Before we begin, all beginner dropshippers need an answer to the following question: What is dropshipping, what are the pros and cons of dropshipping, and most importantly, how does it work? Let’s explain all these. Before we do that, let’s explain briefly about how this supply chain management method functions.
How does drop shipping work?
So, you have an online store. Your customers find products they like and make an online purchase, i.e. order. All the shipping details are automatically sent to your dropshipping supplier. From then on, all the work is left for them to complete. They find the products, check them for any defects, then pack and ship them to your customer’s shipping address. In other words, it’s an order fulfillment method that doesn’t require dropshippers to open a company or rent a warehouse. It’s easy because everything is done online, and most of the work is taken care of by your supplier. Now, since you can’t physically see the products, it’s best for you to find a reliable supplier, although that’s another topic to cover in one of our other articles. Basically, that’s how dropshipping works. Sounds pretty simple, right? Sure, if you’re an experienced dropshipper, it does. But what about the pros and cons of dropshipping?
The Cons Of Dropshipping
Before you start your own dropshipping business, there are a few things you should know. From high competition to legal issues, let’s cover them all.
1. High competition
Everyone starts with a great dose of optimism. It’s the right mentality, especially when you’re opening an online store. However, being a realist will get you better results. You can’t expect to open a store and welcome customers coming out of nowhere. There are millions of drop shippers online, with at least a portion of them earning decent profits, up to $100,000 per month. However, to get there, you’ll need to put your mind, body, and soul in it. And with most of us having 9-5 jobs, it’s rather impossible to do so.
No matter which product category you choose, you will always have competition behind your back. There are ways to “kill” your competitors, with special marketing techniques and paid advertising. For example, if you’re dropshipping fashion clothing, the profit margins are way bigger, and you will most likely have a return in investment, from paid advertising. Still, good research will lead you a long way. Finding high-profit products where there is not much competition will get you started. One great tool which can help you with this is Thieve, so make sure to check it out.
2. No control over inventory
The problem with control over inventory is that customers will address you directly, no matter what’s happened with the product. If it’s defective, they will contact you. If it hasn’t arrived for weeks, it’s your fault. For each complaint, you’ll have to talk directly to your supplier, which in return must give you a proper answer. Overall, you’re constantly under the pressure of failure to deliver products in time and in perfect condition.
Luckily, most suppliers nowadays are reliable enough to ship orders with 99% customer satisfaction. There is still that 1% left, though, so be prepared for anything. The best advice is to find suppliers with quick response times, i.e. great chat support. This will remove any delays in the communication between you and the customers. Sure, you can also count these facts as either pros and cons of dropshipping
3. Low-profit margins
It’s easy to calculate profits. If you’d like to know how, we’ll name a few expenses you need to look out for, before you end up making profits by selling enough products.
– Monthly advertising costs
– Store maintenance fees
– Supplier fees
– Additional fees (plugins, server maintenance, etc.)
Now, how can you turn these expenses into profits? Everything you pay for should earn you money. Especially advertising/marketing costs. For example, if you’re reselling smartphones for $1000, and you get 10% of the profits, that’s $100. However, you’ve already spent $50 on advertising. Minus that, and the rest is enough to cover the basic profits, such as supplier and store maintenance fees. You still haven’t gotten a penny out of it. Now, picture this times ten. You have now spent $500 on advertising and sold 10 smartphones, earning $1000 in the process. Remove $500 for advertising and another $100 for the fees, and you now have $400 left in your wallet. What’s the lesson here? You spend more to potentially earn more.
Please note, this is just a basic example and doesn’t necessarily have to reflect the actual profits and expenditures. The point is, the more you spend, the more you earn if you do things right. Spend more time researching which products to sell before you create ads for them. Also, make sure to check which social media channels are best to advertise your products. For example, Instagram and Pinterest are currently very profitable for advertising specific products.
