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“Dropshipping Business? Does It Still Work?”

11 min read

Dropshipping has become a popular business model for entrepreneurs looking for new ways to make money in ecommerce. When using dropshipping money, a retailer can sell products in an online marketplace (Amazon, Walmart Marketplace, eBay, etc.) without needing to pay for storage or shipping. That’s because these aspects of the business are handled by a third-party vendor, the dropshipper.

Sellers can partner with dropshippers to buy their inventory in bulk, where it is stored in the dropshipper’s own warehouse. Then, as customers place orders in the seller’s online store, their order information is forwarded to the dropshipping provider. That provider then packages and ships the item on their own without involvement from the seller.

For marketplace sellers, this arrangement offers a simple, low-cost way to operate a business online. Many retailers have already used this strategy successfully, and there are dozens of dropshipping providers available as well. Some, such as AliExpress are major businesses of their own with massive inventories.

In spite of its popularity, it’s still reasonable to ask, “Is dropshipping worth it?”.

The dropshipping business model is not without its drawbacks and complications. This guide will explain whether or not dropshipping is still viable, as well as its risks and benefits.

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Does Dropshipping Still Work?

Dropshipping has become more popular in recent years, but it has actually existed for several decades. However, beginning in 2020, the effects of the pandemic thrust dropshipping into the limelight for ecommerce. As businesses were forced to temporarily close their physical stores, they needed to turn to online retail to stay afloat. With limited storage and fulfillment resources available to many of these businesses, dropshipping presented an obvious solution.

Despite its relative novelty, many people today are asking: Does dropshipping still work? And is dropshipping profitable? The answer to both questions is yes.

Dropshipping has been, and continues to be, an effective business model for a couple of reasons.

First and foremost, dropshipping comes with little to no overhead costs. This is what sparked the dropshipping trend in the first place. Sellers who use dropshipping never need to pay for manufacturing, storage, shipping, or handling. All they need to do is buy an inventory and facilitate customer purchases. This allows business owners to focus their time and resources on other aspects of the business, such as marketing. The low cost of dropshipping remains as valid today as it was several years ago.

Another reason behind the viability of dropshipping is that it allows for incredible product diversity. Businesses can use dropshipping to sell anything from clothing to electronics and appliances. They can also carry an extremely wide variety of products and sell them for profit.

The product diversity of dropshipping leads to another major benefit: excellent scalability. It is much easier to expand your business when using dropshipping than it would be in traditional business. Dropshipping allows businesses to expand their inventory and market reach without increasing overhead costs.

Is Dropshipping Legit?

Some business owners may be concerned about the legitimacy of dropshipping. But dropshipping, when done properly, is completely legitimate and ethical. However, it is important to note the difference between dropshipping and simple reselling.

With dropshipping, sellers use a third-party vendor for storage and shipping services. Sellers still purchase their inventory wholesale from these vendors. In some cases, sellers even have the opportunity to customize some of their dropshipping inventory. For instance, many companies sell custom T-shirt designs through dropshipping. The key to dropshipping is that the inventory is purchased in bulk for the express purpose of resale.

Some online marketplaces, like eBay, have strict policies against direct reselling. That is, sellers are not allowed to buy an individual product and then immediately resell it to their own customers. However, eBay, and most other platforms, allow dropshipping and are home to many stores that use dropshipping retail models.

Is Dropshipping Hard?

Many entrepreneurs start dropshipping businesses because it’s a low-cost business model, and a good way to get started in ecommerce. However, this can lead to some misconceptions about the challenges involved in dropshipping.

In some ways, using dropshipping is easier than running a traditional business. As mentioned above, it is easier to scale your business upward when using dropshipping. By eliminating the need to plan for storage and expansion, businesses can devote more resources elsewhere. This removes some common obstacles from business operations.

However, this is not to say that dropshipping is without its own set of challenges and drawbacks. Business owners should carefully consider several other factors before making the decision to dropship.

Low profit margins

The dropshipping business model requires retailers to sell their inventory at a markup from the original price. This tends to put a modest cap on the profit margins of most of the inventory being sold.

If you mark your products up too high, customers simply won’t buy from you. If you go too low, you’ll have a hard time turning a profit. Finding the right price takes a bit of research, and is also impacted by the next item on this list.

Extremely competitive markets

Dropshipping has a low barrier of entry. Any business can reach an agreement with a dropshipping provider to sell its products. This is a double-edged sword for many businesses that rely on dropshipping for order fulfillment.

Because so many businesses can get in on dropshipping, the market tends to be extremely competitive. This can cause a couple of problems. First, it makes it more difficult to stand out and be noticed by potential customers. And second, the increased competition puts an even tighter cap on your profit margins.

The more competition you have, the lower your prices need to be. If shoppers have five options to choose from when looking for an item, they’ll always choose the most affordable one.

Product research required

One of the biggest mistakes people make when getting into dropshipping is believing that anyone can do it. While it is easy to get started, it is not always easy to be successful. This is because there is a bit of work involved in determining what products to sell.

The key to making a profit with dropshipping is finding high-demand, low-competition items to sell. You’ll need to conduct research into what products people want, but don’t currently have great access to. Then you will also need to find a dropshipping partner who can provide that item in bulk. This is often easier said than done. Figuring out what to sell requires market research and trend forecasting.

Less control over supply chain, product quality, and inventory

The convenience of not needing to worry about storage or shipping is another double-edged sword when it comes to dropshipping. While this does remove some obstacles, it also creates new problems.

Namely, you have much less control over your inventory and product quality. Any supply chain issues are also beyond your control when you use dropshipping. This can lead to customer dissatisfaction, which is then also harder to deal with.

For instance, how do you handle returns, refunds, and product replacements when customers experience shipping or supply chain problems?

Most reliable dropshipping partners are good at notifying sellers about potential inventory and supply chain issues. However, it is always possible for stock to run low on certain items. And when this happens, you still need to find a way to fulfill orders and address customer complaints.

This issue highlights the importance of choosing the right dropshipping partner for your business.

Harder to establish a brand

While dropshipping is a good way to make money for your business online, it does not help with brand growth. This may not be a concern for some business owners. But for others, growing and promoting their brand is a major priority.

This does not mean you should avoid dropshipping if your goal is to grow your brand online. But you should be aware that dropshipping does not help with brand growth. You can still sell other products from our own online store alongside your dropshipping products.

In fact, this combined business model is extremely common, and can be highly beneficial. Adding dropshipping to an existing business helps expand inventory and add revenue without much-added hassle. In turn, this provides more resources to grow the business in other areas and build a stronger brand.

Is Dropshipping Worth It?

So, after learning all that, is dropshipping worth it?

Your answer to that will depend on your goals. If you are an established brand focused on things like customer service and brand reputation, you may not need to add dropshipping to your business. But if you’re looking for a low-risk way to sell online or add revenue, dropshipping can be great for you.

 

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About the author

Anastasia Prokofieva is a content writer at Ecwid. She writes about online marketing and promotion to make entrepreneurs’ daily routine easier and more rewarding. She also has a soft spot for cats, chocolate, and making kombucha at home.

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