You want to create a stronger company culture, which will make your employees and coworkers happier and create more employee engagement, leading to higher productivity. You want to deliver a better customer experience, which will make your customers happier and create more customer loyalty, leading to increased profits.
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Because your wholesale prices are higher than a traditional store, you will not be able to compete as effectively on price unless you take a good sized profit hit. In addition, lower margins will inhibit your ability to advertise on sites like Facebook and Google. Not only that, but less profit per sale also makes customer service problematic. As a result whenever we get an angry customer, we simply give them a refund AND let them keep the product. Because our margins are so high, we can afford to take the hit.
With dropshipping, the convenience of not having to fulfill orders comes at a cost. Often times, you will require the use of several dropship distributors to fully flesh out the product selection for your store. Using 2 or more different dropshippers means that 2 or more companies will be making separate shipments to your customers , which means that 2 or more companies will be charging you their own separate shipping costs.
The only way around this is to only use one dropship distributor which may not carry the breadth of products that you need. The result is that you will have to pass these extra costs onto the consumer which reduces your price competitiveness. You might think that since the dropship distributor is doing all the work that you can sit back and relax. Unfortunately, you have to deal with your customer base. You have to be the one that answers all of the questions. The main problem is that when you use several different dropship distributors, getting the entire order to the end customer can be a logistical nightmare.
All distributors will have different shipping times and will be shipping from completely different locations. If a customer orders products across 3 different distributors, they will end up receiving 3 different packages at varying times. If an order is particularly time sensitive and needs to be rushed, you will have to make sure that all of your distributors can deliver the product on time. In effect, you are staking the reputation of your online store and linking yourself to all of your dropship distributors in a single chain.
If even a single distributor is unreliable, then it will reflect negatively on your online store. Customer service and your online reputation can make or break your business. With the world wide web, social media and Twitter, news of a botched transaction can spread extremely fast so it is absolutely crucial that you maintain a great image for your online store. Whenever I receive a call for our online wedding linens store, I always take the time to ask how they found us. And the majority of the time, the people who find us do so because they were referred to us by one of their friends.
Our customer service is one of the main reasons why we have grown over 3x in the past 3 years. With dropshipping, you unfortunately have very little control over your customer service. Sure, there are always ways to mitigate these problems but the solution inevitably involves either raising prices or taking a profit hit at the expense of customer satisfaction.
Prior to Amazon , it was much harder for companies to sell their goods to the masses. As a result, distributors had to rely on traditional retailers and dropshippers to help them move product. Today, Amazon controls such a large piece of the ecommerce pie that most companies can get by with just selling on Amazon as a 3rd party seller.
Amazon handles your sales, your product fulfillment, your customer service…basically everything that a traditional retailer would typically take care of. But the difference is that the distributor gets to keep all of the extra profit! If you are a dropshipped store selling the exact same products that can be found on Amazon, it will be impossible to compete on price. As a result, you will have very little leverage. After all, would you rather buy from Amazon at a lower price or pay more to buy from an unknown shop?
While I would never start a pure dropshipped store today, there are many ways to use dropshipping to your advantage. Then, you can use this shop to conduct market research. Based on which products sell well, you can pick and choose the most successful products to buy inventory for and enjoy higher margins. Dropshipping is best used as a vehicle for product validation or for fleshing out an online store that is sparse in certain categories. Unless you are a brand new entrepreneur on a budget or an online store owner who is exploring new products, dropshipping is generally not a good choice for seasoned shop owners.
After all, there so many aspects of your supply chain and your customer service that are beyond your control. For example, you have no control over the customer unboxing experience because more often than not, your product will arrive in an unmarked brown box with zero branding.
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You also have no control over inventory. In a nutshell, your dropshipped business lives and dies with your suppliers. Therefore, if your goal is to build a brand , then dropshipping is not the way to go. It really depends. Arguably, the time that you save in not having to deal with inventory and fulfillment will be spent dealing with customers unless you have a reliable core of dropship distributors. What this means is that you may not be alerted in real time whether a particular product is available for sale or not.
Therefore if an item is out of stock , you will have to interface with the customer to let them know when they can have their items. With dropshipping, you are trading off not having to deal with fulfillment logistics with having to deal with more customer headaches. And depending on your personality, this may or may not be a wise tradeoff. Many people have been successful with dropshipping as it works very well with small niche stores but my personal opinion is to avoid it if you can. In this 6 day mini course, I reveal the steps that my wife and I took to earn thousand dollars in the span of just a year.
Best of all, it's free and you'll receive weekly ecommerce tips and strategies! Thanks for this information. In the world of location independence, dropshipping is often touted as a great way to set up an online business so that you can travel. It really does come down to selecting your drop shipper s very carefully. Not all drop shippers charge a per item fee.
