5 Hard truths about Dropshipping

Dropshipping is an order fulfillment method that does not require a business to keep products in stock. Instead, the store sells the product, and passes on the sales order to a third-party supplier, who then ships the order to the customer.

However, contrary to popular belief, dropshipping is not a get-rich-quick scheme.

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Sure, it seems like easy money — you sell other people’s goods and take a cut for yourself — but when you factor in all the drawbacks, obstacles, and day-to-day management, it’s far from easy.

However, if you approach it the right way, and use the proven strategies below, dropshipping can still help you build a successful business…just not as quickly as you’d hoped.

Let’s put it this way: if you’re only doing dropshipping, it’ll be difficult to get your business off the ground; but, if you’re already established in eCommerce, you can use dropshipping to complement your existing services and improve your business.

In this guide, we walk through all the problems with dropshipping that aren’t as publicized as its perks. But despite its flaws, dropshipping can still be a powerful tool for ecommerce brands, as long as it’s used properly.

We’ll also explain the ways to do dropshipping right, and showcase some company case studies to illustrate what we’re talking about.

If you’re a beginner to dropshipping, you may want to check out the FAQs at the bottom before reading the bulk of this guide. We stray into some advanced topics, so it’s better to have some background.

5 Hard Truths About Dropshipping No One Talks About

Before you put all your savings into a new dropshipping business… don’t!

It’s difficult to maintain a business doing dropshipping alone, let alone start one from scratch.

Here’s why:

1. Low profit margins.

Sure, since you don’t have to manage or store your own inventory, the overhead is low — but so are the returns.

You put less money in, but you get less money out. That means you have to do a lot of business just to stay afloat, let alone turn a profit.

Think about it this way: every sale you make, most of that money goes to the supplier.

What you earn is basically skimmed off the top.

That’s hardly enough to cover your expenses for marketing/advertising, maintaining your site, managing sales orders, and covering your office hours.

According to Fit Small Business, you can predict your income using these variables (they’re averages, so they’ll change depending on your industry and situation):

20% margin.

2% conversion rate.

You can then calculate a working estimate using this equation:

(Traffic x 0.02) x (Avg order value x 0.2) = Profit

While this is fine for a quick starting estimate, there are a few problems you also have to consider:

Chances are, your discount on buying from manufacturers and wholesalers will be less than 20%.

This doesn’t account for any of the additional expenses mentioned above that you have to pay from your end. It’s not the final profit.

For most products, you’ll have to cut into your profits to keep your sales prices competitive. If you stubbornly hold on to your 20% margin, other companies will easily undercut you.

On top of that, you’ll notice that your profit is also largely determined by your traffic, so if you’re building an ecommerce brand from scratch, you’ll be struggling for a long time as you build a client base.

Plus, according to Adam Enfroy from BigCommerce, dropshipping is a lot of work no matter how you dice it. Although it seems hands off, dropshippers always have to deal with their wholesale suppliers, order processing, returns, and customer service.

It’s much more reasonable to approach dropshipping when you already have a regular source of traffic.

2. Highly competitive.

There will always be overly optimistic entrepreneurs who focus solely on the “low overhead” part, ignoring the clear evidence above.

Because very little capital is required to start a dropshipping business, that low barrier to entry means a lot of competition, with the most popular markets suffering more than others.

Basically, the bigger a company is, the more they can reduce their markups to offer the lowest prices.

Reiterating what we said above, smaller businesses have to cut into their profits just to stay competitive with their prices, and at a certain point, it becomes unsustainable.

To make matters worse, chances are you don’t have an exclusive deal with your suppliers.

That means any number of competitors could be selling your exact same products. And if you’re just starting out, your rivals with years of experience have the resources you don’t to undercut your prices.

That means customers can buy the exact same thing from someone else for cheaper — why would they buy from you?

3. No control over supply-chain.

In standard ecommerce, if customers complain about product quality, fulfillment speed, or return policies, you can address the problems yourself.

In dropshipping, you’re more or less at the mercy of your supplier — but you’re the one who still has to talk to your customers directly.

Dropshippers are essentially trapped, doing little more than hoping the supplier addresses the problems while simultaneously reassuring the customer about something that’s out of their control.

On top of that, there’s also a delay in communication as the dropshipper goes back-and-forth between the customer and the supplier. If one answers slowly, all communication grinds to a halt and the problems take longer to fix.

In ecommerce, customer service is paramount.

Even the slightest transgression — such as a delay in communication — pushes your customers right into the hands of your competitors.

And if they’re vocal about it, those bad reviews early on could end your business before it even starts.

4. Legal liability issues.

Although this isn’t a common problem for dropshippers, it’s worth mentioning. Some suppliers aren’t as legitimate as they claim, and you don’t always know where the merchandise comes from.

Even more deceptive is when suppliers illegally use a trademarked logo or another company’s intellectual property, which happens more than average.

Whatever illegal activities your suppliers are up to, as their vendor you’re automatically complicit.

This potential problem can be rectified with a solid Dropshipping Agreement Contract, but not every dropshipping upstart knows that.

It’s something you’ll want to keep in mind when choosing suppliers.

5. Difficult to build a brand.

Like ghostwriters or behind-the-scenes songwriters, dropshippers must understand that the credit for their work goes to someone else.

If whatever product you’re selling is so amazing, your customers are going to focus mostly on the product’s brand and forget about the shopping experience entirely.

After all, it’s not your logo on the box.

Dropshipping courses are costlier to purchase?

Do you follow any youtuber for dropshipping. Probably His course costs you 100's or 1000's of dollars.

We got a big data base of all courses worth $10+M and we are giving it for $50. Learn more