 Most Common Misconceptions About Dropshipping
Before you bring all your savings into a new dropshipping business… don’t!
It is hard to sustain a company alone, let alone start one from scratch.
That is why:
1. Small margins for income.
Certainly, the overhead is small because you don’t have to handle or store your own stock — however the returns are.
You have less income, but you have less income. You have less money. That means you have a lot to do to keep alive, let alone make a profit.
Think of it like this: every sale you make, much of the money goes to the supplier.
Basically, what you receive is skimmed from the edges.
It’s not enough to cover the marketing / advertising costs, site maintenance, sales order management and office time.
Fit Small Business notes that you can measure your profits by using these variables: a 20 percent margin (average, and they can vary according to your industry and situation).
Conversion rate of 2 percent.
You can then calculate an estimate with this equation: (Charge x 0.02) x (Avg order value x 0.2) = benefit While this is good for a fast calculation, you have some problems to consider as well: your discount would probably be less than 20% from producers and wholesalers.
This does not compensate for any of the above extra expenditures you have to pay from your end. This isn’t the ultimate benefit.
You would have to slash the earnings on most goods to keep the selling rates competitive. If you keep your 20% margin hesitantly, other businesses will easily discredit you.
Besides that, you will find that your income also largely depends on your traffic, and if you build an ecommerce brand from scratch, you will have a long time to struggle to develop a customer base.
Plus, BigCommerce’s Adam Enfroy says dropshipping is a lot of work, no matter how you say it. While it appears to be hand-off, shippers must still deal with their wholesale vendors, order handling, returns and customer support.
When you already have a daily source of traffic, it is far more natural to approach dropshipping.
2. Very competitive.
There will still be overly optimistic entrepreneurs who concentrate exclusively on the “low overhead” segment and disregard the compelling proof above.
Since a dropshipping company needs very little money, this low barrier to entry means a lot of competition, with the more common markets suffering more than others.
The larger a company is, the more it can raising its markups to deliver the lowest rates.
Reiterating what we said above, smaller companies just have to slash their earnings to keep their prices competitive, so it becomes unsustainable at one point.
To make matters worse, you are unlikely to get an exclusive contract with your suppliers.
This ensures that any number of rivals can sell exactly the same goods. And if you just begin, your competitors with years of experience have the tools you don’t have to lower your prices.
This means that consumers will buy from someone else for cheaper — why should they buy from you?
3. No supply chain power.
If customers complain of product quality, delivery speed, or return policy in standard e-commerce, you can fix the problems yourself.
In dropshipping you are more or less at the mercy of your manufacturer — but you also have to speak directly to your customers.
Dropshippers are basically trapped and do nothing more than hope, while at the same time reminding the consumer that something is beyond its control.
In addition, contact is delayed because the dripshipper goes back and forth between the consumer and the manufacturer. When one responds slowly, all contact ceases and the issues need to be solved longer.
Customer service is of utmost importance in ecommerce.
Even the smallest transgression — like contact delays — drives your customers straight into your competitors’ hands.
And if they’re verbal, these bad reviews might end your business early on, even before it begins.
4. Points of civil responsibility.
This is not a popular issue for dropshippers, but it is worth noting. Some suppliers are not as legitimate as they say, and you don’t always know from where the products come.
It is even more frustrating when suppliers unlawfully use a identified logo or intellectual property of another company, which happens more than average.
Regardless of the suppliers’ illegal activity, you’re immediately complicit with their seller.
A solid Dropshipping Agreement Contract will fix this potential problem, but not every dropshipping upstart knows that.
It’s something that you want to consider when picking suppliers.
5. It’s hard to create a brand.
Like ghostwriters or songwriters behind the scenes, drippers must realize that credit is given to someone else for their work.
If the product you offer is so amazing, your customers concentrate more on the name of the product and totally forget about the shopping experience.
This is not your logo on the box, after all.
In e-commerce, branding is important because shoppers prefer to first go to their favorite online stores.
Without customer loyalty, you will never have the daily traffic required for a business, in particular a dropshipping company.
Again, dropshipping for already proven brands makes more sense than new ones.
Correct Steps To Start A Dropshipping Business
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The correct approach to Dropshipping makes dropshipping better than the main case. While its limitations make it difficult to sustain an individual company, it still offers enough benefits to help e-commerce companies significantly boost their business.