Drop shipping sounds like a compelling idea. In case you’re not familiar with the concept, drop shipping works like this: A retailer creates a store to sell products, but doesn’t buy any stock. Instead, when someone places an order, it’s sent to a drop shipping supplier, who posts the goods directly to the buyer. The retailer doesn’t have any contact with the product. They act as a middle-man between the supplier and the customer.
In theory it’s a great idea, and some people have had success with drop shipping, but it’s not all wine and roses. I want to have a look at the positive and negative aspects of drop shipping, so that prospective retailers caught up on the idea have the facts at their disposal before they invest in building and promoting an eCommerce store and head off to Chiang Mai — a favored haunt of drop shipping digital nomads.
Before I go into the pros and cons, a word of warning: because drop shipping sounds so good, it’s an area ripe for scams and worthless “educational products”. Think hard before you spend big on drop shipping information. Most is freely available online.
The Positive Side Of Drop Shipping
When it works in your favor, drop shipping can be a remarkable way to generate revenue.
- Set up an eCommerce store with minimal capital outlay. Because you don’t have to buy the products you’re selling until your customer buys them from you, you don’t need to buy stock upfront.
- No need for warehousing and staff. The drop shipper handles the sourcing, warehousing, picking, packing, and posting of goods. You don’t need a fixed location from which to run your business. A laptop, an Internet connection, and web hosting with an open source eCommerce store like Magento is all you need.
- Make money with your web dev and marketing skills. In theory, you just need to set up a store, and market the heck out of it. Minimal web development skills and some promotional chops are the only qualifications.
Sounds good, right?
Drop Shipping Negatives
The reality is that most drop shipping eCommerce endeavors fail. It’s not an easy business to make a success of.
- Profit margins are razor thin. Think about the economics of drop shipping for a moment. Typically, you aren’t buying in large volumes. You aren’t making the product. In fact, you’re doing almost none of the work. As such, drop shipping companies won’t be willing to sell you products at a significant discount compared to the retail price. To make a decent profit, you’ll have to either sell an awful lot of product, or price above the rest of the market — and you’ll have to be a fantastic salesman to get away with that.
- Lack of control over inventory. You have no control over the quality of your inventory or the reliability of its delivery. And yet, you’re the one the customer will come to with complaints. A few mistakes by the drop shipping company can destroy your store’s reputation.
- It’s hard work and the rewards aren’t great. Lots of people think drop shipping is a good idea, and almost every niche you can think of is saturated with competition. And even if it isn’t, you’d be competing with Amazon and the other eCommerce giants. It takes an incredible amount of work to successfully promote an eCommerce store. And it will often take quite a lot of money too — many drop shippers rely on Google and Facebook advertising, which isn’t free. Passive income it is not.
It is possible to be successful with drop shipping — or at least it was possible. Today, I’d advise prospective eCommerce retailers to think long and hard before putting a lot of work into a project may not provide a living wage (even if you move to Thailand).
About Graeme Caldwell — Graeme works as an inbound marketer for