What is Dropshipping?
Dropshipping is a retail strategy for companies that don’t desire to directly manage or distribute their product inventories. Instead, when an order is received, information including product number, delivery address, and order date are sent to a third party (wholesaler) who will fulfill the order on behalf of the company. The main difference between dropshipping and traditional retail fulfillment is that the retailer doesn’t maintain the inventory or the associated physical infrastructure. Dropshipping fundamentally changes the dynamic between suppliers and retailers. Instead of buying items from suppliers and reselling them, retailers forward orders to suppliers who fulfill the orders on their behalf.
There are several reasons why a business might not be working, dropshipping is no different. There is always room for error, and many things can go wrong. Let’s explore why your strategy isn’t working to its full potential. First, let’s look at the process to see where the errors may occur.
The dropshipping process follows these steps:
- A shopper places an order with a dropshipping retailer.
- The retailer processes the order and forwards it to the wholesaler.
- The wholesaler receives the order from the retailer.
- The wholesaler ships the order.
- The shopper receives the order.
The Challenges of Dropshipping – Why Your Strategy Might Not Be Working
Dropshipping can be beneficial for business owners, but there are drawbacks that might not bode well with your overall business strategy. Here are a few examples of why some businesses decide against dropshipping for their business:
- Reduced Profit Margin
The longer your supply chain, the lower your profits. When you consider the costs of handling fees and percentages taken out by various middlemen, it might not be worth it to pursue a dropshipping operation.
There’s also a lot of competition in the dropshipping niche. Because it takes so little investment to get started, dropshipping businesses often provide products at very low prices. To compete, you often have to drop your prices too.
- Inventory Issues
When you own inventory, it’s easy to check stock levels. But when you get products from multiple suppliers — who in turn are working with other retailers — it’s more difficult to make sure that the products you need are readily available and in-stock for your customers, avoiding backorders and the negative reputation that comes along with inconsistent product fulfillment.
- Shipping Complexities
If you’re working with a number of suppliers, your shipping costs become quite complicated. Let’s say that a customer orders two items, each from different suppliers, each with different shipping costs. You’ll need to determine how to charge the customer for shipping in a way that the customer won’t feel overcharged, and you won’t lose money on the transaction.
- Lack of Control Over Customer Experience
By relying on a dropshipping partner to get products to your customer, you’re acting in good faith that they will deliver the orders on time and intact. If they don’t come through on their end of the deal, or deliver items late, broken, or not at all, it can result in bad reviews and a loss of consumer trust that can negatively impact your company’s customer service reputation.
- Issues with Suppliers
It’s imperative to have solid relationships based on trust and mutual respect with your suppliers. Suppliers are at the core of your business, so be selective about who you partner with, and never take those relationships for granted by paying them late or being difficult to work with. To build strong partnerships, it’s important that you learn how to manage your suppliers effectively in order to maximize dropshipping efficiency.
Any of the following may be reasons why people who are actively building dropshipping stores might not be seeing the dropshipping success that they want to:
1. Selecting a Bad Niche
The first reason there may be issues is you may be selling the wrong type of product. Here are a few negative product choices to avoid:
Restricted Products – these products are either illegal, or border on gray area. These products might be legal to sell online in some states, but as a result, you won’t be able to run advertising the traditional way.
Copyrighted Products – this strategy is going to fail because if you try to sell something that is copyrighted or that’s trademarked that you’re not allowed to sell, you will be eventually prosecuted. For example, there are websites that try to sell “Game of Thrones” sweaters and pillows that are not authorized to sell, and guess what? They will be put out of business by the copyright owners.
2. You Didn’t Find the RIGHT Supplier
Another reason why dropshipping businesses fail is having bad suppliers or not finding the right suppliers. One example is the arbitrage model. That’s where you try to buy low and sell high.
Imagine that you’re selling digital pens on Shopify, your supplier is competing with you by selling those digital pens cheaper on Amazon or eBay. This creates a conflict of interest and makes it impossible for you to make a profit.
Dropshipping From China?
Something else that would fall under the category of bad suppliers is exclusively dropshipping from China to the US, or any other country to which the package takes three weeks to arrive. When people get a package with a whole bunch of foreign lettering on it, that also reflects poorly on your company.
When you have suppliers that are located as far away as China, if somebody gets something three weeks later, they are not going to be happy, unless it’s something really worth waiting for. And most things aren’t worth waiting that long.
Bad Supplier Relations
You’re selling digital pens, for example, and find a few suppliers in the States. You get approved to sell their products, and you start selling them. But then you might realize that maybe one or two of your new suppliers has terrible customer service. In this situation, you’re the customer!
