Dropshipping business model: the pro’s & con’s!
Dropshipping is an accessible and promising business model. However, it also has some drawbacks. Does this online business model suit you?
Dropshipping: what is it and how does it work?
Dropshipping is actually very easy: a customer orders a product in your webshop. You then place the order with your (foreign) supplier. The supplier then ships the product directly to your customer, so you don’t have to keep stock yourself.
Dropshipping is nothing new at all. Originally the term was used to describe businesses that operate without (fixed) stock. For example, a home improvement store that sells a sofa and has it shipped directly from the supplier to the customer. Nowadays the world of dropshipping has exploded, because many (mostly young) entrepreneurs see opportunities in starting a low-threshold online business with potential benefits. This is encouraged by so-called dropship gurus who teach these entrepreneurs how to become successful with dropshipping.
Actually, you only need three things: a webshop (which you can easily create yourself through Shopify), advertising budget to promote your products on, for example, Facebook and a suitable supplier, which is almost always affiliated with AliExpress. There you will find more than 200,000 suppliers of mostly Chinese products. Be careful not to build a whole shop and determine your marketing strategy before you have found a supplier. If not, all the time you have invested in it may be wasted. The first step is to choose the product you want to drop ship and then find a suitable and reliable supplier who can deliver this product.
The downside of the dropshipping model
The dropshipping business model has been under quite a bit of fire lately. This is because many people feel that they are being scammed. They feel it is a scam that business owners are making money off their order, while adding no value or quality to their order.
E-commerce guru Jia Ruan, who is often named as one of the most well-known online entrepreneurs together with Joshua Kaats, also has his doubts about dropshipping. According to him, there are two major drawbacks to this model.
1. Dropshipping doesn’t deliver value to the customer
Many dropshipping products do not deliver real value to the customer. They are often poor quality products that disappoint. You also don’t add any other value as a dropshipper, such as reduced delivery time or a better product.
2. It offers no real value to you as a seller
As a dropship entrepreneur you have no guarantee that your shop will not be copied by other entrepreneurs. The competition is fierce and it is very easy to copy someone else’s webshop.
A list of dropshipping pro’s & con’s
By now you have probably realized that dropshipping has two sides. It can potentially work very well and you can get rich very quickly, but because so many entrepreneurs are plunging into the world of dropshipping there is also a lot of criticism. Now that we’ve seen both sides of dropshipping, we’ll list the pro’s and con’s you.
Benefits:
- Quick start: You have a webshop online within a few hours by using user-friendly software such as Shopify.
- No high start-up costs: You do not need to have a stock and your webshop can be purchased via a relatively cheap monthly subscription.
- Low risk: you first receive money from your customers before you place the order with your supplier. This allows you to cover the costs.
- Scalability: most suppliers are already set up for mass. They can therefore quickly produce and deliver a lot. You can also continue to build webshops as long as it works.
- Automated: dropshipping can be fully automated, allowing you to sell at any time, no matter where you are.
Disadvantages:
- Control: with most suppliers, you don’t have complete control. They determine the arrangements, delivery times, shipping methods and products.
- Responsibility: even though you don’t own the products, you remain responsible for the process. Many dropshippers forget this.
- Quality: You can not guarantee a standard quality level, because you do not make the products yourself. Often buyers expect this from you.
- Dependency: You are almost always completely dependent on your (foreign) supplier. If they suddenly stop or change the rules, this has consequences for your online business.
- Exclusivity: Your supplier also often delivers not only the products to you, but also to all your competitors, so no exclusivity.
4 dropshipping tips from our HUSTL podcast
The first episode of our very own HUSTL podcast was all about dropshipping. Our guest was Mischa, an E-commerce entrepreneur with several dropship businesses to his name. He too took the dropshipping course from Joshua Kaats. According to him, the secret to a successful dropshipping business lies in a few tips. Do you decide to make the dropshipping model your own? Then follow these 4 tips!
1. Wow factor
When the product comes along in an advertisement on your timeline in the form of an offer or video you should think to yourself, “Wow! I want that”. Only then will your product sell well.
2. Target group / Niche
Preferably sell a product for a clear niche within a certain target group. This allows you to target this (sub) target group very specifically with your ads. Just make sure your niche is not too limited. A product sells best when there are lots of people who can use it.
3. Problem-Solving
The product must be problem-solving, which means that you make it clear what specific problem the product solves for the buyer. In other words, show the added value.
4. Not for sale in stores
The fourth and final tip from Mischa was that you should sell a product that is not for sale in stores. If it is, buyers will choose the easy way and go to the nearest store. If that is not possible they will be forced to buy the product online, hopefully in your webshop.
