Dropshipping is a business model that’s easy to get into, as long as you have internet access. Here’s how it works: When someone places an order, the seller sends that order to another company. This company then ships the product directly to the customer. Essentially, the seller acts as a middleman between the customer and the company that has the product.
The great thing about dropshipping is that it simplifies the process of starting a business online. You don’t need to worry about renting warehouse space, handling supply chains, or managing inventory. It’s a streamlined way to run an online business.
But don’t be fooled into thinking it’s a quick way to get rich. While it may seem like a simple way to make money by selling other people’s products, there are many challenges and daily tasks involved. It can be hard work.
In this article, we’ll explore the pros and cons, the right strategies to use, and the best dropshipping companies. We’ll cover all of that and answer some common questions to get you started.
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How to Start a Dropshipping Business?
Dropshipping is a business model that connects a customer-facing store with a supplier. There are two common ways to start a dropshipping business:
1. Find Suppliers Yourself
You can search for wholesale suppliers worldwide using databases like AliExpress, SaleHoo, or Worldwide Brands.
2. Use an App Like DSers
DSers is a Shopify app that simplifies the process. It connects your store to thousands of suppliers. With DSers, you can easily import products from AliExpress to your Shopify store.
When a customer makes a purchase, you can fulfill the order using DSers. DSers automates most of the dropshipping process, making it easier for store owners.
You just need to check details and click the order button. Products are then shipped directly from the supplier to the customer, no matter where they are in the world.
When done right, dropshipping can be a valuable partnership for growing e-commerce businesses, speeding up order and fulfillment processing.
Learn more: How to Make Money Dropshipping
The Benefits of Dropshipping
Dropshipping is a popular ecommerce business model for both large and small businesses for several reasons:
1. Less upfront capital required
One of the biggest advantages of dropshipping is that you can start an online store without needing to invest a lot of money in buying inventory.
In traditional retail, both physical and online, you have to spend a significant amount of money upfront to purchase products for your store.
With dropshipping, you only buy a product when you’ve already made a sale and received payment from the customer. This means you can start dropshipping with very little money because you don’t need to make large inventory investments upfront.
Moreover, since you’re not committed to selling through any inventory you’ve purchased in advance, there’s less risk involved in starting a dropshipping store compared to other business models.
2. Easy to get setup
Running an ecommerce business becomes much simpler when you don’t have to deal with physical products. With dropshipping, you can forget about:
- Managing a warehouse.
- Packing and shipping your orders.
- Tracking inventory for accounting purposes.
- Dealing with returns.
Shopify makes it easy to start a dropshipping business, allowing you to sell without the hassle of handling inventory, packing, or shipping.
You can start by searching on Alibaba.com, using Google, or connecting with someone who can provide this service.
Orders go directly from your wholesaler to your customers, so you can focus on what truly matters – your products, marketing, and customers.
3. Low overhead costs
With dropshipping, you can keep your expenses low. You don’t need to buy inventory or handle fulfillment centers.
In fact, many profitable dropshipping stores are run from home, needing only a laptop and a few recurring expenses to operate.
As you expand, your costs may go up slightly, but they’ll still be much lower than those of traditional brick-and-mortar businesses.
4. Wide selection of products to sell
With dropshipping, you can sell a wide variety of products without buying them upfront. You simply list what suppliers have in stock.
And, you can easily switch up your product selection without worrying about unsold items. If a supplier has it, you can sell it on your online store without incurring any extra fees.
5. Easier to scale
In a conventional retail business, when you get three times the orders, you typically have to put in three times the effort. However, with dropshipping suppliers, most of the extra work to handle more orders is taken care of by the suppliers themselves. This means you can expand your business with fewer challenges and less extra work.
While sales growth will always mean more work, particularly in customer support, businesses that embrace dropshipping have an easier time scaling compared to traditional e-commerce.
Plus, you can use dropshipping on various platforms like Amazon, eBay, and Etsy.
The Disadvantages of Dropshipping
Dropshipping is a great choice for beginners or those wanting to grow their online store. It offers many benefits. However, it also has some downsides to keep in mind:
1. Low profit margin
When you operate a business without the need to manage or store inventory, you benefit from lower overhead costs. However, it also means that your profits tend to be lower.
In this model, you invest less capital, but the returns are modest. To stay financially viable and potentially make a profit, you must generate a significant amount of business. It’s important to note that a significant portion of your revenue goes to the supplier and ad costs.
Paid ads can help you reach a wider audience and connect with potential customers who might not discover your website otherwise. However, ad expenses are going up. According to Forbes, Facebook ad costs have gone up by 89%, and TikTok’s CPM (Cost Per Mille) has risen by 92%.
These narrow profit margins make it challenging to cover various expenses such as marketing, website maintenance (including SEO), order management, and office hours.
To estimate your potential income, you can use the following average values (though they may vary based on your industry and circumstances):
- A 20% profit margin.
- A 2% conversion rate.
You can then calculate a rough estimate using this formula:
(Traffic x 0.02) x (Average order value x 0.2) = Profit
However, over 90% of dropshipping businesses fail within the first 30 days. Your average dropshipping income will depend on the quantity of your regular sales. To increase your profits, you’ll need to put in substantial effort into marketing your business.
2. Intense competition
Starting a dropshipping business doesn’t require much initial capital, which attracts a lot of competition. The bigger companies can offer lower prices because they have the resources to do so.
