Dropshipping Business in 2022: Hard Truths You Need to Know
By Chelsea Hall
Dropshipping Business and the Hard Truths -
If you're thinking of starting a dropshipping business, it's always good to research and understand the good, the bad, and the ugly sides of this business model. Although the dropshipping business doesn't require you to stock the products you're selling, it doesn't mean the business is that easy to run. Many people venturing into business focus on raising capital, buying stock, and selling it. In dropshipping, this is quite different; you don't buy the stock. Instead, you create a medium where customers make orders; then, you transfer the order to a third party to complete it. E-commerce platforms, such as Shopify, BigCommerce and WooCommerce are excellent examples of a dropshipping business model.
So, What Exactly Do You Need to Know About Dropshipping?
Dropshipping sounds like a get-rich-quick scheme, but it's not. It gets complicated when you factor in the day-to-day management, drawbacks, and obstacles associated with this business model. There's a lot of work you need to put in for your dropshipping business to succeed. Here are some hard truths you need to know about the dropshipping business;
Profit Margins Are Very Low
Unlike other businesses where you can expect substantial profit margins, in dropshipping, everything is different. Remember, your store doesn't own inventory. Thus, the overhead and returns are low. That means you will have to make many sales to remain afloat. Here, most of the money goes to the suppliers. Depending on your industry and the products you're selling, dropshipping profit margins rarely go beyond 20%.
The low-profit margins are rarely enough to cater for your operational expenses, especially if the sales are low. Some of the dropshipping expenses include;
- Advertising or marketing costs
- Maintaining your website ranking; search engine optimization (SEO) costs.
- Managing sales costs.
- Office rent and other related costs.
Like any other business, expect stiff competition when venturing into the dropshipping business. In this business model, profit margins are low. Thus, every dropship retailer in the market invests heavily in aggressive marketing. Some sellers will even prefer lowing their profit margin to less than 10% to entice online shoppers and the conversion rate in dropshipping is about 2%.
This competition could leave you in a tight spot if you're not well prepared.
Suppliers Control the Supply Chain
The major challenge in dropshipping business is that you don't control the supply chain. You have little say when it comes to the quality of the wholesale products, return policies or order fulfillment speed. However, you're the one engaging the customers directly. If your customers are impatient, you may end up disappointing them.
Not Easy to Build a Brand
Dropshipping is a dynamic industry. Typically, you're providing an online platform for your customers to shop. However, many customers care more about the products or brands and forget about the shopping experience you're giving them.
New players in the industry find it tough to build their brands.
Conclusion on the Dropshipping Business
Dropshipping is a good business but comes with its share of challenges that many people rarely talk about. Today, we have focused on letting you know the hard truths about the dropshipping business. However, if you understand all sides of the business and get it right, you will reap big.
Launching your online retail store can start you on the path to a successful business. At TopDawg, we support your success with a growing number of dropshipping suppliers with wholesale products, powerful store integration, order automation and shipping tools, along with higher profit margins.