All about Dropshipping
What Is Dropshipping
Imagine setting up your own online store with dozens, hundreds, even thousands of products without having to spend a single dime upfront on inventory. Instead, you find products on another website (let’s use Amazon in this example since most people are familiar with it), add products to your site, and price them higher than they are being sold on the original size (Amazon).
Let’s say you are selling a frying pan that sells for $14 on Amazon. You price it at $20 on your website. When a customer orders it, they pay you $20. Then you go to Amazon and order it for $14, having Amazon ship it directly to the customer, and you keep the $6 difference.
Pretty slick, right?
Only dropshipping doesn’t require you to pay full retail price like ordering from Amazon. Instead, you can often get prices that aren’t all that much higher than true wholesale prices. Of course, you have to be careful. Some so-called dropshipping companies are actually selling at or very near retail, so it’s nearly impossible to make a profit.
Sometimes they charge a monthly or yearly fee to access their inventory, which cuts into your potential profits even further. You also have to make sure the company isn’t going to be slow with shipping, which could seriously harm your reputation.Dropshipping has a lot of pros and cons, so let’s take a look at those before we continue.
Pros Of Dropshipping
Cons Of Dropshipping
It’s a tradeoff, really. You sacrifice larger profit margins and control over inventory and shipping for a lower upfront investment and less work overall. It’s up to you to decide if dropshipping is right for you and your business.
Let’s say you are selling a frying pan that sells for $14 on Amazon. You price it at $20 on your website. When a customer orders it, they pay you $20. Then you go to Amazon and order it for $14, having Amazon ship it directly to the customer, and you keep the $6 difference.
Pretty slick, right?
Only dropshipping doesn’t require you to pay full retail price like ordering from Amazon. Instead, you can often get prices that aren’t all that much higher than true wholesale prices. Of course, you have to be careful. Some so-called dropshipping companies are actually selling at or very near retail, so it’s nearly impossible to make a profit.
Sometimes they charge a monthly or yearly fee to access their inventory, which cuts into your potential profits even further. You also have to make sure the company isn’t going to be slow with shipping, which could seriously harm your reputation.Dropshipping has a lot of pros and cons, so let’s take a look at those before we continue.
Pros Of Dropshipping
- Lower Upfront Investment – Because you don’t have to pay for inventory upfront, your initial business startup costs are much lower.
- No Warehouse Space Needed – The dropshipper is the one who deals with inventory, so there’s no need to rent a warehouse or take up space in your home to keep your inventory.
- No Shipping Hassles – The dropshipping company also handles packaging and shipping products, so that takes a lot of work off your hands, freeing you up for other tasks, like marketing, and sourcing other products.
- More Products – If you don’t have to worry about whether a product will sell or not because you aren’t paying for it upfront, you can take more liberties with the products you add to your store. If a product doesn’t sell, the only thing you’ve lost is the small amount of time it took to add it to the store, and you can remove it just as easily.
Cons Of Dropshipping
- Low Profit Margins – Because most dropshippers are not true wholesalers, you’ll find your profit margins are lower than they would be if you bought inventory directly from wholesalers. In fact, there’s often a middleman between the wholesaler and dropshipper, which cuts into profits even more.
- Delivery Issues – Because you will have no direct control over shipping, there may be times when customers don’t get their orders on time, or receive the wrong product or damaged merchandise. Because they bought the item from you, they will expect you to be responsible, and they aren’t likely to accept the fact that you used a dropshipper as an excuse. In fact, they’d likely just see that as a reason not to order from you again.
- Inventory Issues – You may also find that your dropshipper’s inventory control system doesn’t sync with your own, which means there may be times when a customer orders a product from your site that is not currently in stock with the dropshipper. In this case, you’d have to either source the product elsewhere very quickly, or issue a refund and an apology to the customer.
- Higher Shipping Costs – Because you won’t be able to make deals with shipping companies for volume discounts, and because customers may order products from multiple dropshippers in a single order from your store, you may run into shipping issues. Shipping costs could eat into your profits pretty badly if you aren’t careful.
It’s a tradeoff, really. You sacrifice larger profit margins and control over inventory and shipping for a lower upfront investment and less work overall. It’s up to you to decide if dropshipping is right for you and your business.
Investigating Companies for Dropshipping
There are so many scams and near-scams out there that it can be quite tricky to find a legitimate dropshipper that isn’t going to scam you. Even if you find a legitimate dropshipper, you still have to make sure they have prices that will allow you to make a decent profit, and will provide fast shipping and quality service to you and your customers.
