With the eCommerce industry becoming increasingly popular over the last 20 years and certainly picking up traction in the last 10, dropshipping has become an exciting and innovative new way for people to run a business without the need to buy a load of stock and find a warehouse to store it in. In the earlier days of dropshipping some big-name brands became hugely successful. You’ve probably seen the viral picture of Jeff Bezos, the founder of Amazon, sitting in his small, dark office as he tried to get his business off the ground — and now he is quite literally the richest man in the world!
Of course, this is a best-case scenario and unfortunately, not everyone can start a dropshipping business that will make them billions of dollars each year. In fact, as the popularity of this type of business continues to grow, some believe the market is becoming very saturated and it can actually be tricky to still make money in this way.
That being said, if you're determined and you can make a successful go of it, dropshipping can be the perfect way to start up your own business, run it from anywhere in the world and be your own boss! So, if you're looking for your next career move and you are considering setting up your own eCommerce store, let us help to guide you. Below, we will take a look at some of the biggest pros and cons of starting a dropshipping business, so you can decide for yourself whether this is a viable business option for you.
The Benefits of Dropshipping
We’ve briefly touched on why dropshipping can be a lucrative and enticing business opportunity in the introduction, but below we’ll take a look at seven of the key benefits for starting a dropshipping business and why you should still consider this path today. Some of the key benefits include:
You don’t need a shop or a warehouse
One of the key benefits of dropshipping is that you don't have to hold the stock yourself, everything is done online, and the products are sent directly from your supplier to your customers. Your eCommerce site simply acts as a middleman. This means that you don’t need to have a shop or a huge warehouse in which to store all your inventory.
You can run your business from anywhere
Another benefit of dropshipping is that you can run your website from anywhere in the world at any time. So, you could choose to work from home while you raise a family or even work whilst you travel the globe — it’s really up to you! Having a flexible business like this can be very freeing and means you can avoid the usual 9-5 if that doesn't suit your lifestyle.
It’s a relatively low-risk business idea
Fear can be the number one reason that people don't take the leap and start their own business. The good news is, when it comes to starting a dropshipping business the risk and startup costs are relatively low, which can make it much easier to bite the bullet and get your own eCommerce company up and running. Many entrepreneurs decide to start dropshipping on Shopify but there are better options available. Shift4Shop has an entirely free, completely unlimited eCommerce plan if you use Shift4 Payments as your credit card processor. Compared to Shopify which starts at $29/month, it can make a huge difference for a low-budget startup.
There’s unlimited growth potential
If your business is a success, there are no limits to how far you can take it. Again, look at the example of Amazon: from one small online store to a globally-recognized retailer that makes over $280 billion a year! If you're willing and able to put in the effort, your eCommerce store could be just the start. Keep growing your brand and you can keep growing your income.
The inventory is also low cost (for the most part)
When using dropshipping providers, as they sell in bulk, the products are usually fairly low cost. You can of course upgrade and buy more expensive products to sell if you want to give your customers higher quality, but in the early days if you're short on money, you can still move forward! You don't need a big budget to buy your first products and get started.
There are plenty of untapped niches you can exploit
Though some believe that the dropshipping industry is becoming saturated, there are still plenty of exciting niches that are untapped and that you could take advantage of. For example, as people become increasingly concerned with their health and what they're putting into their bodies, health foods and supplements sell well. Similarly, eco-friendly products are very trendy right now with people hoping to reduce their footprint and help to save the planet.
You can even run this as a side business
Finally, because the business can be run from anywhere at any time, this means that your dropshipping business could even be a side hustle. You could run your business and make extra money alongside your regular 9-5 if that’s what you want to do. This can be particularly rewarding if your dropshipping website is related to a hobby or something you enjoy doing in your free time.
The Downsides to Dropshipping
While dropshipping might sound pretty great so far, there are a few other things you need to take into consideration before deciding to set up your own business. As we approach the end of 2020, many budding entrepreneurs have begun to question whether dropshipping still a viable money-making option. And this is unsurprising given that as many as 90% of new dropshipping businesses will fail within the first three months.
Yep, you read that right! While there are a number of great benefits to this type of business, it’s not without its problems. There are several key downsides that we have identified, and these are:
Profit margins are low
The first big issue with dropshipping is that although inventory might be cheap to buy, this also means that profit margins can be quite low. This is because your supplier has to make a profit and so do you. This means that you’ll need to sell the products for more than you bought them for, but if you mark them up too high to make more money for yourself, people might go elsewhere (to cheaper stores like Amazon). So it can be tricky to get the balance right and this often this leads to low profit margins.
It’s a really competitive industry
Another issue is that with so many dropshipping, eCommerce and big brands out there already, competition is really tough! Think about it: why would someone purchase a product from you if they can get it on another site for half the price? With so many options online you have to go that extra mile if you hope to attract customers and drive sales, which is why branding is so important.
Delivery times can be very long
Whilst not having to buy and store all your stock is one of the key selling points of dropshipping, this can also have its issues. Often the original seller will require as much as 21 days to get the product out to your customers and in a world where most businesses offer some sort of express or next day delivery option, customers are not prepared to wait three weeks to receive their parcel.
In fact, the majority (63%) of consumers expect to get their parcel within three days and 40% said they would put off ordering from a company if they couldn't get their parcel in two days. So as you can see, speedy delivery and having the right courier service in place is crucial.
You don’t have control over the products
Last but not least, if a product reaches your customer and it is damaged or not as promised, or doesn't arrive at all, the customer is going to be coming straight to you — not your supplier. But with little control over their shipping times and delivery options, it can be hard for you to fix the problem, which can reflect badly on your business. That being said, you can pay more to use local and reliable suppliers. You just have to find the budget to be able to do this.
So, Is Dropshipping a Viable Business Option?
Taking all of this into account, we’re now going to discuss whether dropshipping is still a viable business option. The main problems that we’ve identified are that eCommerce is a very competitive market right now and depending on the supplier you choose to use, you might have little control over the products, presentation and delivery times. While these are obviously big issues if you're hoping to start a successful online business, there are solutions to all of them — you just might need a bigger budget.
So if you're prepared to invest a little more money into better platforms, suppliers and resources, you can cut delivery time and ensure a better service for your customers. This also means you can create a better eCommerce website and select more high-quality products to put in your store. This can lead to better reviews and increased customer loyalty, with people more likely to shop with you again in the future.
Similarly, branding and a strong marketing strategy are going to be critical in making your dropshipping business stand out and attract more customers. As such, you need to be prepared to invest your time and resources into aspects like your advertising, social media, SEO and online presence. If you can do this, you’ll stand a better chance of beating out the competition and building a desirable and successful brand.
It also pays to ensure that you provide the best customer service possible, especially if consumers are having issues with products or delivery times! This means having a way that customers can get in contact with you if they have any queries or problems. And though you might have to go through your supplier, keeping them in the loop at all times is important. Failure to look after your customers is only going to reflect badly on your brand and this could mean that you end up having to give up on your venture.
But hang on, we still haven't answered the question… is dropshipping a viable business option today?
OK, let’s make this as simple as possible. Dropshipping can be a very lucrative and viable business option if you're willing to put in the time and effort and if you have the budget to invest in the right resources. If you're hoping that you can just set up your website in a day and then leave it to run itself, then unfortunately, you're likely to fail. So it’s really up to you whether you want to dedicate your time to selecting the best products and suppliers and creating a strong brand, or not. If the answer is no, then dropshipping is unlikely to be the best business option for you.