Dropshipping is a retail fulfillment business model where the retailer never owns or sees the inventory they are selling.
The retailer acts as a middle man, selling goods on their own website, then passing the order on to the shipping company for them to fulfill and ship to the customer. Profit is made through the difference between what the retailer charges on their website and what the shipping company charges the retailer.
Sounds easy, right? In theory, yes. A dropshipping company has low start-up costs, can offer a large selection of inventory without having to purchase it upfront, and can be run from anywhere, making it an incredibly flexible method of selling online. With almost 70% of Americans shopping online at least once a month, getting into ecommerce could be a great business venture.
However, for every ecommerce success story, there has been another bright-eyed business that’s failed to make the grade. Before you jump into the world of dropshipping, take note of the top 3 reasons your business could fail and make sure they don’t stop you from becoming an ecommerce success story.
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Reason #1: Lack of discipline and patience
Your dropshipping business won’t be an immediate success. Like anything worthwhile, it takes discipline, patience and perseverance. Because it’s a quick and easy process to set up a dropshipping store, it is a hugely competitive market; retailers can advertise products at rock bottom prices to grow revenue, and taking part in this competition generally leads to low profit margins.
You need to build an online store that does your business justice – you could have the best idea in the world, but if no one wants to come to your website, then you’ll have an awfully unsuccessful company. Being disciplined and patient doesn’t mean that you need to take an eternity to build your website. Using an online store builder makes the process quick and pain-free, all the while allowing you to create a website that looks good enough to do your great idea justice.
People also need to know that your store exists, so you will need to become a marketing expert too. If you’re relying on paid advertising to drive traffic to your site, you will need to learn the basics of pay per click (PPC) advertising and Facebook Ads, and spend time and money on testing and tweaking your adverts. And this is all before you even make your first sale! A realistic approach is necessary so that you are prepared to spend time growing things slowly and steadily, scaling your business over time. Dropshipping isn’t a way to make a quick buck.
Reason #2: Choosing the wrong niche
You can have all the patience and discipline of a Jedi master, but if you’ve chosen the wrong niche, you’ll never get your business off the ground. The market is very crowded, meaning the competition is stiff, and you aren’t just competing against other dropshippers: there are the retail giants like Amazon and Walmart to take into consideration as well. If you decide to venture into any of the popular markets, such as women’s clothing, you have a much higher chance of failing than if you can find a niche that you can really make your own.
Before you take the plunge into selling, research the niche you have chosen thoroughly. Look at current and predicted trends, and find out how many dropshipping stores are currently supplying those products. Once you have chosen your niche, you have to be prepared to put a huge amount of effort in to marketing your store, as people can’t buy what they don’t know is there.
You also need to think cleverly around your marketing methods: if you’ve chosen a specialized niche, you need to go directly to your customers, perhaps via Reddit or specialized forums, to make sure they know about you. Social media will be helpful here too – if you can interact with potential customers and build trust, you’ll also build a loyal customer base.
Reason #3: Unreliable suppliers
This is the big one. You might have the grit necessary to succeed and have hit upon a previously untapped niche, but if your suppliers are unreliable, your business is in big trouble.
Your supplier offers you the products at wholesale rates and takes on the task of picking, packing and delivering the order to the customer, so they’re incredibly important. But if that process goes wrong, you will be the one who has to explain things to an irate customer.
Even if your supplier is doing their best, problems may still arise. For example, your supplier says a product is in stock, but by the time you send your order, they have run out of it, meaning you have to email your customer and ask them if they would like it put on back-order. The potential for problems is big, but these are the realities of dropshipping, as you have little control over this side of your business.
However, there are some things you can do to help keep things running smoothly:
- Choose a reputable dropshipping company. The best suppliers will make sure your item is well packed and shipped quickly, and some even include your marketing materials, so it seems like you sent it yourself. You may have to pay a little more, but it will be worth it.
- Have more than one supplier. If you sell a popular item, your supplier could easily run out. Having a couple of alternative suppliers available is a good idea, in case the original one can’t fulfill the order.
- Keep track of inventory. Ask each supplier to send you a daily inventory report or, if it’s possible, track their inventory in real time. This will enable you to adjust your store to reflect what’s available.
Dropshipping can be an excellent business to get into, and can offer big rewards, but it isn’t without its challenges. Once you have found your niche, you have to be patient and persistent to make your store work, which could involve trying different suppliers, experimenting with advertising and offering different products. However, if you persevere, and avoid these three big pitfalls, your new business will flourish.
This is a guest post, written by:
Victoria Greene is a branding consultant and freelance writer. On her blog, VictoriaEcommerce, she loves talking about all things ecommerce, including dropshipping, social media, digital marketing, and content marketing. She’s passionate about helping new entrepreneurs make their way in the world of ecommerce.