Drop shipping, It’s not what you think
“Dropshipping is a business model that allows entrepreneurs to start an online business and sell products to their buyers. So without ever actually stocking the items themselves. Therefore when a dropshipping store sells a product, it purchases the item from a third party and has it shipped directly to the customer.
Sounds like a can’t miss opportunity offered by one of the largest e-commerce platforms, Shopify. The only problem is, you don’t make any money. If you do, it’s very tiny in proportion to buying and reselling your own products. It’s tiny in profits, not necessarily sales.
So if you sell $1,000, you may take 10 to 100 dollars. And there is a benefit because you have zero investment other than your time and the cost to set up your store. Therefore everyone rushed to get their e-commerce store’s from Shopify or others. These people are in business to sell you an e-commerce store, it’s up to you to make it work, and that is not easy.
The Dropship Experiment
Dropshipping for me is an experiment, not an actual business. If 500 people are all selling the same item then there is only one winner. The person that ends up with the sale. The more people selling the exact same product always results in lower sales prices, and profits. Therefore economics of drop shipping does not make sense. So why do people do it? People get into drop shipping because companies like Shopify have made it easy for them to set up an online store. You can start your online drop-ship business in the morning and be up and running before dinner. That doesn’t mean you’re going to make any money.
There are several reasons why people do drop-ship e-commerce stores and here are my top 10 reasons for what it’s all about.
The top 5 list
- It doesn’t cost hardly any money to open a web site through Shopify or similar platforms
- Many manufactures and distributors will pack and ship directly to your customer with your name and label on the box, so no inventory to store.
- It’s in the manufacturers’ and distributors’ best interest to have thousands of people around the world. Like you selling their products because they don’t need to hire their own people. So they save on labor and advertising.
- Zero capital to start except to buy your store, but takes large money through SEO to attract buyers to your store. Listing your product on your e-commerce dropship platform is the beginning of a long and arduous trip to making money.
- People drop-ship on major platforms like eBay and Amazon, and some cross dropship too. So eBay sellers drop ship from Amazon and vice versa. Platform fees on these make profits almost zero.
The next 5 List
- There are hundreds of drop ship companies and hundreds of categories, from gold coins to olive oil. It’s almost limitless. Which one do you want?
- Anything that’s easy that everyone can do usually results in little to no profit. The supply-demand rule. If you think you can create your own product that sells then think again. Only 1% of the created products actually sell. I know because many sellers call me to buy what they can’t sell.
- Maybe 10 to 15 percent off all the products you sell will be returned to you. That means someone is going to pay the return freight to the company that dropped shipped for you. Who pays that return freight fee? If you, then you just lost money, if the supplier then okay, but maybe it takes longer? You need to know that.
- What products to sell? YouTube promoters that sell you “how-to” seminars or books will tell you they know how to figure this all out. They do not. Past success is no guarantee for future performance. No one knows what will sell until they try it, and it will take you time to figure out what sells. Google analytics help, so check that out.
- If or when you figure out what sells, then so can others too, and they usually have more time and money than you do.
So why even consider drop shipping and is there an alternative? People do drop shipping because they have no investment, just time, and platform fees. If you make a dollar in the dropship, then you have an unlimited return on your investment because you have nothing invested, but that disappears once you have problems when people return the product and the suppliers don’t have the product because they sold out. The most popular products almost always sell out or never end up in inventory to sell. New products have little to no profit because the manufacturers take the profit, and leave you with little, especially the big brand names like Nike, Samsung, and Apple.
The Alternative to Dropshipping
The alternative is simple but not easy. Buy small quantities of used or closeout products. You choose the category, I buy and resell used computers, most mobile devices because of the profits and demand. But then I have to pack and ship and work? Yes, you do, but you actually make money, not spin your wheels. Like I said if anyone can do it like drop shipping then there is hardly ever any money to be made.
Look at other alternatives to drop shipping and build your business one brick at a time. It’s well worth the time and effort and doesn’t take as long as you think. Dropshipping may work for some but look closely at how and what costs to make it work. The easier to get into, the faster it fails.