Dropshipping on the face of it looks appealing — after all, you don’t have to hold the physical stock (no storage costs) and you have an endless supply of new items to list.
But what should you consider before starting your dropshipping business? Is it really as easy as it looks?
What to consider before you start your dropshipping business
Instagram, TikTok, Twitter, Facebook. No matter what social network is your guilty pleasure they all make dropshipping look like it’s the road to a millionaire lifestyle but is it? Here’s what you need to consider.
1: The Product can take a long time to ship
Most people start dropshipping by finding a product they like on AliExpress or similar websites and then upload the product to their own site with a higher price; and then when it sells, the purchase flows through AliExpress and it ships straight to the customer's address. Great, right?
Well. Yes and no — see the issue is in almost all cases the customer isn’t aware of that you are relaying the order via dropshipping, and if you’re dropshipping in America to another customer in America, it could take as long as 4-6 weeks to arrive if shipped from overseas. And then the package could arrive with non-English labeling — and your customer may rightly wondering what’s going on.
How do you avoid such a scenario?
- Find a company that make the product in your own country and can get it to the customer in 2-3 days.
- Warn customers on your site that some products could take 4-6 weeks to arrive (This will heavily impact sales).
- Find companies to use for dropshipping that have faster turnaround times.
2: Remember it’s not all profit — and don’t forget possible refunds!
A common mistake dropshippers make when starting out is to take too much money off the table as sales come in, and then spend it all on their own lifestyle, without realizing that they still have the cost of the product to pay.
If you take $10,000 and the product costs $9,000. You’ve made $1,000 before taxes. In other words you have a 10% margin before taxes and other expenses. Not bad, but not the same as having $10,000 in profit.
Not to mention, you have to account for returns and refunds. It’s not unusual for customers to get impatient waiting for their product from China and thus canceling and requesting their money back.
You should always keep back some money for refunds from your profit as to expect 0 returns is not good business sense.
3: Build it and They Will Come Does not Work
Just because you build a website doesn’t mean people will find it and buy from you. You need a marketing plan and that could involve social media promotion, paid ads on Facebook and Google, content writing, and a bunch more!
Paid Ads are particularly popular with dropshippers, although they do eat into any margin you already have, and you should be cautious of your budget.
If it’s a little slow to start, remember that no businesses are built over-night. Patience is vital.
4: Everyone Else has the Same Product
If you’re finding products on a website like AliExpress and dropshipping them then so are thousands of other people around the world.
The product isn’t unique or special — often you’ll have more luck trying to ask a brand in your home country that doesn’t have an online presence if you can dropship their product for a cut of the profits.
Because while it’s possible to dropship and sell the same headphones as everyone else is selling, there isn’t a lot of money to be made and it’s both a time consuming and laborious process.
An alternative to dropshipping generic products is to instead dropshipping via a print on demand service for personalized or slightly customized products. You can design a custom product with a service like Printful or Teelaunch, and still run the business like a Dropshipping business. Yet, your products are unique to your own custuomizations.
5: Costs to get up and Running
Because you don’t have to hold stock, it's easy to trick yourself into thinking running the business is “free”, “cheap”, “easy”. Actually none of those are terms I’d associate with dropshipping.
Because you don’t hold stock, you can’t control the stock level. There’s no cost to this, but there is a risk someone buys the product and it isn’t available at your dropshipper — causing you time, money, and reputation loss. It's important to have keep your store and your dropshipping partner's inventory and product lineup in sync.
Then there’s the cost of building a website; and whether you go with WooCommerce, Shopify or something like BigCommerce, there are associated costs to all. Though our awesome GoDaddy Pro deal can definitely help you kickstart your site (with a domain!), for as little as $1.
And of course, as I mentioned earlier marketing, Facebook or Google ads with no sales revenue quickly racks up if they aren’t targeted correctly to convert into sales.
I’d recommend budgeting no more than $1,000 to get started, and essentially beta test your store. You can do it for less and some people have done it on as little as $50. But if you’re serious about dropshipping you need to treat it like a serious business and not just a distraction.
6: It is a Real Business
Despite what people may say, dropshipping is a real business and a valid business model. That means you have to consider:
- Returns process — what is your return process? How does a customer submit a return? Where do they return the product to?
- Liability and business insurance — you can be sued, make sure you aren’t sued personally and have all the correct insurances in place (varies by country).
- Register your business legally — it usually doesn’t cost a lot to register a business legally but saves you a ton of headaches down the road when doing taxes and reporting your business income.
- Get a separate business bank account — trying to run your business from your personal account is a recipe for disaster, finances become crossed over and it’s quick to lose track of what’s what.
While you can be a college kid doing it out your dorm or a professional operation the considerations are the same, dropshipping can make you genuine money but you have to know of everything beforehand and manage it like a business, not a hobby.
In the long run, it’s almost always more beneficial to have your own product and manage your own stock but dropshipping can be the perfect way to dip your toe into the water as the start of your eCommerce journey.
Have you tried dropshipping before? Had issues dropshipping? Or have been successful? Whatever your dropshipping story let us know in the Commerce Journey Facebook group!