If you are thinking of starting an online business, chances are, you’ve already read or heard about dropshipping. The business model itself looks like easy money, with some thinking of it as a get-rich-quick scheme.
Truth is, it might seem simple, but it isn’t as straightforward. It has its benefits, but you should also know the drawbacks.
Are you thinking of getting started with dropshipping? Read on as we talk about the good and the bad, which can help you decide if it is a business worth pursuing or another hype with no long-term benefits.
What is dropshipping?
Online shopping is on the rise. As such, e-commerce businesses may look promising, but it depends on the specific model. Among others, one that you might want to consider is dropshipping. Before we look at its pros and cons, let’s talk about what it is.
In a nutshell, dropshipping is an online retail business model wherein a retailer does not maintain an inventory. In this fulfillment method, a business receives orders on its online storefront. In turn, it forwards the order to the supplier.
The supplier then ships the order to the buyer. This means that as the owner of the dropshipping business, you are not responsible for stocking the products that you sell.
The Good
Are you not yet convinced that dropshipping is a promising business idea? Below are some of the benefits that might make you change your mind.
✅ A Low-Cost and Low-Risk Investment
Among others, one of the benefits of dropshipping is that it is a low-cost business. If you do not have the luxury of financial resources but want to start your own business, dropshipping can be a promising choice. You do not need to produce, store, and transport the products you are selling. The bulk of the expenses will be on the payment for the online platform you are using.
Aside from being a low-cost startup, dropshipping is also good because it involves minimal risks. This is because you do not have the physical inventory of the products in your warehouse. You don’t have to worry that they won’t sell or that they will be damaged while in storage, especially in case of disasters.
✅ Easy to Start
Not everyone has the knowledge and skills to start a business. Luckily, dropshipping can be easy! A lot of training materials are available online. From videos to written guides, you have tons of resources to help you start on the right foot. And as mentioned earlier, you don’t need a lot of money.
Even with only a few minutes to spare, you can set up your online storefront. Nonetheless, other processes, such as accepting orders and processing payments, might take a few days. Even so, they are still relatively easy. Most of the work will be finding suppliers or researching products that could potentially sell.
✅ Take Advantage of an Established Platform
Another good thing about dropshipping is that it allows you to take advantage of an existing platform with a huge market share. And by platform, we are talking about Amazon. Even with the volatility in stock prices, the company remains the king of e-commerce, being the largest platform of its kind in terms of revenue.
While you can make your own website or online storefront, businesses might also want to consider dropshipping at Amazon instead.
Amazon is one of the most recognizable brands in the world. It has up to 40% market share in the United States. Not to mention, over 172 million people in the US are registered as Amazon Prime members.
With such a number, you can potentially reach a large market if you decide to pick Amazon as your dropshipping platform.
✅ Broaden Your Sales and Marketing Skills
While dropshipping might seem simple, it does not mean that you should just sit down and watch your profit skyrocket. To optimize performance, it would help to have a proactive approach. As you manage the business, you will also learn e-commerce strategies to increase sales. It can be the perfect opportunity to widen your knowledge and skills.
Digital marketing, copywriting, social media management, email marketing, and conversion optimization are some of the things you will learn when managing your dropshipping business. If you decide to stop your dropshipping business in the future, you will benefit from these skills.
✅ Work Remotely
Are you thinking of finally ditching the office cubicle? Are you looking for a business you can manage anywhere and anytime? Dropshipping can be the perfect opportunity! It is a popular option for digital nomads who want a flexible job or business. Whether you are lounging at home or sipping a margarita on a tropical island, dropshipping can be a lucrative opportunity.
Aside from working remotely, dropshipping also allows you to have multiple jobs. You can have a side hustle and potentially increase your income stream. It will depend on how much time you have available on your hands.
The Bad
Despite the good things, dropshipping isn’t perfect. Like other business models, it has several drawbacks, including those we’ll talk about below.
❌ A Highly Competitive Industry
One of the biggest challenges of dropshipping is the intense competition that can confront your business. Because it is a low-cost and low-risk business model, many others are trying to take advantage of it. As such, you can expect the market to be highly competitive, which might make it difficult to attract your target audience.
Standing out from the crowd can be difficult, especially for those new to dropshipping. You are not in charge of production, so you cannot compete based on the quality of your products. However, you can invest in exceptional customer service and utilize effective marketing strategies to promote whatever you are selling.
❌ Limited Control Over Quality
Another shortcoming of dropshipping is that you do not have a full hand in quality control. You will mostly be reliant on your suppliers. The supplier is responsible for storing and packaging the products. If a customer receives a defective product, your business can be affected. Sadly, many of the problems with the products are outside your hands.
Not to mention, you may not also be able to customize your products and provide quality enhancements. These things will be the responsibility of the supplier. The best thing that you can do is to choose a trusted supplier with a product you believe in to increase the chances of delivering a high level of customer satisfaction.
❌ Customer support can be complicated
This is one drawback that is associated with the minimal control you have over the products. Handling customer complaints can be tricky. You will receive complaints about defective products or the failure to satisfy the quality expectations of the buyer.
Despite these difficulties, you should find a way to improve your customer service as it will make you stand out. Constant communication with your supplier can help. You must also be polite and understanding when handling complaints.
❌ Low-profit margins
This may not always be the case, but you might end up in a situation where your margins are lower than what you initially expected. As a low-cost and low-risk business model, it also has a low barrier to entry. Many are entering the space, and hence, a lot are also competing heavily on price.
While the beauty of dropshipping is that you can start with a small amount, the ugly side is that the profit can also be minuscule. Most of the money will go to the supplier responsible for the production and transportation of the products you are selling.
So, Is Dropshipping a Good Idea?
With the good and the bad mentioned above, you can now decide if dropshipping is for you or if you should look for other business models. There is no right or wrong answer here. It depends on many factors.
As mentioned above, dropshipping is a low-cost and low-risk business that is easy to start. You can take advantage of established platforms, learn new skills, and work remotely. At the other end of the spectrum, however, dropshipping is a highly competitive industry. You have limited control over quality and the profits can be low.
If you want to pursue dropshipping, the right approach is necessary. Here are some things that can help you succeed:
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Choose the right products, preferably in an evergreen niche. This means that they will still be relevant in the long term, which can also translate to a steady income stream. You should also research the suppliers as you evaluate the quality of the products you will be offering.
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Invest in your online storefront. It must offer a seamless experience. Focus on having a high conversion rate to turn website visitors into buyers. While you can build your website, you can also take advantage of popular e-commerce platforms that allow dropshipping, such as Amazon.
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Prioritize digital marketing. This will get you closer to your target audience. From social media to email, research what platforms your target market is using. Do not forget search engine optimization, which can help increase your online visibility.