Thanks to the increasing availability of online marketplaces and the rise of e-commerce, dropshipping has become an increasingly popular business model. With eCommerce platforms like Shopify, which allow you to create an online store in minutes, their barriers to partaking are very low. But, what exactly is dropshipping and why has it become such a popular way to sell products online? Also, is dropshipping worth it?
In this article, we’ll explore the benefits of starting a dropshipping store and explain why it can be a profitable and worthwhile business model for entrepreneurs.
The dropshipping business model is a fulfillment method in which an online store doesn’t keep the products it sells in stock. Instead, when a customer places an order on the store, the store purchases the product from a third-party supplier, who then ships the product directly to the customer.
In other words, the store acts as a middleman between the supplier and the customer, handling the marketing (and everything that comes with running an online store), but none of the storage of inventory. The retailer doesn't have to invest any inventory upfront, making it a low-risk, yet profitable business model, for the most part.
To answer the question, " is dropshipping worth it?", we have dissect the many advantages that dropshipping offers.
Since you don’t need to buy any inventory upfront, the costs of starting a dropshipping business are relatively very low in comparison to most businesses, making this a popular model for those with smaller budgets. With a traditional, non-dropshipping eCommerce business, you would have to buy inventory without knowing how much you are going to sell, and then try your hardest to sell out what you already purchased.
Unless you have a big budget ready, this is not an option for most entrepreneurs. With dropshipping, the only costs you need to pay upfront are for your website hosting and any marketing efforts you use to drive traffic to your store. Luckily, all of this can be achieved without needing to break the bank. You don't have to pay upfront for any dropshipping products.
Since you can sell products without first purchasing them, the dropshipping model allows you to offer a massive range of products, without increasing costs. You can use this benefit as a way to hedge the risk of starting your business. If one product isn’t selling, you can easily launch and test another product, without having to spend a dime more. This makes your odds of success much greater, and also allows you to expand into new markets and niches much faster than with a traditional e-commerce business.
Unlike a traditional e-commerce business, with dropshipping you can automate many important pieces of the business that would otherwise be very time-consuming. Non-dropshipping businesses need to spend a lot of time and resources sourcing products, forecasting inventory, placing purchase orders with suppliers, importing shipments to fulfillment centers, and ensuring the fulfillment centers are handling their inventory correctly.
These tasks can be some of the most daunting and exhausting pieces of running an e-commerce business, and it's something you won’t have to deal with by dropshipping. Since you work directly with the supplier, and they handle all of the shipping and logistics, you can sleep well at night knowing your customers’ orders are safely on their way. There are also plenty of dropshipping platforms and apps that automate the entire process of placing an order from the supplier, providing your customers' shipping details, sending tracking info to the customer, and more.
Since dropshipping does not require a large capital investment, it's a much less risky business to start than most others. If you’re not able to get the business off the ground, the biggest loss from giving it a try would have been your time investment. And with the skills you’ll learn along the way, it’s arguably worth going for regardless of the outcome!
Image from: https://www.oberlo.co.uk/statistics/dropshipping-market
The dropshipping industry has skyrocketed with the popularity of online shopping over the past few years. In 2020, the dropshipping market size was 128.60 billion US dollars. It’s forecasted to reach 476.10 billion US dollars in 2026. That’s a 24.39% increase in the market.
In addition to statistics shedding on the question, " is dropshipping worth it?", there are many real-life success stories of businesses that have built profitable businesses by using the dropshipping model.
For example, Notebook Therapy, a small business that sells Japanese and Korean-inspired stationery, grew to generate over $700,000 in sales per month using dropshipping. Another example is The Kewl Shop, an online fashion store that began by dropshipping. The store now generates over $150,000 in sales per month.
Finally, we have Fashion Nova, an online fashion retailer that leveraged influencer marketing and social media to grow its business from a small business in Los Angeles to a global brand with over $1 billion in sales.
One potential risk to starting a dropshipping business is dealing with potentially unreliable suppliers. Since your supplier is responsible for the order fulfillment and logistics process of the business, they have a lot of power to screw things up. It's important to only work with vetted suppliers that have experience being a dropshipping supplier. Make sure to do some due diligence before partnering with a supplier.
Since most dropshipping suppliers are based in China, unless your customers are mostly near China, shipping speeds can be pretty slow which can upset your customers. Shipping times over two weeks is not uncommon for dropshipping. Because of this, it's important to communicate your shipping speed to your customers. The more upfront you are in regards to the shipping time, the less unhappy customers you’ll have.
Since you are only buying a product after it's been already ordered from your customer, you are buying inventory one unit at a time. Because of this, the price you pay per unit (or cost of goods) is often more expensive than if you were to order units in bulk. This will cause your profit margins to be slightly lower than with a traditional eCommerce business.
Although dropshipping makes logistics and inventory management a breeze, it doesn't make marketing any easier. You still need to acquire customers through marketing, and profitably. For beginner entrepreneurs, this can be a difficult task. Make sure to do some research on effective eCommerce marketing before launching your store.
The popularity of single-product items prevails in most part, but the beauty of a dropshipping store lies in its ability to add as many products as you'd like at no added cost. That being said, it's easy to get carried away as a dropshipper to make your store feel as "full" as possible. Pick a niche and stick to it.
In theory, you shouldn't have to worry about ever holding a product, or picking out the packaging. However, websites like AliExpress Alibaba, although great places to start for beginners, are littered with poor quality products. Try ordering a few products to yourself first to make sure they're the product quality is up to standard. This will save you in the long run from unhappy customers and refunds. If you're running low on ideas, take a look at trending searches using Google trends.
The key to profitability is in the marketing. The good news is that the internet is at your finger tips. Use social media platforms like Instagram and TikTok to market your store. These can be rather inexpensive ways to market your product, but you can also throw some spend behind it through Facebook, Google, or even Pinterest ads.
Although the fulfillment is hands-off, the mark of a quality experience starts with a quality product, and quality customer service and customer support. It's important for business owners to stay on top of your DMs and their emails.
With a low barrier to entry and the potential to scale into a large business, dropshipping is an excellent business model for anyone who wants to start an ecommerce store. As long as you understand the potential downsides and risks, you’ll be able to launch your business with ease, and potentially earn life changing money in the process. If you haven’t given dropshipping a try yet, make sure to do research on the products, suppliers, and marketing techniques you’ll be using. The dropshipping landscape changes quickly, so it's important to always keep yourself up to date on the most recent trends.
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