In the wake of the Covid-19 pandemic, more and more people are considering leaving their jobs and launching a new endeavor. For many people, that new path might be based in a passion or a hobby—like selling craft beer or homemade food. But if you’ve never been the crafty type, and the only thing you really want to do is turn a profit, you might be considering starting a dropshipping business. This easy-entry business model can seem like a dream come true—but there are many reasons why you might want to reconsider.
What is dropshipping?
Dropshipping is a business model which allows U.S.-based companies to sell products that are manufactured, warehoused, and distributed by third-party manufacturers. These manufacturers are almost always located in foreign countries, primarily China.
Were you to start a dropshipping business, you would be responsible for creating an ecommerce website, and marketing the products on it—but that’s pretty much it. The actual inventory would be created and distributed by someone else, and you would take a cut of the profits.
What are the benefits of dropshipping?
The dropshipping business model is very appealing to many people, especially cash-strapped entrepreneurs who don’t have a lot of time, money, or space to spare. Some benefits of dropshipping include:
It’s very low-risk. Since you aren’t manufacturing anything, you don’t have to take any financial gambles. There’s no need to invest a lot on equipment and ingredients and product packaging and hope that it all pays off.
It saves time. You don’t have to find a place to produce your wares; get the right permits and approvals; or create the products. This makes dropshipping very attractive to those who have other responsibilities, like raising a child or holding another job.
You don’t need a lot of space. No one’s partner or roommate wants to spend months stepping over boxes of unsold yoga pants. With dropshipping, that frustration is eliminated, as the items you sell aren’t even warehoused with you.
You don’t need to manage your inventory. As we’ve noted before, one of the most difficult aspects of running a business, especially for artist and maker-types, is managing the inventory. With dropshipping, inventory management is simply outsourced to someone else, so you don’t have to worry about keeping track of where everything is.
It’s easy to test new products. If you are looking to sell something out-of-the-ordinary ,and are uncertain if it will resonate with a certain market, dropshipping is a safe, low-risk way to test its selling power without investing in a large amount of inventory.
It’s easy to scale. Every business owner craves growth, but it can actually be difficult for traditional retail businesses to grow quickly. For instance, of you were a retail coffee shop owner who found yourself with twice the usual amount of orders, you would probably need to hire another barista in order to keep your customers satisfied. With dropshipping, you don’t have to hire extra personnel, expand your space, or really change anything at all.
The top 5 disadvantages of dropshipping
At this point, you may be getting very excited at the prospect of starting a dropshipping business. But before you run to sink all your savings into a dropshipping website, hold on for a moment. Unfortunately, in spite of all the perks listed above, the vast majority of dropshippers struggle to turn a profit. Below are some of the top reasons why this is the case.
1. You’re competing in an overcrowded marketplace
All marketplaces tend to be crowded. Whatever product or service you want to sell, you can bet that there are hundreds or thousands of others who want to sell something similar. However, if your product has unique selling points and you’ve got a good marketing team in your employ, you can still stand a fair chance of making a name for yourself.
With dropshipping, however, those chances are very slim. Simply put, you are competing in an arena that has absolutely no barriers to entry. You might not need any special skills, certifications, employees, or materials to launch a dropshipping business, but your competitors don’t, either.
It’s also worth noting that some of your competitors will be amongst the biggest players in the game, like Amazon, Shein, and Walmart. You’ll have to be very good at branding, marketing, and SEO to compete with these massive corporations, especially considering the fact that…
2. Your products are not unique
If you’re, say, dishing up samples of your grandma’s homemade BBQ sauce at your local farmer’s market, you probably have a lot good selling points to make about it. It’s tastier than the stuff in the grocery store; it contains a very rare type of pepper; it’s been passed down through your family for generations; et cetera. But dropshipping warehouses will supply the same product to anyone, which means that the pink spatula you’re selling might be featured in five, or ten, or a hundred other online stores. Even the very best copywriter or marketing strategist in the world would struggle to find something to say about an item that is very obviously the same as everyone else’s.
Modern shoppers are wise to this fact, too. The vast majority of them will use a tool like Google’s Reverse Image Search to discover which store is offering the item at the lowest price. Usually, it will be one of the aforementioned corporations, which have ample resources with which to undercut you. They’ll take the lion’s share of sales, and small, independent dropshippers will find themselves in a “race to the bottom” to offer the cheapest price. In this type of scenario, your profit margins will be very slim, if you have any at all.
3. You have no control over distribution
Outsourcing your distribution to a third party might save you a lot of time and effort, but it also means you will have virtually no control over it. If a customer messages you with a question about an order, you won’t have the information on hand, and won’t be any closer to solving the problem than they are. In fact, as you go back and forth between the supplier and end customer, you might just delay the problem-solving process rather than helping it along.
Despite not having the ability to solve any problems with orders, you will take all the heat for anything that goes wrong. If a customer’s item arrives in pieces, or is three weeks late, or never arrives at all, your customers will be angry with you, and many will take to the Internet and social media to vent their frustrations. When you’re up against such heavy competition, a few bad reviews can be enough to destroy whatever small customer base you do manage to build.
4. You have no control over packaging
This is a big one, and the reason that inspired us to write this blog. As a packaging supply company, packaging is very important to us, and it’s important to your customers, too! There is tons of research demonstrating that creating a great unboxing experience can make a huge difference in promoting your brand awareness and increasing your sales. Handwritten notes, colorful packing materials, and tiny gifts (like pins and stickers) are just a few of the personal touches that can surprise and delight customers, and make them more likely to purchase from you in the future.
With dropshipping, though, none of that is possible. Most suppliers will allow you to submit your own branded invoice for placement inside the package, but that’s about it. We noted above that the only thing that differentiates one dropshipper from another is their marketing and branding. However, you won’t even be able to do much of that.
5. Nobody needs your business
This may sound harsh, but it’s the truth. If you decide to become a dropshipper, you will be launching a business that no one needs.
Your customers don’t need you, because they can buy your products anywhere. The only thing you are adding to their buying experience is the few minutes which they spend on your website, a browsing experience that is probably not worth the price markup.
Your suppliers don’t need you, either. Chinese and Indian manufacturers know that they could be taking the full share of the profits for the things they make, and they are slowly positioning themselves to do just that. At the time of this writing, over 40% of Amazon sellers are already Chinese businesses–not dropshippers, but the manufacturers themselves. So, if you decide to launch a dropshipping business, you are entering a market that is destined to collapse within a few decades.
Conclusion: Don’t fall for the hype
Right now, social media apps like Tik Tok are cluttered with “experts” and “gurus” promising that you can make a fortune off of dropshipping. As long as you just buy their book, or sign up for their class, or enroll in their membership program, you can learn the “secrets” of dropshipping and become wealthy overnight with almost no work involved.
Don’t fall for this sales ploy. These influencers’ profits, if they really have any, don’t come from dropshipping; they come from the aforementioned classes, books, and programs that they sell to people like you. There is no “secret” or “winning” product that consumers will line up for, and unfortunately, nothing that’s worth having in life comes easily. Your business will be far more profitable, and you will yield much more personal satisfaction, if you can if you can offer customers something you can truly be proud of.
SSI Packaging is a packaging material company based in Richmond, VA. We offer small business owners everything they need to package, ship, and track their inventory. To learn more about us, click here.