One of the most popular online business models today is dropshipping. Simply put, dropshipping is a form of e-commerce where you sell products on your website then have your supplier ship the products directly to the customer. Dropshipping is a method to connect people with products, in which you facilitate the transaction. This business model does have its pros and cons – and this article will break both down.
First, it’s important to understand just how popular dropshipping has become. As consumers have increased the amount of time they spend online, marketers have done the same. This behavior has led to an increase in consumer willingness to spend money online, which in turn has fueled the growth of e-commerce websites. According to Statista, retail e-commerce sites generated just over 130 billion U.S. dollars in the third quarter of 2018 alone. That is a lot of money!
Because of the increase in money flowing through the internet, many people have decided to start online businesses, dropshipping being amongst the most popular. Here is a Google Trends graph that demonstrates just how popular dropshipping has become over the last 5 years, compared with affiliate marketing and selling on Amazon:
So, going into dropshipping, it’s simply important to know that you will need a strategy to differentiate, build a unique brand, and stay current on changes and shifts in your market. With this information as a backdrop, here is my list of pros and cons of dropshipping:
- No Inventory management. Not needing to worry about inventory is such a wonderful aspect of dropshipping. Solopreneurs who handle their own order fulfillment typically have increased expenses, less time to focus on marketing or product sourcing, and have products strewn throughout their home. Dropshipping eliminates the expenses and time of order fulfillment.
- Time. The mundane and straightforward task within a dropshipping business can be easily outsourced. Those tasks include customer service, returns, and order processing.
- Freedom. Dropshipping is location independent. As long as you have an internet connection, you’re in business. Plus, once you get established and have processes in place that automate your workflow, you really only need to spend 2-4 hours on your business each day – that part-time work for full-time pay.
- Low Cost to Start. The largest upfront cost is advertising. Other than that, you really only need $300-$500 to get started. This is most likely why dropshipping has become so popular; it’s easy and inexpensive to get started and has a large upside. As far as an advertising budget is concerned, I would recommend starting with at least $1,000. That sounds like a lot – but it’s just the reality of e-commerce in 2019.
- Easy to Transfer Ownership. Many entrepreneurs are looking for e-commerce websites. Dropshipping sites are especially easy to transfer ownership of because you don’t need to worry about sending a bunch of inventory to someone.
- Marketing Costs. Facebook has seen a dramatic increase in the number of advertisers on its platform. This has led to an increase in advertising costs for all marketers. What this means is you’ll want to set aside a budget in the $1,000-$2,000 range for your first month. After identifying a winning product, these costs will be recouped relatively quickly.
- Some Things Out of Your Control. The two major things out of your control when dropshipping are logistics and packaging. Poor logistics and bad packaging can hurt your credibility and reduce your repeat customer rate. The solution: place test orders with suppliers before marketing their products.
- Lots of Moving Parts. As a solopreneur running a dropshipping business, you have the responsibility of product sourcing, marketing & advertising, handling customer service & returns, and designing your website. If running these aspects sounds fun or you feel confident in your ability to wear multiple hats, then dropshipping is for you.
- Competition. There are thousands of dropshipping sites all across the internet. Plus, you will be competing against Amazon and Ebay – two very formidable foes. This can become especially tricky if you are selling mainstream products also found on Amazon.
How to Succeed in 2019:
- Be on the leading edge of dropshipping innovations. What worked in 2018 will not work this year. To be on the leading edge requires reading blogs, watching YouTube videos, and learning from your own experiences.
- Build a unique brand that reflects the personality of your audience. Focus on developing relationships with your potential and current customers.
- Be consistent, patient, and determined. Success rarely happens overnight, but it does come to those that press forward.
- Realize that competition is a good thing – competition incentivizes you to innovate and create.
- Play the long game. Understand that the challenges of dropshipping will cause many to quit after 2-3 months. If you can stay positive and consistent for a year, you’ll find success.
In conclusion, you have probably noticed that dropshipping is not an easy online business model to pursue. There are many challenges to overcome, such as competition and high marketing costs. Though these challenges aren’t easy to overcome, dropshipping is very fun and liberating once you start getting traction.
If dropshipping sounds interesting to you, my recommendation is to set aside cash – about $1,500-$2,000 – start ingesting content on how to start dropshipping, and start a 14 day free trial of Shopify to see what it’s all about. After all, you’ll never know if dropshipping is for you until you try.