Is dropshipping worth it? To answer that question, you need to have a good understanding of what it entails. Drop shipping is a unique eCommerce fulfillment model where the proprietor, you, buys products individually from a wholesale supplier who ships the item directly from their warehouse to your customer.
The one outstanding advantage of dropshipping is that you never have to handle, store, or ship any merchandise. As the seller, you become the portal by which your customers gain access to the products you sell. Another advantage is, there is a very low barrier to entry (more on that later). But possibly the most interesting aspect of drop shipping is the fact that you do not have to pre-purchase everything you sell.
You buy an item at the wholesale price when your customer makes an order- then you pay the wholesale cost, the customer pays the retail cost, and the wholesaler ships it to the customer. If you’ve never heard of this form of eCommerce before, you might be tempted to close this article and run off to jump into the business head first. Before you do that, we want you to have a clearer idea of the benefits and drawbacks to drop shipping- otherwise, you could get yourself into a situation that is sub-optimal.
It’s a relatively new way of doing business on the Internet that some people say is a great way to make money- and others say that it isn’t worth your time. So obviously, experiences will vary. To that end, we will explore the pros and cons of drop shipping so that you can decide whether you would like to try your hand at this unusual business model or keep your day job.
Pros of Dropshipping
Clearly, there would have to be some significant advantages of drop shipping- otherwise, no one would invest their time and money in it.
Low Overhead
Depending on the wholesaler you’re working with, usually, the only cost you pay is the wholesale cost of the items you sell. You’re not having to set up a physical location, other than your desktop at home. So, you can stop clearing out the family fallout shelter to re-purpose it as a warehouse- the wholesaler will do all the storing, sorting, and handling of the product.
Practically Unlimited Product Selection
The fact that you don’t have to pre-purchase your entire inventory ahead of time, store it, and hope that all of it sells, is a major advantage. With most drop shipping arrangements, you make the actual wholesale purchase of an item at the time when your customer commits to buy. That means there’s not going to be a half ton of unsold rusted teapots in your garden shed. Win-win.
Mitigated Risk
Because you do not pre-purchase, store, insure, and maintain an enormous inventory that may never be sold in the first place- you can go into business with a significantly lower risk profile compared to other businesses. Even if a passenger plane fell out of the sky and obliterated the items you might have otherwise sold, you lose nothing- except your wholesale partner of course.
Freedom of Movement
With drop shipping, you have no need to be tied to any physical location in order to do business. You conduct business through your online shop. That means you are free to live where you like and travel where you want. With all the freedom you’ll be enjoying- you might want to start reviewing continental breakfasts on YouTube in your spare time.
High Scalability
Due to the fact that the wholesaler will be doing all of the grunt work, there is virtually no limit to the number of products that you can offer your eager customers. The only thing limiting your ability to scale your business is your talent for branding.
Cons of Dropshipping
Nothing in this world is perfect, not even drop shipping. Here are some things to keep in mind if you’re considering going into this line of business.
Low Barrier to Entry
Low barrier to entry sounds like an advantage, at first. But it really means that anyone with a computer and at least three fingers can go into the business of drop shipping. That means the competition is vast. Who knows, even the old lady living next door to you could be running a multi-million-dollar specialty poodle brush empire out of her retirement flat.
Smaller Profit Margins
The lower cost to entry and relatively lesser levels of commitment are up sides- but there is a price to be paid for all this ease. That cost is lower profit margins. You see, all of the profit made by you and the whole-seller comes out of the difference between the wholesale price and the retail price, and you will be sharing part of that with your wholesale partner. With a traditional retail business- you would keep the entire difference. The truth is, this is the point where you will either sink or swim in this business model. The key is whether or not you find a wholesale partner that’s right for you.
Common Questions About Dropshipping
Is Dropshipping Worth it?
Plenty of people have made comfortable livings from this business model– especially in the early days around 2008 when drop shipping first came on the scene. Since then, so many people have gotten into the business that standing out from the crowd is a significant challenge.
That means branding is critical to your success. You have to know how to reach your customers- and that’s a full-time job. So, is dropshipping worth it in this case? Maybe, if you are ready to work 80+ hours a week (keeping your normal 9 to 5 and maintaining a full time business). If you’re ready to get rid of your full time job and find out if dropshipping is worth it (and you can afford it), go for it!
What are the Profit Margins Like in the Dropshipping Business?
As we discussed earlier- the profit margins are not tremendous since you’re splitting the difference with your wholesale partner. It will also depend on what types of products you sell, but will generally vary from 5% to 10%. Keep in mind that these low-profit margins are the price you pay for low risk and low commitment. When you weigh it all out, it could be a great deal for you.
Where are Drop Shipped Items Sold?
Amazon and eBay are probably the best well-known sites where an enormous amount of drop shipping is going on. But there are many other eCommerce websites.
If you’re thinking you might be interested in becoming a drop shipping retail merchant, you’ll be glad to know that it isn’t just for small-time upstarts looking to supplement their income. Even big international brands use this method of doing business online to move a great deal of merchandise every day. You have to keep in mind that with size and influence comes a lot of safety- but you can be sure that companies like Home Depot and Sears would not deal in drop shipping if it wasn’t a worthwhile endeavor.