Before you invest all your hard-earned money into a new dropshipping business, you should take some time to research and consider all of the challenges that you will potentially face. Maintaining a dropshipping business model alone is a hectic venture, so just think about what it will be like starting one from scratch.
Here are some of the notable drawbacks of engaging in a business that focuses on dropshipping alone.
- Low-profit margin
Since you don’t have to endure the hardships posed by managing your inventory or your store, dropshipping offers a low overhead for businesses. However, this shouldn’t flatter you into risking your cash since the returns are also low. Being that you are investing less money, your return will ultimately be less (usually). Consequently, this implies that you have to walk the extra mile to remain afloat, let alone see a profit. You will have to deal with the fact that most of the money goes to the supplier while you only receive a token for every sale you make. The amount you receive can hardly be enough to meet your expenses for advertising/marketing, managing sale orders, maintaining your site, and covering your labor.
On top of that, you will notice that the profit you see is heavily dependent on the amount of traffic you generate. So, if you wish to build an e-commerce brand from scratch, you may end up struggling for a lengthy period before building a client base. It is much more rational to approach dropshipping after already having built a regular source of traffic. Although dropshipping may seem hands-off, it is a lot of work in the real sense. From processing orders to dealing with wholesale suppliers to filing returns and customer service, the amount of work is still considerable no matter how you dice it.
- High competition
Since there are overly optimistic entrepreneurs, many are enticed with the low overhead part, ignoring its threats. Since operating a dropshipping business requires low startup capital, the low entry barrier results in high competition among brands. In turn, the less popular brands have to suffer more than others. This is because the more prominent a brand, the more it can reduce its markups to offer its customers discounted prices. However, smaller and startup businesses have to cut into their profits to remain competitive, which sometimes becomes unsustainable.
To make matters worse, chances are that you may lack striking an exclusive deal with your vendor. This results in an infinite number of competitors who are dropshipping the same products. As if the damage is not enough, you will have rivals with having seasoned experience in the market who can undercut your prices. This means that your potential customers could opt to purchase the same product from another brand at a cheaper cost.
- No control over the supply chain
Unlike in the traditional business model, where you can personally address all customer complaints, dropshipping doesn’t. This means that issues on return policies, fulfillment speed, and product quality may go unaddressed as far as your capabilities are concerned. You only have to hope that your suppliers will attend to the problems as well as reassure the customers. This literally means that dropshipping places your brand’s relevance at the mercy of the vendor— despite the fact that you are the one to negotiate sales.
Even the slightest of transgressions, such as delayed communication, could negatively impact a drop shipper. Since you have to move back-and-forth from the customer to the client, any delayed response from one party could lead to all communication grinding to a halt. And if your customers become vocal about this, your business could end before it even gets started due to bad reviews and poor feedback.
For instance, you have no control over:
Package design: As is typical with most dropshipping suppliers, you don’t partake in the packaging design since they cater to everything.
Shipping times: Since you don’t get involved with the shipping process, you do not influence the time factor. The only thing you can change is picking a swifter shipping method.
The inventory: Since the product doesn’t pass through your hands, you cannot include any add-on feature. This includes coupons and thank you notes or envelopes to secure customer loyalty.
- Legal liabilities issues
Although not a common issue for the dropshipping industry, it is still worthy of our attention. Some suppliers may not be as legitimate as they may seem, and you might not know where they source their merchandise. Even more deceptive, some suppliers may illegally use trademark logos or other intellectual properties from renowned companies.
Whatever unlawful proceedings your supplier partakes in, you are automatically liable since, as their vendor, it may be assumed that you are complicit. However, you can rectify such problems by incorporating a solid Dropshipping Agreement Contract in your transactions- something, not every start-up drop shipper knows about. This is something you will want to keep in mind when selecting suppliers.
- Difficult to build a brand presence
Just like behind-the-scene songwriters and ghostwriters, dropshipping agents should understand that someone else will receive the credit for all they’ve done. This means that if what you sell is of high quality, all the customers’ praises will go to the product’s brand. After all, it is not your logo or slogan on the box. Nothing will be remembered as much of the shopping experience they had.
This comes as a drawback of investing in a dropshipping business since branding is highly crucial in e-Commerce. Mostly, shoppers will tend to work with their favorite online stores or those they have been referred to. Therefore, without customer loyalty, you will never generate the required traffic necessary to sustain an online business, particularly one that majors in dropshipping. This is just one of many reasons why dropshipping makes more sense for established brands than new ones.
Have you realized how popular dropshipping is? With the numerous brands available in the market, the venture is a highly competitive one. However, if you have the patience, time and finances required before seeing any profits, investing in the dropshipping business may be for you. However, only do so after doing thorough research and understanding the risks involved.