Will dropshipping make you rich? My honest opinion.
Dropshipping is a retail fulfilment model that you do not need to keep the inventory at your premise; you focus on curating the store and promoting the products. You make profit margin between the costs and the price you sold. The strategy is to find popular products and ship direct to buyer. Sounds like a good plan with very low risk and high margin. But…
Here is the catch:
- You have to compete with other dropshippers.
- You have to play along the product ranking algorithm of all the online marketplaces (e.g. Amazon, Lazada, Shopee, etc) if you are posting your product on their sites.
- You have to spend marketing $ on Facebook, Google, Instagram (Facebook again), and other means to catch the eyes of your buyers.
- You have to pay for the website hosting fee, subscription fees, shipping fees, warehouse fees, and transaction fees that process your online orders.
Remember, you are not selling any unique products. You are selling what others are selling as well, such as eyelash curler, mugs, T-shirts, USB cables, etc. In other words, you could not create a loyal followers of your brand, service or product. The seller role here is plain, transactional and forgettable.
You can set up a 1000% margin for your product. You could get a $1.8 eyelash curler in China and sell it as $18 on Amazon. And no one remembers your effort to source and organising the selling process. There is no value delivery in this process.
In my opinion, it is not a sustainable business for you, the community and the environment. When there are friends and relatives seek advice over dropshipping, I ask them these questions (you will find that it is closely related to Business Model Canvas).
(1) What value do you deliver to the customer?
(2) Which one of your customer’s problem are you helping?
(3) For what value your customer really willing to pay?
(4) What type of relationship does each of your customer expect you to establish and maintain with them?
(5) For whom are you creating value? Who are your most important customers?
We live in the climate urgency era. I will also ask this question to the business owners whenever starting a business as it is our goal and responsibility to work together to create a better and liveable future.
(6) How does your business address sustainability? Which the 17 SDG goals does it support?
Think about the questions above before you start dropshipping.
One of the dropshipping model (shared by a close friend who is trying to get me into it in 2018): Select a few products → order them in bulk from the Chinese manufacturers → ship a container of the selected products to a connected warehouse in U.S. → the warehouse manages the pick and pack when buyer purchased within the U.S through Amazon.
Sounds easy eh? BUT…
Do you think all the products selected are sold? How is the unsold product being managed? If you get lucky, some of your products that you sought was first popular, and you caught the first wave of buyers. What happen next is some dropshippers would catch up. You have to compete in investing more in advertising to sell more, if not the USB cables sitting in the warehouse will cost you storage fees. As it is a high marginal model, at some point you may breakeven and start making profit. But how do you manage those stalling products? You may sell it in bulk to local sellers (if you found one) and get off the shelf. What if you couldn’t find one and storage space is costing you? You guess it. It ends up at where things that are no longer useful.
Let’s look at the minefields of dropshipping:
(1) Product sourcing. What you buy is the future that you vote for. Typically, dropshipping model order bulk from the manufacturers located in countries with low labour cost and minimal workers protection. Dropshipper typically does not have established relationships with the manufacturer, and does not know the source of the products. They buy and ship to the customers; it is not surprising that they never used the products listed on the site. The blurry product source could put you at risk of selling unsafe products (e.g. toys with unsafe colouring). Moreover, you could be supporting businesses that do not follow safety workplace practice, unregulated practice, etc.
(2) Price war. Search ‘eyelash curler’ on Amazon. Among the similar (or same) product picture, which one would you click open? Would you look at the price first or the seller review rating? How do you build your seller rating when you are a new eyelash curler seller? To capture the attention of the customer, you want them to buy your product, so you sell at a lower price than the rest of the eyelash curler. When you are making big bucks from selling eyelash curler, dear platform owner would then start selling the same thing because you helped them to identify a demand. They could start making your product harder to find, and promoting their eyelash curler. How is this a fun business?
(3) The blackhole. Since you are selling a common product, there is no novelty or stories to write for SEO ranking, all you left with is to advertise. The more you spend on advertising to promote your eyelash curler on social media and searches, more people would see your product.
Do remember that when you create a dropshipping store, you are selling a list of product and testing which products attract more buyers. So you will find yourself trap in the advertising ride: if you don’t advertise, someone else would, and your product has zero visibility; if you advertise, someone else is advertising, and the price to bid for advertising will be ever increasing.
Guess who is the biggest winner?
(4) The meaning of business. What value do you create through this? Is it worth fighting and creating? Does it has positive impact in creating a better future?
What about we reflect on “Will dropshipping enrich you, the community and the environment?”