Maybe these bad suppliers don’t respond to your emails, or ship your orders days or weeks late. Maybe they ship it to the wrong customer address over and over again, maybe they add on extra fees for dropshipping. Don’t hesitate to be quick to hire, quick to fire in these instances. The reputation of your company rides on the end result.
3. Unprofessional Websites
The third reason that companies fail at dropshipping is that their website looks unprofessional. A dropshipping site that looks like something that was thrown together in a few hours will never attract customers online. You can spot these websites easily – there are typos all over the place, broken links, a clunky checkout process, or no way to get in touch with customer support.
One of the most important aspects of a successful dropshipping business is being trustworthy. You must build trust with your visitors so they are more likely to buy. Building a strong, clear website that highlights who you are, what you do, what you sell, and how you are different will help you increase sales. Read Story Brand, or join one of their programs to write a clear website story.
4. Not Having Excellent Customer Service
Let’s say you did everything else right. You have a good niche and great suppliers. Your website looks awesome. You’re getting good traffic and people are buying.
Now, as you scale, you’ll start to realize you can’t handle the customer service yourself anymore. There are just too many orders coming in, which means more inquiries coming in – that means there are so many more tasks that need to be taken care of on a day-to-day basis. It’s better to take less profit when you’re getting orders and have a good customer service support person than to be overwhelmed and destroy your brand because you can’t handle your workflow and provide customer service in an efficient manner. Read Superfans and Never Lose a Customer Again. If you want a business that scales for years to come, stop thinking you’re trying to get a customer just to buy once; you want that customer to buy for the rest of their life. Develop that relationship of trust right away, as soon as you start getting sales.
Dropshipping Inventory Is Not Guaranteed
It’s difficult to be certain of your stock availability under a dropshipping model. Your ability to fulfill customer orders depends on your suppliers’ stock. If, for whatever reason stock levels have dropped dramatically and you’re unaware of it, you may end up selling products you don’t actually have on hand. That’s a recipe for unhappy customers.
This is another reason why it’s important to have a great relationship with your suppliers. If you don’t have time for all the communication, hire an employee or two to help you. You need to be talking to your suppliers regularly, maintaining that relationship, communicating to have the information you need about stock levels, and making sure they are always aware of the quantity of orders you have coming in.
Use Dropshipping as an Add-On, Not Your Base
Dropshipping works well when it is paired with traditional selling. Let’s imagine your store sells high-quality dog treats (from your warehouse or garage or spare bedroom), and you want to branch out into selling dog toys.
You can easily use a dropship model to flesh out your store with these additional products. Having a few dropshipped products will keep your site from becoming fully dependent on your supplier, and you can add more variety to your offerings while benefiting from the simplicity of the model without being fully dependent on it for your store’s profits.
Fixing the Problem(s)
In short, take a look at all the problems you’re experiencing with your business, make a list of the shortcomings you’re having, and find solutions for all the challenges you currently see. Take your time – spend up to a week of time evaluating the issues for two hours a day. Go through each issue and write up the solution.
Toward the end of the week, when you have the list organized, you will need to determine which issues are the most important, prioritizing your plan. Start there with small changes and work your way up to the big changes. Be creative and try new ideas. Don’t be afraid to see it fail – it might, but then just choose again and try another solution instead. It’s better to mess things up that can be repaired quickly while in this fixing, changing mindset. It takes a while to determine a system that works well for you, so don’t be hard on yourself. It’s ok to make mistake; in the long term, you will find everything falls into place.
In sales, we have a saying, “Lose fast, not close fast”. If something isn’t working, such as a partner or supplier, then let it go fast. Fail fast, let it go, and don’t be afraid to throw away something that isn’t working, even if you invested a whole lot into it.
It’s better to lose now than spend a whole lot more time working and spending to lose later. In the book Ready, Aim, Fire – Zero to 100 Million in No Time Flat, the author told a story about his grandfather’s losses on a real estate development project. He was building apartments, but when they dug the foundation they determined that they had to dig deeper for the foundation. There were loads of issues with the land, but he kept throwing money into it just as if he was throwing that money into a hole. Eventually he spent way more than he could ever recover on the project, but he kept spending until it took all he had.
If what you’re doing isn’t working, and after some time and you have used all that you can and it’s still not working, then you need to seriously reconsider. Is further investment the smartest move? Usually, the answer is ‘No’.
Give yourself some time while problem solving. You need to have a clear mind, and sometimes it’s hard to have clarity when emotionally involved in your business. Again, don’t be hard on yourself. Figure it out, take your time, and move on if you need to, or cling on if there is opportunity.
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