You’re looking to run a business without having to worry about inventory management, where your location doesn’t play a role, and you can do all that from a single laptop? Well then, drop shipping is a perfect model for you since it requires the least effort to make it work. You’d basically be selling merchandise from other websites who’d deal with the shipping and everything, and you’d collect a fee.
While some websites rely on drop shipping completely, many more use it sparingly. You’ve probably seen many e-stores selling clothes or other merchandise from popular brands like Nike, or Puma. This means that drop shipping is like playing the middleman, you’re connecting the customers with the merchandise – even though it’s not yours.
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That said, drop shipping has its disadvantages as well, many of which can really frustrate you as a business owner and make you reconsider your investment. Luckily for you, this guide will highlight some of the biggest problems of drop shipping and how you can tackle them and become a successful drop shipping business.
#1 Lower Profit Margins
When you’re in the drop shipping business, your profit as a retailer is the difference between what you charge for a product minus the price you’re paying for that product. So if your website is selling a certain T-shirt for 15$, and the price you’re paying from the original retailer is 12$, your profit would be the 3$ difference.
The difficulty with this is that you can’t really pump up the prices too much because there are tons of competitors selling the same products as you. And it’s never been easier to check and compare the prices for certain products online.
Most store owners can’t go above 20% above the original price, and since most of them will also be having expenses such as shipping (if you’re offering free shipping and your partner isn’t, you’ll be the one to pay for it) and other fees (SEO, or PPC, there are many expenses an online store has, if it wants to have higher traffic) there isn’t much left for you.
There are three things you can do to work around this problem:
- Higher Prices – We already said that you can’t go too high on the prices, but for some items, it might actually be a good idea. Did you know that customers sometimes perceive higher prices as a sign of quality? Raising prices here and there can clearly help you out with your profits, as long as you’re careful that it doesn’t affect the sales negatively.
- Make a Deal With Your Supplier – You should always go for this one since it doesn’t really cost you anything and can mean the world for your profit margin. Most suppliers will be ready to lower their price for you for 5-10%, which can mean quite a lot if you’re selling expensive stuff.
- Sell More – If you’re averaging 10$ profit per sale, it means little if you’re selling a hundred products per month. However, if you’re selling two thousand products, you’re looking at a profitable alley. Talk about quantity over quality, eh? Sell more and you’ll make up for your low-profit margins.
#2 Quality Control – Your Reputation is on the Line
The nature of drop shipping is such that you’ll be looking for cheaper products more often than not. Aliexpress, for example, is a popular place where many websites get their suppliers. It’s cheap, but it comes at a price. The problem is that you are putting your name on the line if the products that you’re selling don’t meet the quality standards, or even worse if they are falsely advertised. Since you can’t know this for sure, it gets increasingly difficult to control what your customers will get from such suppliers.
Here are a couple of things you can do to lower the risk:
- Read the Feedback – Take the time to read the feedback previous users have left. It might give you an idea what you’re dealing with and how to advertise the product.
- Order a Product For Yourself Before Selling It – This one’s probably the best idea, but the problem is that it takes a long time, especially if you’re ordering stuff from China. It may take up to a month for you to check if the product meets the quality standards, at which point you might’ve wasted some valuable time. Still, it’s worth trying if you’re well organized.
#3 PPC is Harder to Handle than Usual
You remember how we talked about increased volume as a way to handle lower profit margins? Well, here’s the thing – you need to get more traffic if you’re to sell more products. And while SEO may take quite a while to kick in, PPC seems an obvious choice since it offers instant traffic increase for a fee. The problem is, you’re already earning only about 15-20% per product sold, which means you have to pay for keywords from that money and still earn some. So if you’re selling the product for 50$, you’ll be getting around 10$ for it, which basically means that you can’t pay more than 5$ per click through to your website. That means if every other person who comes to your website makes a purchase, which is nigh impossible, you’d still be on 0 profit. And that’s without considering that keywords are now more expensive than ever.
The obvious solution here is to focus on other traffic sources, like social media campaign, email campaigns, and SEO. All of these are more suitable for businesses that are into drop shipping. This isn’t to say that PPC won’t work for you, it’s just that it’s extremely hard and that you’ll need a lot of financial cushions to make it through all the testing and optimization.
#4 Brand Awareness – Hard to Stand Out
When running a drop shipping store, you basically have very little control over product quality, packaging, labeling, or shipping. These things make it extremely difficult to stand out, which means it’s hard to spread awareness of your brand. Basically, you can forget about any customization when it comes to packaging, so you need to forego that option and focus on completely different ways of improving your brand awareness.
- Have a Great Website – Your website is going to tell a lot about your store. If it’s generic, just like your packaging most likely will be, no one will ever remember your shop. That’s why guys from Webdel recommend that you invest heavily in web design, especially when it comes to UX (User Experience). Make your site memorable and different and you’ll be one step ahead of the competition.
- Invest Into Customer Service – Customer Service can mean everything when it comes to branding. Some companies have managed to build an empire based on it, so why wouldn’t you be able to do the same? The better your customer service, the better ‘word of mouth’ campaign you’ll have. Have a live chat implemented on your website for your customers to easily and quickly deal with their problems.
While having a drop ship e-store might come with certain pros and cons, it’s still a great way to earn money if you can handle its disadvantages. Playing a middleman has always been a lucrative business, but it takes a lot of effort to get it to a point where your profits will skyrocket. Nevertheless, if you are aware of the problems we described in this guide, you’ll have a better shot at tackling them head-on.