Is dropshipping worth it? Is it still working in 2021?
Here we present ten facts.
Drop shipping is real but the benefits is inflated. Drop shipping is not likely to result in a worry free six figure income quickly, even for hard working people who quit their jobs and make their own products.
Drop shipping means you sell things online and you don’t hold any inventory. When someone orders, you tell the source factory to ship the item to them. The source factories are all listed on alibaba.com. Their super agent is a man named Jack Ma. You take advantage of exceedingly low “source price” of factory with surplus and the customer’s acceptable retail price. You don’t have a physical address and therefore don’t need to pay rent. You bypass traditional wholesale, retail and established channels.
For example, take a look at this factory source price of a candle holder. This is the USA retail price of the same candle holder. Anyone can buy any quantities of it and ship it to USA and sell it. This is the allure of drop shipping.
If you are making the products yourself, then it is not drop shipping, it is just ecommerce.
On paper there is tremendous room for profit. You can buy an item on Alibaba for 50 cents and sell in the USA for 30 dollars. How wonderful. However, it does not calculate the cost for you when there is no customers. In business, time is money.
Here are ten things dropshipping involves that may surprise you.
Number one, limited long term prospect. All your income can never support a second person’s salary. You are most likely always alone. In business, it takes 10000 dollars to make 12000 dollars of business, but you can not make 10000 dollars of business from zero cost. If you can, everyone can.
Number two, limited choice of products. The factory that can ship to you can ship to anyone else who request their products. The factory is also a business, trying to survive. Factories like large stable orders from Amazon, JC Penny or Bed Bath and Beyond. The people who work at the factory likes to work with bigger orders, so their life is more secure and predictable. They can work hard for a day and go home happy for large orders.
Drop shipping source is finicky and far away. Drop shipping items are hard to find. You don’t want something too niche, and you can not carry something too popular.
Number 3, You have both low and high competitors. It may be very easy to start selling one T-shirt, but your drop shipping competitor is always Amazon and Walmart. They are grown from drop shippers too. In dropshipping, your product choice is rather limited instead of wide open. You can not drop ship items that people can buy in grocery stores or Amazon. You don’t want to drop items that are too heavy. That only leaves very small niche items for drop shippers. It is a supplement to the economy. If an item is too popular, the factory would take care of bulk buyers first, and they may have nothing left for drop shippers.
Drop shipping does have enormous profit margin, but the competition is also interested in it. Big companies like Amazon organize and get further discounts than you. By being 1000 times bigger than you, their profit is a million or a billion times of yours.
Number 4, it is a numbers game. The conversion rate is harsh. If you have a million followers never believe you have 1 million buyers. Typically only 1 to 10 will buy. I know it takes amazing amount of time and talent to get that one million follower - but they are not your customers. Why there is such a steep drop off? sometimes people don’t trust you. Sometimes people don’t need it. Sometimes people don’t want to spend the money. Most people just liked your post, it does not mean they like your products. If you ask them too often about selling things, they may block you.
Number 5, business is measured by BUSY-ness.
Drop shipping is only profitable when you have constant business. That requires you to have constant supply and constant flow of people. At that point, your drop shipping factory is likely to ask you to hold your own inventory and commit large amount of funds. It is not drop shipping anymore - it becomes a commerce. You will start to pay rent eventually.
Number 6, protecting your reputation is hard.
Since drop shipping purchases are shipped from factory, it involves long shipping time. Since most people buy on a whim, the shipping cost has to be really low, like free shipping. But, free shipping from China? that is an impossible act. The postal service will take all your margins away.
You never know how the factory package things and what short cut they take - because you are not there to inspect.
If the shipped item is slow, low quality, or damaged, you will get a bad review. Now that is something to worry about.
Number 7: A company is not a business
Many companies have no business. It is just like many people are not married, and many soldiers have never been on the battlefield. Having a business means you have found a stream of revenue. Having a company just means the government knows when to collect tax from you, whether you make money or not.
Number 8, drop shipping takes money.
You can drop ship on your own website, or you can operate a store on someone’s platform. If you operate your own site, then you must let your customers find you on google. If you operate on someone’s platform, then you most likely need to pay the platform for ranking fees. The platform knows exactly how much you make. They will charge you accordingly. After all, the platform is a business and it wants to make money by charging the store owners.
If you happen to make some money, the operations and growth will likely require that you put all the money back into operations if you want to grow. If you don’t grow, you are just a sitting duck waiting for competitors and copycats to catch up.
Number 9, experienced operators design from the beginning. Only scalable business makes profit. We see big stores and big brands hiring thousands of people and doing great business. And most people think you can imitate that. It is not so easy. The big stores have hundreds of millions of visitors and millions of products on display - they make 10 cents off each item but they sell millions of items everyday. You on the other hand, has only 1 million visitors total and one product. You make 3 dollars per item but you sell only one each month.
Number 10, it is a full time job. The shipping is costly and the competition is brutal, even in a niche. Operating a store and a social network activity is full time job.
Ok, now that I give you fair warning about the drop shipping life style, there is chance to use it as a side hustle to gain business experience. And who knows, you might make it big through your hustle and luck - but you have to start. Unless you start, you will never start. You can never evaluate the chances from the outside.