Because of the saturated market and lots of dropshippers in every industry, many consider dropshipping business model as dead or just not working. Here we try to go more in depth to answer the question “Is dropshipping worth it?” to help you decide better if you’re considering launching this type of business in the future.
Table of Contents
What is dropshipping?
To put it simply, whenever you run an ecommerce store but the inventory isn’t yours, you’re in fact dropshipping. That is, sending the customer orders to a supplier who fulfill the orders and handle all the packaging and shipping tasks.
In general, dropshippers market and sell items which have been manufactured, or developed by other brands.
The place for selling is usually on an independent website, powered by an ecommerce platform, or through ecommerce marketplaces used by other dropshippers and sellers too.
The range of products that dropshippers could sell is so wide. It could include anything from baby products to car parts to shirts to jewelry and home appliances.
The rule is to find a supplier who could fulfill your customers’ orders for you. So, as long as you have an audience with a particular market need, you could refer them to your supplier and make a profit.
Is dropshipping legal?
One of the most important things before starting any type of business, especially if it’s new for you, is knowing all the aspects of it, including the legality and special laws and rules which might concern it in your country/state.
Since dropshipping could be considered as some type of reselling business which you don’t handle the inventory, and since reselling is legal, in almost any country in the world, we could conclude that dropshipping is legal as well.
In fact, as far as we know, there is no specific law against running an ecommerce store which lists products for sale from other suppliers.
But, you should remember that there might be some methods which could make dropshipping illegal or unethical.
For instance, when customers are scammed into buying some products which they won’t receive as advertised, or with lower quality, is one of the situations which most people hate most.
Of course, there are many rules against this type of practices in many countries throughout the world.
As mentioned before, when running a dropshipping business, try to display products from the best suppliers as far as you could, and be clear with your customers about different shipping dates and terms so that you could prevent any complaint or negative feedback.
Dropshipping Pros & Cons
One of the great ways to compare different business models and methods is by knowing about various aspects of them at first and then evaluate the weight of each aspect according to our business goals and plans.
Perhaps, reading about benefits and drawbacks of this business model might better help you understand if dropshipping is still worth it:
Pros
- Passive income: many people use dropshipping as a way to earn an extra passive income, while doing other works or even when they’re asleep. That’s quite possible with consistent monitoring and necessary upfront work. That’s not be the case for lots of other businesses, such as retail or other cases in which you need to manufacture or craft something yourself.
- Minimal risk: one of the greatest barriers for many businesses and entrepreneurs to test new products is the huge amount of funding needed for manufacturing. But with dropshipping, you could easily see your customers’ response to any new item without a lot of investment. This way, if any product doesn’t satisfy your market needs, it’s not so difficult to try and find another product to showcase to your audience.
- No stock inventory: since dropshippers don’t need to have physical warehouses or storefronts, a great deal of costs (e.g. upkeep, construction costs, space lease, etc.) and hassles, would be eliminated. All of that is possible due to the business model of dropshipping which puts the responsibility of handling and shipping the products to the suppliers. The same goes for related processes such as production costs, inventory management, and so on.
- Easy to start: because so many other things in the dropshipping business are done by the supplier, it could be done with much lower financial investment and risk involved. Simply, there is no need to worry about storing or buying inventory, developing/manufacturing products, hiring staff, etc.
- No physical attachment: since there is no inventory for this business, lots of reasons for having a physical location to manage your business is nonexistent here. You could handle your day-to-day operations of your dropshipping business on the go while you’re traveling or even out of the basement of your house. It’s your choice. This could also result lots of money saved for your business since there is no costs required for warehouse charges, utilities or rent.
Cons
- Fragmented orders: in case you list different products from a variety of suppliers on your online dropshipping store, some of your customers might be annoyed or confused when receiving orders including several packages. Other issues in this situation might be confusing branding, extra packaging costs, and additional shipping fees.
- No wholesale discounts: buying large volumes of items isn’t usually possible while dropshipping. That’s because your customers order products at your store in low quantities. As a result, you couldn’t take benefit of the bulk discounts which wholesalers offer to major retailers and distributors.
- Minimum control: no inventory might sound good in terms of expenses, but when it comes to quality control and ensuring satisfactory condition of the items, there isn’t much you can do when you encounter lost sales and unhappy customers due to a supplier not doing their job correctly.
- High competition: there is a heavy competition in the dropshipping business since the entry barrier is so low. So in terms of marketing and attracting buyers to your store, instead of other stores with similar or the same items, you have to do a lot so that you could stand out from the rest in your niche.
Is dropshipping profitable?
The short answer is yes. And let us explain to you why.
As you know, in any niche, there are millions and millions of products which could be purchased from different marketplaces, retailers, websites, sellers, etc.
Most people don’t take the time and effort to find their niche items through the quality suppliers and sources, such as the ones with lower prices or quality conditions, fast shipping, low shipping costs, and so on.
So, as a successful dropshipper you have to take advantage of showing the right product in front of the right audience. In that case, you could make lots of sales and therefore huge profit.
In order to help you better understand how dropshipping business could be profitable for you, let’s do some basic calculations.
How much you could make from dropshipping?
Let’s suppose you’d like to run an online store which could earn you $50,000/year through dropshipping.
But, how could you calculate your overall sales and income?
That’s not very difficult. If the average price of items on your dropshipping store is $50 and you earn $10 on each as a profit (which isn’t so high) then you need to sell 5,000 items each year on average, which is about 400 orders per month.
As you see, with right product pricing and required marketing for your online shop, it’s not an impossible task to run a successful dropshipping store.
Dropshipping vs affiliate marketing: which is better?
Many who consider starting a dropshipping business, also think about affiliate marketing as another popular business model as well.
