Dropshipping seems to be enjoying a revival recently and it’s clear to see why it would be attractive to anyone wanting to make money online. But is it really all it is cracked up to be?
We look at the truth behind dropshipping, the good, the bad and the downright ugly. Can you really make money dropshipping? And if so, why isn’t everyone doing it.
What is Dropshipping?
Dropshipping is a way of doing business without having to hold any inventory or stock. You sign up to a dropshipping company, promote their products, makes sales and then they ship the item direct to the customer.
In short, dropshipping is a type of marketing business. You are marketing and selling the goods on behalf of the supplier, and in return they handle the logistics of getting the goods to the customer. You get a cut of the sale.
Dropshipping Sounds Too Good To Be True?
There are certainly benefits to dropshipping. It is really easy to get started and takes very little investment. You do not have to handle any stock nor do you have to package up or post goods to the consumer.
However, you also have very little control over your business. Your success depends entirely on how good or bad your dropshipping partner is. If the products are poor quality, shipped late or out of stock, there is little you can do about it.
Profit margins also tend to be quite poor compared to other businesses. How much profit you will make on each sale depends not only the supplier you are working with but also the competition, and in the dropshipping world, competition can be fierce.
Choosing What To Sell
There are so many products available to sell via dropshipping that it can be very difficult to decide exactly what to sell. Are you going to find out what is currently popular and then try to compete with the myriad of other sellers in the arena? Or will you try to find a niche or better still a gap in the market?
Google Trends is a good tool for finding out what is currently popular or to research potentially profitable niches.
Once you have a rough idea of the sort of products you want to sell, take a look at some dropshipping suppliers to check what you will be able to source the items for and whether or not there is enough profit in the items to be able to make the venture worthwhile.
Choosing A Dropshipping Partner
Your choice of dropshipping partner can literally make or break your business. Take your time and do your research, you need to be sure that they won’t be letting you down when it comes to delivering on the goods.
Find out exactly what charges are involved, some dropshipping companies charge a compulsory fee for membership, which needs to be factored into your selling price.
Customers don’t want to be waiting around for their purchases, in this day and age they expect things to be delivered quickly. What is the turn around quoted by the dropshipper. Are sufficient items held in stock? How do they handle returns?
Working Out Your Profit Margin
Is there enough profit margin in your product for you to be able to build a sustainable business? Profit is calculated by the selling price of the goods minus how much it costs you to sell it. Profit margin is often expressed as a percentage. To calculate it take the price you are selling your goods for – say £200 and deduct the cost for you to sell it – say £150.
Your gross profit is therefore £50 on that item. To work out profit margin as a percentage take the gross profit and divide it by the revenue – so £50 / £200 which equals 0.25. To express this as a percentage simple multiply by 100. Therefore your profit margin on this item would be 25%.
When working out your profit margin factor in all of your dropshipping costs including any membership fee or additional costs you incur. These also include the costs of marketing products, market place fees, advertising etc.
So What Might Go Wrong
Because you are totally reliant on a third party supplier, dropshipping can be quite a gamble. You have no real quality control over the items which are being sent out, and unless you regularly make test purchases to check quality, the first you will probably know about this is when the customers start to complain.
Likewise you have no control over delivery. Most dropshippers make some sort of guarantee that items will be dispatched within a certain time limit, but some don’t. Be very wary of working with suppliers who cannot guarantee a dispatch time.
In all businesses, there will occasionally be times when items go out of stock or are hard to source. But if this is happening regularly (check dropship reviews) that should be a big red flag.
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