So what is dropshipping? The simple answer is that is a retail option that allows you to sell products without buying any inventory up front. Is it sustainable or in other words can I make a lot of money?
Shopify explains it as follows:
Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. As a result, the merchant never sees or handles the product.
The biggest difference between dropshipping and the standard retail model is that the selling merchant doesn’t stock or own inventory. Instead, the merchant purchases inventory as needed from a third party – usually a wholesaler or manufacturer – to fulfill orders.
Is dropshipping a sustainable way to create a business?
The reason I put that as a question is because of a video I recently watched. In the video the presenter talked about the downside of affiliate marketing (Affiliate Marketing is the process of promoting others products and services and if someone buys through your link you get a commission) and his opinion was that it was not a sustainable business. The video talked about the lack of control that you have as an affiliate marketer as you are at the mercy of the company that you are promoting. I see this as a bit of a scarcity or lack mentality because the opportunities online as an affiliate are endless. My experience is that most people online are promoting more than one product or program so if someone folds your business doesn’t fold as well.
In my opinion both affiliate marketing and dropshipping are sustainable business ventures, and maybe the reality is that you don’t need to choose. Depending on how much time you have you can actually do both. But before we get ahead of ourselves lets stick to the topic at hand, dropshipping.
Let’s explore The Pros and the Cons
What’s the Upside
Low startup costs – With a dropshipping model it is easy to set up and launch a store on a shoestring budget. The costs of setting up a website is really economical and the time it takes to do so is quick and easy even for a newbie in the field. One if the biggest Pros is that you can venture into a retail business without any money up front to buy inventory, so you aren’t tying up a bunch of capital in inventory or reinvesting profits into more product. With dropshipping you pay for the product after a consumer has purchased it from you.
You also don’t have to
- store inventory – so no storage or warehouse fees
- deal with shipping or delivery that is all part of the service provided by the manufacturer
- handle returns they are sent back to the manufacturer
- reorder or manage stock levels or monitor inventory
Laptop Lifestyle – The flexibility to work form anywhere is one of the biggest pros in my opinion. You can run your dropshipping business from anywhere you have internet access. As long as you can communicate with you vendors and customers you are in business.
Can Start Part-time – You don’t have to quit your day job. This may be a pro or a con depending on your situation, but this is something that you can easily start on a part-time basis. So you can keep earning money with your day job and ideally either just create an additional income stream or replace your current salary over time. If you have a few hours a day to commit you can get an e-commerce business up and running.
Manageable overhead – Since your not purchasing inventory or paying storage fees you can keep your monthly overhead at a reasonable amount. This is a home based business so you don’t need to have a retail or office space so no costs there. Depending on the platform you are using for your website you may have a monthly fee, you will have some costs associated with taking payments, and depending on what your budget is you may have some advertising costs. The reality is that you can run a dropshipping business from a home office for as little as $50 to $100 a month. As your business expands your expenses will likely increase but will still be much lower that running a traditional retail business.
Go Big or Go Small – Since you don’t need to invest in inventory before you promote it you have the flexibility of offering a wide variety of products to your customers or you can start with a select few products in a very specific niche. For instance you could do a small pet product niche like clothes for small dogs, or you could do unicorn figurines. You get to decide. Often it is a good idea to try a few products and build but this is your business and you get to decide, again the plus is that you aren’t going to be stuck with a ton of product that won’t sell, if it isn’t selling you move on to the next product or try a different approach.
Fewer Growing Pains – Once you get your system in place it is easy to build your business. If you are running a brick and mortar business and you expand your overhead typically expands as well. The number of hours you put in expands too. But with dropshipping adding new vendor and promoting a new line may initially take some extra work but will easily fit into your system once that build out has been accomplished. Your new dropshipping suppliers will still be packing and shipping out the additional orders With a bigger business you can expect more customer service issues and time promoting the new products but it can still be manageable. As you are adding products and earning more you can also consider starting to outsource The work or hire part-time help.
All these benefits make dropshipping a very attractive model to both beginning and established merchants. Unfortunately, dropshipping isn’t all roses and rainbows. All this convenience and flexibility comes at a price.
Lower Profit Margins – Because of the ease and low cost of setting up an e commerce dropshipping business it is highly competitive. Many marketers will come in and set extremely low prices in an effort to get sales and start to grow revenue. So it may take some time to build up a steady following that appreciates your quality customer service and your expertise. The short term may mean low profits.
Selecting a niche that you are excited about and that is possibly a little unique may be a way to get around this issue. It’s important to recognize that even though there is a lot of talk and reviews about making thousands of dollars in a short amount of time that is the exception and not the rule. Like any business it takes time to build and grow your customer base, you can do that if you go about it with a positive attitude and willingness to learn the process.
Lack of Control – When you are purchasing and stocking your own inventory you have control of what’s available, you know when stock is getting low, it’s easy to keep track of things. With dropshipping you aren’t always aware of when an item is on back order or being discontinued. Inventory changes can happen on a daily basis. You can be on top of these with good vendor relationships but sometimes there may be glitches in the system.
Shipping Woes – Shipping costs can vary with different drop ship vendors. Most dropshippers work with multiple vendors so shipping costs, delivery time may vary and can create added complications. Good customer service will be key to keep customers happy. You will have to decide how to deal with shipping charges especially if a customer orders several products and they are all coming from different vendors, can create an added frustration and added costs to your bottom line.
Vendor Issues – Even the best suppliers make errors from time to time. You as the business owner will have to deal with these issues. It can impact reviews and have a negative impact on your business. Issues like damaged products, missing items, sub par packaging, late deliveries. The truth is that even with a traditional business stuff happens, but you need to be aware that you can’t pass the buck it will still reflect on you. Check out your vendors before just adding their items to your site, you may actually buy a few items to see how reliable they are, read reviews, not all dropshippers are created equal.
Where Do You Learn More?
There are several online sites that you can get more info about dropshipping, definitely do your due diligence –
Is It Sustainable?
If you are willing to learn a system and there are places on the internet to learn how to drop ship, put in the time to build a following, do the work and have some patience then yes this is a sustainable business model.
In spite of the people trying to convince you that this is a business you can jump into and start earning a 4 or 5 figure income in 90 days I don’t believe that is typical. Honestly this is not a business without its problems but if you have some patience and can hang with your day job for another 12 to 18 months I believe it is a realistic way to replace your current income with the belief that you will be replacing one full time job for another.
I love the idea of a 4-hour work week and if you can automate your business to do that more power to you, I haven’t given up but that has not been my experience so far.
If you enjoy blogging, being creative, you don’t need overnight success, you are a self starter, and you work well in a quiet solitary environment this may be something that is a great fit for you. As I said in the beginning of this article it might be good to diversify, dropshipping along with affiliate marketing can be a great fit.
If you are interested in learning more about affiliate marketing I encourage you to check out my Wealthy Affiliate Review.
Also would love to hear your thoughts about dropshipping, if you are already doing it and have additional insights for others please share, both the good and the bad.