The fact is, these days both of these business models are very popular and potentially profitable. You just need to know which aspects of them you want to compare.
So, when comparing affiliate marketing vs droshipping, if you’d like to focus only on the financial aspects of them, for instance, you should know some basic facts about how affiliate marketing works too.
The amount of money you make as an affiliate marketer mostly depends on two factors: the price of the product and commission percentage.
So, if the product price is $100 and the commission you earn on each sale for this product is 10%, you earn $10 every time someone buys this item through your referral.
With than being said, when you compare the average commission for affiliate marketing programs with the average profit on dropshipping products you’ll see that the potential to make money in dropshipping is far more compared to affiliate marketing.
The reason is for the same number of sales and product prices, you’ll make more profit in dropshipping and that makes it a better choice. Although, similar to many other business models, higher risks might be a typical side effect when you get higher earnings.
Best platforms and suppliers for dropshipping
When it comes to choosing the right platform or service for your ecommerce business, most people got confused and have a hard time making a proper decision.
That’s because there are tens, or hundreds, of various platforms, tools and services which have been developed and made available to help you start or grow your dropshipping business.
Here is a few number of the top picks which you could look at when you’d think you’re ready to become a dropshipper:
- Shopify: in addition to be a powerful ecommerce store builder, Shopify could help you in most sections of your path to start a dropshipping business, from selecting your store design, to adding the items from your supplier to your store, to processing the orders and so on. Also, it integrates with many other helpful ecommerce tools and services which make your business simpler and more effective.
- Aliexpress: one of the great places to look for dropshipping products is Aliexpress website. There you could find a variety of products from toys and home appliances to outdoor tools and auto parts to fashion items and jewelry. Plus, it could easily integrate with popular store builders such as Shopify so that you could automate many parts of your dropshipping business such as importing products, items pricing, order fulfillment, etc.
- Oberlo: another great tool which provides you the access to other suppliers in the market. As a powerful Shopify app, Oberlo could make the process of adding products to your store and updating their info the work of a few clicks.
What type of people could be more successful dropshippers?
Considering all the disadvantages of dropshipping, many entrepreneurs still want to start their own dropshipping business. But, is it suitable for all kinds of entrepreneurs?
As you might have guessed the answer is no. But then, who is this kind of business more suitable for?
According to some research and evidence, those convenient with lifestyles which could be defined by the phrase ‘on-the-go’, people constantly travelling across the globe and digital nomads are a few type of people which might be more interested in the dropshipping business.
Also, those in the start of leaning digital marketing or other business owners who need extra cash to fund other business projects might want to try dropshipping as their side hustle as well.
On the other hand, those who want to experiment with manufacturing and creating new products might not find this business model as their right answer.
And remember that, although it’s really possible to make money from dropshipping, as seen through a huge number of examples available throughout the web and social media, it’s not a get-rich-quick scheme. So, don’t set your expectations too high.
Tips to make more money from your dropshipping business
There are lots of successful dropshipping stores in every niche. You just need to remember and take actions on some tips in order to have a profitable dropshipping store:
1. Monitor the stats
Having access to metrics and data is one of the greatest advantages of running a business online.
You need to constantly monitor and track important metrics of your ecommerce such as your website’s traffic, popular products, abandoned cart rates, conversion rates, and so on. If you track these metrics and do proper actions in time, you could see your revenue grow gradually over time and your sales increase as well.
2. Use the right tools
Another area which could have a great impact on increasing your sales and profits is the platform and software you use to run your ecommerce business.
The goal is here to make your sales funnel on your dropshipping store as easy and simple as possible for your customers.
In addition to basic required tools for store design and products management, consider other helpful tools as well, which might be available with your ecommerce platform or not. These include email marketing tools, customer service solutions, shipping platforms integrations, and more.
A great ecommerce solution, such as Shopify, has everything you need as a business owner from starting your dropshipping store to payment processing and tracking your sales and stats.
3. Focus on your audience
Unless your online store has traffic, and lots of it, there is little chance you could have lots of profit in your dropshipping business.
So, the main key here is to focus on marketing and driving traffic to your ecommerce website. Generating leads, customers engagement, and promotional emails are among other methods to increase the sales on your store by attracting new buyers.
Overall, to increase traffic to your online dropshipping shop, you could use various tools and methods such as organic SEO, Facebook Ads, Google Ads, etc.
Just remember, start with small investments with any of these paid advertising methods and increase your campaign funds gradually until you reach a point when you could more sure about your advertising strategies for your dropshipping store.
4. Choose the right products
Even with the best marketing techniques, pricing strategies and lots of traffic, if the products on your store aren’t what your customers need or expect in terms of quality or functionality, you couldn’t have much success in this business.
And the problem is even worse with so much competition in most industries and niches. So, before choosing the products, you should choose your niche the right way.
When thinking about any particular niche, try to know the market you’re targeting as much as possible. Do lots of research on the consumers’ needs, demography and behavior, competitive sellers, etc. in this niche.
To have less competition when starting dropshipping you could pick smaller niches.
After choosing the right market, you should be ready to select the items from the right suppliers. Just remember in every step to do the due research before taking any action.
Conclusion
To answer the question whether dropshipping is worth it or not, we presented many topics for you earlier in this article.
As you could see from the above, the answer mostly depends on how you’re going to manage your business operations from the time you start a dropshipping business until later when it’s time for growing and scaling your ecommerce store.
And you could almost be sure that with the increasing popularity of ecommerce industry and online shopping, dropshipping stores could make more and more profits that ever before.
So, as long as you do the required research, choose the right products and market and sell great quality products to your customers, the chance of running an online dropshipping store might get higher for you.