Since the late 2000’s, drop shipping has been a perfectly viable business opportunity for ecommerce stores around the globe. Many people that have found success doing this business will tell you it’s a simple, nearly costless, and almost risk-free business model. Those that failed will warn you of the inevitable doom ahead. With so much conflicting information, who’s right?
The truth about drop shipping is it’s a serious business practice that you shouldn’t jump into without hearing both sides of the story. You can find a lot about the major advantages and disadvantages, but there’s more you should know before you get started. I want to take you through a few things you should know that may not be so obvious.
#1 It’s Not a Risk-free Business Model
Every business opportunity that can make you money will have some associated risk. Your goal should be to take on only the amount of risk you can manage and be comfortable with for your own business. Drop shipping can sometimes be advertised as a risk-free way to do ecommerce, but that is a limited way of looking at it.
You won’t have the risks of over-buying inventory and being unable to sell. Similarly, there are fewer startup costs to add to your sunk costs in the beginning. These take away from the risk of traditional wholesale selling. To replace those risks, you’ll have to factor in the risks of working with a bad supplier, order fulfillment problems, or accidentally selling products your supplier doesn’t have in stock.
That’s a smaller sampling of what can happen. My point is that you will never find a legitimate way to make money without taking on some sort of risk in the process. There may be fewer monetary risks in drop shipping, but you can’t expect to side-step all potential risk.
#2 You Can Switch Ecommerce Products Instantly
Most of the guides you see online talk about how you can offer any products you want in a wide variety on your site. That’s the truth, yet it doesn’t quite show you the best benefit of drop shipping. You can literally switch to sell a new product within a matter of seconds. If you have suppliers that offer a range of items, it only takes a short time to put the option to buy a new product on your website.
This flexibility means you can instantly stop doing something that’s not working and start offering a better alternative instead. Most other product-related business models don’t have this convenience!
#3 There May Be Business Regulations Over the Industry in Your Area
International business and trade laws can get tricky in some parts of the world, especially if you’re working with suppliers from overseas. You’ll want to check into laws in your local area to learn about any potential importation fees or licenses needed to start drop shipping.
The other laws to look at and licenses to consider are for business credentials. Some countries don’t recognize all ecommerce businesses as official businesses, but you could run into problems finding suppliers if you don’t register your online business somewhere in the world.
#4 Drop Shipping Wholesalers Won’t Give You the Real Wholesale Price
When you make arrangements with suppliers to drop ship products, you’re not buying in wholesale. That means you should forget about any expectations of receiving true wholesale pricing discounts. Many suppliers or manufacturers will give reduced pricing for drop shipping businesses, although it won’t be as good of a price as you could get if you bought in wholesale quantities.
#5 Profit Margins May Not Be as High as You Expect
Point #4 is closely tied to #5. Because you won’t be getting the lowest possible prices on the products you’re selling, you may not have great profit margins for most items you sell. You have to be smart about what you’re selling and recognize that this business model can cut into your profits a lot.
Consider that with drop shipping you not only lose out on the wholesale discounts, you also have to deal with shipping costs yourself. It’s up to you how you handle shipping, but the extra costs of shipping products to your customers can also eat away at your margins unless you pass the costs on to them. However, marking up prices too much can lead potential customers to look for the same products elsewhere instead.
#6 You Can Sell Your Products Anywhere Online
Amazon, Ebay, and Alibaba are common places for people to begin drop shipping online. However, you don’t have to start an online selling account for any of these websites to succeed. It’s probably a better idea to pay for hosting your own online store instead, so you can spread yourself away from your competitors. You can even sell your products from blogs and social media accounts, or make deals with current website owners.
The point is that drop shipping is not tied to selling in a specific space online. There are pros and cons to consider for every option, but you shouldn’t discount an idea just because many other people are doing their business in a different way.
#7 All the Leg Work Will Be Done by You
The convenience and flexibility you get from drop shipping comes at the cost of your own time and energy. All the arrangements and deals you want to set up have to be done by you. You are responsible for finding suppliers, getting order to them on time, checking back to see that your orders are handled properly, and dealing with any potential customer service issues after the sale.
#8 Convenience Can Cost a Lot
If you’re not into doing all the hard work yourself, you can pay extra to a lot of suppliers to get more out of the deal. Or you can work together with drop shipping companies that help you make all the arrangements. The problem is that neither of these options come cheap. You’ll sacrifice a hefty margin of your potential profits or else part with large fees for the services.
#9 Drop Shipping Doesn’t Have to Be a Standalone Business
If you’re currently running any sort of ecommerce business, or if you’re planning to in the future, you can use drop shipping to test out new products before committing to buying wholesale. You don’t have to create a large operation, but it can be helpful to use drop shipping for products you’re unsure about. This allows you to add new products to your sales line immediately, gauge how well they do, then decide if you want to keep them as a permanent fixture with wholesaling based on the results.
Combining drop shipping with normal inventory sales can give you great flexibility and help you bring new products to market sooner than your competitors. It’s a lower risk way to begin selling new products or to do short promotional sales (Think seasonal items or package deals.).
#10 Your Suppliers Are the Keys to Your Success
Without a good supplier, you may not be able to pull off a successful drop shipping business. Your supplier is going to be sending the products you sell directly to your customers, so it’s vital to choose wisely and not rush the process. You need to do your research, compare multiple companies, and focus on more than just the bottom line. Higher margins won’t matter if your supplier does a consistently poor job, because your customers will associate the poor service with your company, not the supplier.
#11 Treat Drop Shipping Like a Real Business – Because It Is!
When you step up and decide to start drop shipping, you need to recognize that you’re starting a business. You’re not doing a small odd job for extra cash; it’s a real and true brokering business you’re investing your time and money into. So, treat it like you would any other business. Read manuals written by companies like Oberlo or Ecommercefuel about how to start a drop shipping business the right way.
The main point here is that you can’t underestimate what you’re doing. Drop shipping is a legitimate online business that’s no different than starting a retail sales business or any other sales venture. Treat yourself like a true business owner and entrepreneur, because once you start this operation that’s exactly what you are!
Drop shipping is a great opportunity for those who are ready to start an online business. There are a lot of advantages and disadvantages to this selling model, but also things that need to be put into the right perspective. I’ve presented you with a few more facts that you won’t always hear when people talk about drop shipping. Now, you’re more prepared to start selling with the right mindset!