What is Dropshipping?
Dropshipping is an online business model which allows a company to operate without the need to purchase inventory, store product and ship product to the customer themselves.
The way dropshipping works is that the retailer partners up with a dropship supplier or manufacturer/warehouse and ships them directly to the end customer, on the retailer’s behalf.
Here is a breakdown of how dropshipping works:
- The customer places an order on the retailer’s online store.
- The retailer sends the order and the customer’s details to the dropship supplier.
- The dropship supplier packages and ships the order to the customer directly in the retailer’s name.
Why is Dropshipping so Popular?
Dropshipping is popular for a number of reasons. The most prominent reason is that the dropshipping model is extremely attractive and simple. It eliminates the need to have a physical business/storage location and it’s extremely easy to get started. Basically, once you pick your product, supplier and set up your store you’re ready to go.
However, it’s dropshipping’s simplicity and ease of set up which leads to its downfall. (More on this in a moment)
Some other benefits of starting a dropshipping store are; the low overheads, the ability to start on a small budget, easy to scale as your ability to procure the product is dependant on your supplier and the ability to have a healthy cash flow.
The second reason why dropshipping is so popular is because of all the online “content” and “guru’s” promoting their dropshipping courses on youtube, that promises newbies a house in L.A and a Lamborghini in six months without the grind. Sounds good right?
Why Do Dropshipping Businesses Fail?
Despite all the positives we spoke about earlier, there are a number pitfalls with the dropshipping model that should be taken into account. Some of which are driven by the simplicity of the dropshipping model itself and some by a number of other factors like; shipping times, lack of control, unreliable suppliers, operating in an overcrowded market and more.
Issues with Shipping
Long Shipping Times
The most popular dropshipping method is to create a store using an e-commerce platform like Shopify and then add products from Aliexpress that has warehouses in China who will directly ship the product to your clients. Sounds great in theory but not in practice.
The biggest issue with having vendors in China sending orders directly to the end customer is the shipping time. On average, packages sent from China will reach their end destination in 2-3 weeks. Which is far too long when in reality customers expect delivery in 2-3 business days if not the next day.
Orders Arriving in Multiple Packages
Wait they don’t use 1 package for multiple items?
That’s right. If a customer orders multiple items from your website they won’t receive 1 package with all the items in the order. Instead, they will receive 1 package with 1 item one day, then 3 days later another package with another item and so on. This can obviously leave your customer confused as they wonder where the other half of their package is. This can leave you with customer service requests with customers asking where is my package.
What about Tracking
Not all suppliers from China will provide you with a tracking number or link, which makes customer service a lot more challenging when a customer asks for a tracking link or sends you an email asking “where’s my parcel?” Tracking links, like fast delivery times, are not only desired but expected by online shoppers today.
Lack of Control
The dropshipping model may be simple, but in its simplicity comes a lack of control.
As a dropshipper you only have control of 2 things;
As the products are being sent directly from your supplier to the customer you have no control over:
- the quality of the product
- the design of the product
- product photos
- product branding
- labels on the product and on the package
- inventory stock levels
- shipping methods
What separates great e-commerce businesses from the rest is customer experience. Big brands such as Amazon and Apple are great examples of customer-centric brands who control and optimise the entire customer experience to separate themselves from the pack.
Something which is difficult when dropshipping provides you with such little control over processes that it leaves you with a sub standard experience.
Finding a Reliable Supplier
Finding a reliable supplier is crucial for your dropshipping store. Your dropshipping supplier is responsible for offering you a reliable and working product at a wholesale price as well as the fulfilment of the order to your customer. Your supplier is effectively the operations side of your business so it is important you choose your supplier wisely and build a great relationship with them because if something goes wrong, you will be the one who has to explain things to an angry customer, not them.
What about Oberlo
Oberlo lets you find products, add them to your Shopify store, and ship them directly to your customers. Oberlo is also quite a reliable supplier as their business model is reliant on dropshipping store owners pushing the volume to their platform.
The problem with Oberlo and other similar platforms is that these supplier platforms serve 1000’s of merchants just like you. Making it harder for you to build a relationship with these more reputable suppliers as you are just a drop in the ocean.
Furthermore, chances are if you are selling products from Oberlo on your site someone else is selling the exact same product to the same niche which leads you to enter an over-saturated market.
It’s been said that 20 percent of new businesses fail in their first year—and it’s not hard to imagine that statistic is much higher for dropshipping stores, especially given how saturated the market has become.
We spoke earlier on how popular dropshipping has become especially over the last 3-5 years. Unfortunately, this popularity means that you and your Aunt Mary want to start a dropshipping venture.
The over-saturated market and high level of competition mean that online advertising costs increase as more people begin to advertise the same products in the same niche to the same people.
The high competition also affects the quality of service from your suppliers as a high volume for a particular product affects shipping times to your end customer and depending on your supplier the cost of the product you wish to sell may also increase due to the high demand of the product and your supplier wanting to cash in on the winning niche.
Returns and Refunds
As you do not own any product when running a dropshipping store customer returns can be one of the biggest issues when doing dropshipping.
For example, if someone bought a blue bag but instead, they received a black bag, they will either want a return or their money back or a blue bag.
So how do you do a return when you don’t own any product?
As you don’t have any stock on hand the best method for returns would be to offer a refund as a product swap would take too long and there is no guarantee your supplier will accept the return and ship a fitting replacement.
What many dropshippers do in regards to returns is offer a full 100% refund and tell their customer that they can keep the incorrectly shipped item. That way customers who wanted the refund will be left happy.
Branding and Trust
When you start your e-commerce store no one will be familiar with your brand. That’s why growing your e-commerce store’s brand will be crucial to its success.
This can be difficult if you can’t have your own branded products, your own exclusive design and exclusive products which don’t feature on thousands of other e-commerce stores.
E-commerce businesses spend a lot of time and money on making their e-commerce brand well known and trustworthy, through constant innovation and improvement. Which can be a tough task for dropshipping businesses as they have very little control over there business model leaving branding options limited.