If you are a legitimate business you can source your products at true wholesale prices. True wholesale suppliers. Most drop ship and or offer light bulk sales.
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What wholesaler do u use? Obviously u have found a good one. Plz respond because I am seriously considering starting an online store. For any of the readers who have had dropshipping success, would be great to hear what works for you. My guess would be, as Steve mentioned, a narrow niche with few SKUs…. Though I do a lot of my own order fulfillment, some of my vendors are drop shippers. They are all small businesses and I have closer relationships with all who I work with. Its rarely left up to chance because of the close relationships I have, but I do understand how it can be a disaster.
In terms of the costs of shipping, you are absolutely right. For me, the appeal of drop shipping is more of the upfront COST not necessary the perceived ease and convenience. I use Gooten for my dropshipper and it sounds way simpler than what you described in this post. Hey Tanya is it possible for you and I to connect to have more conversations about your knowledge and experience with Shopify?
Interesting article with a number of robust things to consider when determining if drop-shipping is the most appropriate means to deliver product to customers. We have found there are many instances where the benefits of drop-shipping someone else deals with logistics of fulfillment can be combined with the benefits of handling it yourself lower costs, increased customer service, better information control, increased profits by using a fulfillment company.
There are fulfillment companies that focus on small to medium size businesses, particularly those ready to make the step away from a drop-shipping model. I meant to mention that I agree with you Steve. It is a lot of hard work and you definitely have to find the right drop shipping company.
Nice article. I found your blog some days, and most of your articles are great. I always avoid an affiliate business model making money for a product owner and getting peanuts. Thanks for the dose of reality. My husband and I had a dropshipping business on eBay back in Back then, everyone only talked about the pros of dropshipping. But from personal experience, I can agree with all the downsides you mentioned. Looking forward to hearing from you. Very great information! Im curious, you mention that the time you save with drop shipping is replaced dealing with customers.
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What he means I think is that you dont have control of nearly anything yet you still have to deal with customers instead of the manufacturer. Sure, you would have to deal with customers either way, but at least if you controlled things, you could possibly reduce customer issues. If you have a good drop shipper to work with, this is less of a problem from what other people say, but this means it comes down to who you are working with, so learn and be careful.
Dropshipping is not easy. Just to add to Jasmines comment — I like dealing with customers as it lets me stay connected with the truth and understanding from the people who pay the bills what they actually want. Lets face it Drop shipping is a great way to leverage and scale a business however comes with the traps listed in this article. Great read about drop shipping. You bring up a lot of good points. Though drop shipping can be tough if done right can certainly be worth while. Finding a quality wholesaler is a key player in success.
One downfall many have is trying to create a website built upon too many products from several drop shippers without any niche in mind. Great article about dropshipping…finally someone reveals the truths. I was a dropshipper for over 5 years pretty profitable after about 2 years until my main supplier went out of business, leaving me no choice but to close my business. All points in this article are very relevant and anyone considering dropshipping should take them to heart. I was the only customer service and while I liked having the interaction with my customers, it mainly came down to not having control over shipping that created so many headaches.
I had to get into contact with my suppliers about missing orders, damaged orders, etc. One time in particular almost sent me out of my mind. The Today Show did a televised segment on a Saturday for one of the products I was selling and the orders began streaming in faster than ever before.
I thought it was an error until I realized the orders were legit. I was constantly dealing with customers wanting to know where their orders were. It was a true nightmare although in the end the profits were exceptional :. There are all-in-one websites out there i. Volusion that you can start with, but I found after being with them for about a year, the cost was cutting into my profits too much and I decided to design my own sites, I have experience with this, but that is not an option for many. And if you have more than one supplier, you will more than likely have more than one shipping company.
I have to say at this point after my business has been closed for about 1 year I have been looking into products that I can stock and ship myself, knowing that having control will offer me the ability to offer my customers exceptional customer service from start to finish. Thanks so much for this great post. I think drop shipping business is relatively new and innovative type of eCommerce.
If you would read more, I did this post that shows you the drop shipping business process in action. I on the other hand am nomadic, which means I live in a different country every 3 months by choice as well as necessity. Shame on you for that. You offer nothing that is pro-dropshipping. I was thinking about dropshopping, to suit my nomadic lifestyle, and doing your course to set up my shop. Hi Steve, I live in Jamaica I want to start an online store but shipping costs and time for me would be crazy.
Jamaicans are not into online shopping yet. My Mother makes sandal on a small scale and we want to turn that into a online business and supplement it with other shoes while building her Brand. I had considered drop shipping as a method of meeting my customers needs but this post has me really concerned. I sincerely urge you to open your mind and give it a try, despite your previous experience with dropshipping. I wrote this post during a time when dropshipping was all the rage so I decided to take on a contrarian point of view.