It’s vital to check a company out thoroughly before doing business with them. The first step, of course, is to check for online reviews and check their Better Business Bureau report (if they have one).
To check for online reviews, try searching for things like:
These searches should pull up information about the company. If not, it probably either means they aren’t bad enough to have a lot of complaints, OR they are so new that no one has filed any complaints online, yet. Remember, every company eventually has some complaints. Amazon has been touted as having some of the best customer service there is via many sources, but they have thousands and thousands of complaints.
No company is perfect.Complaints may not even be founded. Sometimes it’s the shipping company that causes the problem, and even when the company goes above and beyond to rectify the problem, the customer still insists it’s the company’s fault and that they are “scammers”.Sometimes the customer misunderstands some element of the ordering process, or even makes a mistake like forgetting to order expedited shipping.
They try to blame the company, and the company’s reputation suffers. So you should expect there to be some complaints about any company. It happens to every company. But if there are far more complaints than there are positive experiences, it’s a red flag for sure.You should also speak with someone at the company directly before doing business with them.
This accomplishes two things:
1. It confirms that the company actually does respond to customers, and that they are easy to get in touch with.
2. It lets you ask the company important questions.
Here are some questions you can ask companies before you decide to do business with them:
It’s vital to check a company out thoroughly before doing business with them. The first step, of course, is to check for online reviews and check their Better Business Bureau report (if they have one).
To check for online reviews, try searching for things like:
- Company name scam
- Company name reviews
- Company name legitimate
These searches should pull up information about the company. If not, it probably either means they aren’t bad enough to have a lot of complaints, OR they are so new that no one has filed any complaints online, yet. Remember, every company eventually has some complaints. Amazon has been touted as having some of the best customer service there is via many sources, but they have thousands and thousands of complaints.
No company is perfect.Complaints may not even be founded. Sometimes it’s the shipping company that causes the problem, and even when the company goes above and beyond to rectify the problem, the customer still insists it’s the company’s fault and that they are “scammers”.Sometimes the customer misunderstands some element of the ordering process, or even makes a mistake like forgetting to order expedited shipping.
They try to blame the company, and the company’s reputation suffers. So you should expect there to be some complaints about any company. It happens to every company. But if there are far more complaints than there are positive experiences, it’s a red flag for sure.You should also speak with someone at the company directly before doing business with them.
This accomplishes two things:
1. It confirms that the company actually does respond to customers, and that they are easy to get in touch with.
2. It lets you ask the company important questions.
Here are some questions you can ask companies before you decide to do business with them:
- How long have they been in business? The longer they have been in business, the more likely it is that they are a legitimate company that will be reliable.
- Which company do they use for shipping? You want to make sure they use a reliable company like UPS or FedEx for shipping, because some of the smaller shipping carriers may be cheaper, but much less reliable.
- Who are their clients? They may not be willing to divulge this information, but if they have some major companies using them, they’re probably a legitimate company.
- What is their return policy? You need to know their return policy inside and out. What happens if the item doesn’t fit, or the customer doesn’t like it? What about defective merchandise? How do they handle returns? Who pays for shipping? These are all questions you need to know, because if a customer wants to return a product and the company won’t help, you will be responsible for handling it.
- What types of payment do they accept? You need to know when payment is expected, and what forms of payment they accept. Some companies may offer net-30 terms, which means payment is due 30 days after purchase, while others may require immediate payment.
- Do they send shipping notifications? The company should send notification emails to your customers when their items ship. This prevents you from having to do it. While this isn’t a deal-breaker, it’s a very nice thing to have.
- Do they offer custom packing materials? You may want to have your own shipping labels on the products, as well as your own packing slip, coupons, etc. This is a very helpful feature.
- What are their prices like, and are there any fees? You need to know how much they charge for products, as well as whether or not they charge any fees for “membership”. Legitimate dropshipping companies will rarely charge a membership fee or participation fee. A few do, but this is rare.
- Do they sell to the general public? If so, chances are their prices are too high to make a decent profit. True dropshippers will not sell directly to the public, and they will usually require a business license and/or tax ID number before you can access their system.
- Can they integrate with your platform? It’s important to be able to have your inventory sync with theirs so customers don’t order products that the company doesn’t have in stock. Some companies have inventory systems that can integrate directly with popular shopping cart platforms, saving you big headaches down the road.
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