4. Legal issues
You won’t find many dropshippers complaining about legal issues and their online businesses being shut down because of it. However, it is something to be aware of. In short, don’t trust suppliers that aren’t BBB-certified in the U.S., although most of them are. In fact, around 98% of all suppliers are verified and are already established companies in their respective industries. However, some of them will use various marketing tricks to fool you into believing they are legitimate businesses. Don’t let their copyrighted logos and fancy ‘100% certified’ banners trick you.
How can you check if a supplier is legit or not? Simply Google their business. The first results should show the supplier’s website and physical address via Google My Business. To understand better, see the example image below.
There are reviews by Google users, as well as reviews from other sites. Some of the more relevant sites include TrustPilot, Sitejabber, Capterra, and others. Here, you can find out everything you need about how a supplier works, directly from the customers, before you decide to connect with them. It’s very easy to find out more about a supplier since all of these websites have search bars for better navigation and supplier search.
How To Make Your Dropshipping Business Work
Let’s talk about how to make your online store sell products. What can you possibly do to make this happen? We’ll cover a few ideas, enough to make you understand how you can convert this opportunity into profits. These simple marketing techniques require time and money, but eventually, they’ll lead you to profits. These can be counted as both pros and cons of dropshipping, depending on one’s point of view.
Dropshipping marketing budget
You can freely count these as part of the ‘pros and cons of dropshipping’. Unless you’re a genius at digital marketing, you will have a hard time finding customers for free. The best solution is to separate a large chunk of your budget for advertising. Why should you invest in it? Because you’re not giving away the money to social media channels, but instead are investing in your business. Every customer you paid for to enter your site has a chance to “bookmark” your store. The next time they need a product like yours again, they’ll know which online store to visit.
Ultimately, you won’t have to advertise and spend that much money, because customer satisfaction will make customers tell others, creating a sort of ‘word of mouth’ advertising for your store. You are now beginning to get the point. What about the budget and spending? We’ll mention the five most popular channels for advertising your products, and let you decide how much to spend, depending on the types of products, of course.
One of the best (and cheapest) methods for Instagram advertising are shoutouts. You can get some for free, by mutually shouting out your business via Instagram stories or posts. Alternatively, you can find influencers and even get shout outs for $10-20. Shoutcart is a great tool to find influencers in your industry.
There is a general rule on Facebook, about promoting your new store. Generally speaking, people spend between $10 to $15 per day. However, this is great if you’re selling the cheap stuff. In case you’d like to sell products worth over $100 or $200, you’ll need to be more competitive, and at least double the budget to at least $30 on a daily basis. The logic of this is simple. Those selling high-ticket products earn more profits. They want to beat the competition and are willing to spend more, in order to gain more. This is why you’ll need to research the market first. Make sure to check out the ‘market research’ section at the end of the article, to find out more about which products you should dropship.
You might not be aware of this type of marketing, but even so, watching a few tutorials will help you create a good campaign and set the right budget. Remember, you will only spend money if someone clicks on your advertisement. You can set the budget at $20-40 per day, and get lots of clicks in return. Not all of them will buy something, but even if a small percentage does, you’ll already be making profits.
The world’s most popular video-sharing platform can be used by dropshippers with larger budgets, since a single ad may cost at least $180 for a fixed period of time. It’s still worth mentioning because YouTube vloggers are equivalent to Instagram’s influencers. With a little luck, you can get a mention by an influencer for less, depending on your budget.
If your store has a ‘subscribe’ button and you’re unaware of it, it means you haven’t capitalized on this opportunity yet. All those emails your customers have left can become the basis of your income. You can use email automation platforms such as MailChimp to send around 12,000 emails to no more than 2000 of your customers every month, for free. Premium plans are also available if you’re willing to invest more in email marketing.
This article answers the question – does dropshipping work? Yes, it does, and you know it. As for the pros and cons of dropshipping, we’ve only named the cons, but what about the pros? How does reselling products online for large profits without even touching them sound to you? Pretty good, right? Let this side income adventure become your 9-5 job and give you more financial freedom. Use that freedom to either spend your hard-earned on other investments or spend more quality time with your family.