Moreover, you probably don’t have an exclusive supplier deal, so your competitors might sell the same products. If you’re a small business just starting out, more experienced rivals can undercut your prices.
As a result, the dropshipping market is oversaturated, with many online stores promoting the same products. About 62% of Shopify stores are in the United States, and there are 875,000 US accounts on the platform, making up 50% of all Shopify merchants.
With over 4.36 million websites using Shopify, it’s challenging to stand out unless you have a loyal customer base, valuable content, or run paid ads.
To get noticed, you need to be a better marketer by following these tips:
- Avoid copying other dropshippers and create your own customized ad copy and videos.
- Focus on highlighting the benefits of your products rather than just their features.
- Add a WOW factor or a unique twist to your ad creatives to capture people’s attention.
- Pay attention to on-site optimization since most people won’t buy from your site the first time.
- Utilize retargeting through SMS and email marketing to reach the right audience and make sales.
3. Platform bans
Dropshippers rely on social media platforms like Facebook to reach a wider audience. However, getting banned is easy due to bad ad copy, negative reviews, and subpar products. Facebook removed 67.74% of content for trademark violations and took action on two-thirds of IPs for copyright violations. To avoid bans, dropshippers should:
- Sell quality products.
- Follow platform advertising rules.
- Avoid using other dropshippers’ content.
- Offer excellent customer service.
- Address negative reviews promptly.
- Establish a legitimate company with proper documentation.
- Provide tracking numbers for every customer order.
To run a successful Shopify dropshipping store, make it look and function like a real online business. Focus on:
- Improving website functionality and navigation.
- Minimizing chargebacks.
- Staying compliant with PayPal’s rules.
You can also explore alternative payment gateways like Stripe or Chargeflow, which can be more reliable for dropshippers than PayPal.
4. Inventory issues
Managing inventory becomes more challenging when you’re sourcing products from various warehouses that also serve other sellers. Inventory levels can change daily in such situations. This can lead to losses when customers can’t purchase what they want.
Luckily, there are apps available to help you stay organized. These apps allow dropshippers to easily send customer orders to their suppliers with just a couple of clicks and instantly view the supplier’s current inventory.
Moreover, DSers offers a useful feature that lets sellers automate actions when a supplier’s stock runs out. For instance, if a product becomes unavailable, you can choose to automatically remove it from your store or keep it visible but indicate that it’s out of stock by setting the quantity to zero.
5. People might copy your winning ideas
As a dropshipper, it’s quite easy for your competition to spot your successful products or ads and copy them. Research shows a significant increase in the number of Shopify dropshipping stores over the last year, ranging from 5.16% to 12.82%. What’s more, many people use the same suppliers and use identical images and product descriptions as you. This means you’re up against hundreds or even thousands of other sellers, all targeting the same audience.
The challenge is that they can often undercut your prices and outsell you in the market. To truly stand out and build a loyal customer base, focus on providing value and forming genuine relationships with your customers. Use unique and personalized ad copy and creatives, and be open and transparent in your interactions. By doing this, you’ll set your brand apart from the competition and boost your sales.
6. Shipping complexities
If you’re a dropshipper who works with multiple suppliers, your online store will have products from different sources, and you won’t have control over the supply chain.
Imagine a customer orders three items, each from different suppliers. You’ll have to pay separate shipping costs for each item to get them to the customer. However, it’s not always a good idea to make the customer pay for these charges. Plus, automating these calculations for drop shipments can be a challenging task.
7. Unreliable suppliers
Have you ever been blamed for something that wasn’t your fault, but you had to take the blame anyway?
Well, even the top dropshipping suppliers can mess up orders, and you’ll have to apologize and take responsibility for their mistakes. On top of that, average and low-quality suppliers can really hurt the customer experience by causing problems like missing items, messed up drop shipments, and issues with packing or product quality. These problems can harm your business’s reputation.
Instead of looking for a perfect supplier on AliExpress, it makes more sense to collaborate with multiple suppliers. If any of them fail to ship products on time or send items not as described, you can easily switch to another supplier. When you have choices, you have a say.
8. Limited customization
Unlike custom-made or print-on-demand products, dropshipping limits your control over the product. Typically, the product being dropshipped is created and branded by the supplier.
While some dropshipping suppliers may allow for business-specific product modifications, the supplier still retains control over the product.
Making changes or additions usually requires a minimum order quantity to be cost-effective for the manufacturer.
That’s why it’s difficult to build a dropshipping brand.
Is Dropshipping Worth It?
Yes, dropshipping is still a profitable venture. On average, dropshipping business owners typically earn a profit margin of 20% from their sales. In your first year, this could translate to a monthly income ranging from $1,000 to $5,000.
Your potential earnings can grow significantly depending on factors like your business size and the type and quantity of products you sell. Some successful dropshippers have even achieved annual earnings exceeding $100,000, while others, such as Andreas & Alexander, Harry Coleman, Alex Philip, Cole Turner, and Sarah & Audrey, have made millions in revenue.
Today, around 33% of online stores operate as dropshippers, and about 23% of all online sales occur through dropshipping. Experts predict that the dropshipping market is set to exceed $372 billion by 2025.
However, keep in mind that dropshipping isn’t a get-rich-quick scheme. While some have found success, it’s essential to know that about 90% of dropshipping businesses fail within their first month.
If dropshipping isn’t your preference, consider exploring other online business ideas.