Is dropshipping profitable? This question has been asked at one point in time by millions of people who have decided to venture into it. The answer to that question is far-fetched, what this article will try to do is to carefully examine the advantages, disadvantages, profitability issues, and things to do to ensure that it is profitable.
Dropshipping is a method of product sale and delivery where a retailer does not store goods, but when an order is placed he buys from a third party and ships to the customer. One major difference between dropshipping and a traditional retail model is that fact that goods or products are not stored.
According to a study conducted by Statistic Brain in 2016, it was revealed that about 53% of retail and 46% wholesale startups run out of business within the space of 5years.
Pros and Cons of dropshipping
In this article, we will discuss the various pros and cons of going into dropshipping and also the profitability of dropshipping.
- Low start-up capital: one of the many benefits of dropshipping is the fact that it could be started with less than $1. All you have to do is use your customer’s money to pay for the ordered goods and deliver.
- Reduced overhead cost: dropshipping saves you the cost of paying for warehouses, storage rooms, equipment and employees. This advantage has been one of the reasons why dropshipping is considered one of the low-risk businesses to venture into
- Business scalability; most traditional retail shops face the problem of fast delivery of ordered goods, this is because they have to deal with other issues like management and care of the storage room. Dropshipping, on the other hand, allows for fast delivery, the time that would have been used to manage the storage will be used to fulfill orders.
- Low risk: unsold products mean the loss of money for the traditional retailer, but in dropshipping, you only have to pay for what is ordered and paid for. Dropshipping eliminates the risk of losing money when goods are not bought.
- Inventory burden: we all know that the task of handling an inventory can at times be stressful, for example, you have to track the delivery, sale, and purchase of goods and also make plans for fragile and perishable goods. Dropshipping rids you of these responsibilities, giving you time to ensure that your business grows and that you deliver goods on time.
- Product variety; since space and overhead cost is not a known problem of dropshipping, a retailer would have the opportunity to offer his customers’ limitless product choices. Dropshipping allows for retailers to own a vast and ever-changing inventory that will ensure that sales are made.
- Location: with a smart device and internet connection, dropshipping could be run anywhere. With the aid of your smart device and internet connection, you can communicate with your customers’, wholesale suppliers and dropshippers from the comfort of your home.
- Stiff competition: since there is a low barrier to enter, the competition is stiff. The fact that there is little to sell, makes the sale of certain goods crowded. For startups, this is a major problem. Before if you decide to venture into dropshipping it is advisable that you make a careful research to find out what particular product to sell and your market audience.
- Lack of control: dropshipping involves that you hand over shipping process to a third party, meaning that you do not have control over what happens. If the third party leaves your client displeased, it will surely affect your business image and reputation.
- Complicated logistics: in the event that you are working with more than one dropshipper, the policies and methods at times become complicated. Since dropshippers are humans, errors are bound to happen, either a damaged good could be sent to your customer or somebody’s order could be sent to another person. These human errors make dropshipping complicated.
Issues that could affect the profitability of dropshipping
There issues will affect the profitability margin of your dropshipping business. They are:
Discrepancies or inconsistencies
Inconsistency between the purchase order and the system of supply will definitely affect the quantity order of the item, the delivery date, customer name and contact information, label packaging and shipping etc. This inconsistency could lead to delivery of a wrong item or damaged item.
To increase your profit margin, you must ensure that all necessary information of each customer is not mixed with that of another. This is important if you seek to make a profit from dropshipping.
Each supplier or retailer operates a two typed pricing system; wholesale price of goods and shipping price, with the shipping price higher based on the volume of goods to be shipped. This added price discourages customers’.
As a retailer, to make a profit you have to make a research of the market price for the shipping of goods, then you can make a slight reduction in your price. This will surely draw more customers’.
The low cost of venturing into dropshipping has resulted in the massive influx of people. This means you have to compete with thousands of people. This stiff competition will mean that you have to slightly reduce the price of shipping at a time to remain as competitive as possible.
Orders from international customers’ will attract tax and customs duties when shipping the product. This tax will add to an already high shipping price, thereby discouraging customers’. It will also affect the profit margin of the business.
It is known that discounts drive sales, Christmas, Black Friday sales are forms of discounts. For suppliers, it is difficult to give discounts because of the price of shipping.
Is dropshipping profitable?
Over the years there have been success stories that have attested to the fact that dropshipping could and have been profitable, but there are certain factors and requirements that must be taken into consideration to ensure that dropshipping is profitable.
It is interesting to note that almost everyone who has amassed wealth from dropshipping has all followed a pattern. The profitability of dropshipping for you depends on certain decisions that you must take.
First and foremost, as a potential supplier, there is a need to make careful research before venturing into dropshipping. You have to research on the most profitable niche to venture into. Careful research should be done to find out the type of products that people would love and are willing to buy. Choosing a niche is like a map, it will give you direction and will help you focus on meeting the needs of your desired target audience.
To ensure that your business is profitable, you have to carefully evaluate your environment. Do you live in a country where people do not buy things online? Which product is in high demand? What are the complementary products? What is the alternative product?
Adverts are also key to ensuring that your dropshipping is profitable. There are several platforms that you could use to advertise your business. Before an advert is done you must, first of all, know your target audience, knowing this will help you tailor your advert content in a way that it will appeal to them.
Facebook has proven to be a good platform to advertise as it has over 1 billion active users. If you seek to make profits from dropshipping, it is essential that you take these factors into consideration.
Your business is a brand and you have to protect its image. You have to offer satisfying customer service and always try to avoid discrepancies or inconsistencies in product orders. As a brand, you have to be reliable, trustworthy, and ensure that your delivery is fast compared to others. Remember that making profit margin is determined by the number of customers’ you have.
Things to do to maximize profit
The aim of every business is to maximize, but it has proven to be difficult to do so over time. As a supplier, what steps do you take to ensure that you maximize profit? To maximize profit, you have to;
• Start little
• Enhance dropshipping with applications like Oberlo
• Venture into less saturated and no-US market.
• Create a content marketing strategy.
• Always aim for retail consolidation as this will help you reduce shipping cost.
• You can collaborate with other suppliers to make orders for wholesale.
• Choose a niche with large volume and low-cost products.
• Endeavor to find high demand products and their related or complimentary products.
• Endeavor to offer top notch customer service.
• Optimize your website for higher engagement.
Taking into consideration these factors will definitely ensure that you gain profit, but the growth and profit margin of your business depends on you. Your level of dedication will also determine if you will make a profit. So, if you seek to venture into dropshipping and make a profit you need to be dedicated, determined and open-minded to new products. Most importantly customer service and brand reputation should be your concern.