Dropshipping can definitely work but the ramp up takes longer. Check this Out, this is how I started. So my question is instead of just droppshipping would you recommend going to a place like DSW or any outlet store for that matter and buying expensive brand name stuff at outlet store prices and then selling them full price online?
Have you had any sort of good experience with this?
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I actually looked up my boots on ebay and found they sell like hotcakes so I figured why not? I have looked into drop shipping so i can increase the range of my products, mainly small kitchen appliances and other consumer electronics. Also you may not have an integrated order system with them so you could sell 5 of one product and the drop shipper only has 2 left, leaving you with 3 orders to fulfill and 3 disgruntled customers. You also have the monthly or yearly fees to pay many of them too, so if you find you sell less than 10 products it could really eat into your profits.
The old sayings still hold true today in my opinion, buy low sell high, and stack em high and sell em cheap. People want things too quickly in this day and age, they want to put little work in for big profit, but like any business it takes long hours, plenty of effort and hard work, and sweat, tears, pulling your hair out and banging your head against a wall.
This piece was invaluable. That is your opinion no body can stop you from expressed yourself. My family owns a brick and mortar retail shop and recently started selling our products online. Our e-commerce site is technically drop shipping but products bought online then ship to our retail shop for in store pickup.
The biggest PRO is the inventory is auto updated and synced real time to distributor stock levels. BUT, the CONS are the fact all product descriptions, site design, site architecture and navigation is set by 3rd party. But HOW do I do that? How do they sync with my distributor and fulfill orders like this? Again: — real time inventory levels — orders purchased then pull item from distributor stock and start process. Essentially the orders been on hold, waiting for our payment to them, and the green light to ship it to us.
Yes, your wholesale prices are higher, but your overhead is reduced in other areas.
Your comments, views and opinions are very negative and one sided. Whilst some of the problems about dropshipping you mention here might be true for some, there are hundreds of people on Ebay successfully running dropshipping businesses so it cannot be all that bad and hopeless. Even if you hold your own inventory and arrangement shipment of your own inventory things can still go wrong.
For instance your supplier could run out of stock due to importing problems, warehouse fire or any other problem that could occur. Sometimes items can become damaged during the delivery process even if you do arrange your own shipment. Posting centre can make errors. So I think it goes to show that even if you are an inventory seller, a number of things can still go wrong to give you headaches. Each selling method has its own pros and cons. And steve, I am just wondering, are you sure you are not trying to put people off dropshipping because this is in direct competition with your type of business?
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No need to answer, just a question that occured to me. Great article! I own a Scuba operation in Mexico. I was thinking about adding an online store to my website and offer t-shirt sales that would be shipped to guest and waiting for them when they get home. What do you recommend? Yes, It is never easy to handle shipping and complains. In my site, I put. This is an amazing article! I feel like I now completely understand the real risks involved in dropshipping. I will be re-evaluating whether or not I will still undertake a dropshipping venture.
Thank you so much! Some very true facts in this. The key is to choose good partner, test it first yourself purchase something and use good dropship-API. Using several dropship partners is not a wisest choice. Your margin is smaller but you also dont have to pack and ship stuff or put a load of cash upfront into your stock. When you grow, you can always switch from dropship to your own fullfilment with own stock and overcome multiple-partners problem.
Affiliate is not all roses too as the partners always shuffle links, products, prices, screw something etc. And with affiliate you have no control over the price, so affiliate shop is not a very good idea. You have to check it out for yourself. Only states the obstacles and not the advantages. Ecommerce platforms like Shopify, 3Dcart, Big Commerce, etc have so many tools to make it easy…ier. Dropshipping can be a logistical nightmare…not really, these e-commerce platforms allow you to identify each ship point by manufacturer and calculates the correct shipping cost based off that location.
Product is shipped once…not twice. Like once to your warehouse and then to customer. The manufacturer can also pass on better shipping costs due to their volume. Costing — sure you were not getting the same cost but you also have a lower margin requirements and less funds sitting in a warehouse not moving. I was a buyer for a fortune company and have been working for a national manufacture for years. This is where the industry is heading for sure. I know so many people doing this and doing it well because of the fear of others not to do it.
Hey Just pointing out there, that there is a really good drop shipping platform that has over suppliers with really low prices. Just go here. Zappos started out by drop shipping as many orders as they could in the beginning. They eventually grew out of it and started fulfilling their orders.
They still fulfill some orders using drop shipping, as does BestBuy, Target, Home Depot and hundreds of other companies.