Dropshipping – The Ideal Business Model?

It sounds like paradise – no investment needed, thousands of products to sell, no dealing with order processing – all you have to do is collect the profit while drinking Pina Colada on an exotic palm beach in the Pacific Ocean.

Dropshipping really is a dream come true…

HA!

I wish that was true! I wish it was at least half true. But it isn’t. Dropshipping is publicly made to look much better than it really is. This is mostly due to savvy marketers who know exactly how to sell the dream of a hassle free eCommerce business to the masses.

Very often, people new to the world of online selling start with the intention of using dropshippers as their source of products. We see such posts on TWF on a daily basis – have no experience, have no money to invest in stock etc. but will start an online shop selling designer clothing/mobile phones and gadgets using dropshippers.

Unfortunately that is the classic mind-set of many newbie sellers.

What those people don’t realise is that dropshipping has many disadvantages, and they can completely destroy your business before it even gets started, especially if you sell on eBay:

• Prices. You’ll never get the same prices from dropshippers that you would from manufacturers or even true wholesalers. Most so called dropshippers sell on eBay themselves as well so you’ll essentially be competing with your own supplier for a limited group of buyers.

• Stock Variety. If you do find a good dropshipper you can use, you’re fixed to the product range they offer and can’t expand on it yourself. This also means that an item that you sell very well could be suddenly discontinued, and you have NO control over this. This also means that you, and several hundred other people, will be selling the exact same line of products at pretty much the exact same prices which just creates a stupidly competitive market for you to work in.

• Stock Availability. If your dropshipper suddenly runs out of stock, you’re in TROUBLE! On eBay that can lead to negative feedback very fast. Yes, there are some larger dropshippers who will offer you a live XML feed of stock levels, which is good. In fact, I would NEVER deal with a dropshipper who doesn’t provide live stock level updates!

• Order Miss-Packing. As you’re not processing orders and packing goods yourself, there will be times when mistakes are made – the wrong stuff being sent to the wrong people and so on. You could of course make such mistakes on your own too but at least then you can blame yourself for being inaccurate. When you use a dropshipping company, this is again something you can’t control and this creates even more stress for you.

• Shipping Delays. When you store products in your warehouse (or bedroom) you can then dispatch items incredibly quickly… anything ordered by 4PM can be shipped out the same day for next day delivery which results in a phenomenal customer experience and glowing feedback. With a dropshipping company, you again have no direct control over this.

• VAT and Import Duty. If you deal with a dropshipping company that is sending stuff from abroad, outside the European Union, your customers will have to pay VAT and import duty on goods that exceed a certain value. Now, even if you do explain in your eBay listings that there may be additional taxes to be paid, many people just don’t realise what that entails and will leave bad feedback for you.

Just take a look at some of the feedback these sellers have received:

So while in theory dropshipping looks like a perfect business model, in reality it’s far from it…

The prices are probably the biggest problem here as I have yet to see a dropshipper that can match the prices of a large wholesaler, never mind manufacturers.

But that’s for a reason of course! Dropshippers have to deal with individual orders and have significantly higher over-heads compared to wholesalers, where you just buy in bulk cases.

Here’s another thing – in the USA, dropshipping actually works quite well as there are thousands upon thousands of dropshipping companies covering every niche you can think of. In the States they know this business concept very well and have a good range of reliable, advanced dropshippers who can be used for eBay and eCommerce shops.

The problem is with the UK and Europe – dropshipping is kind of a new concept over here and that’s why we don’t even have any large, well known dropshippers. The only such company I know of is Pixmania.

IMPORTANT!!! Beware of so called “dropshipping schemes” being promoted all over the internet. These are companies who offer you the chance to join their dropshipping programs for a one-time or yearly/monthly fee to access their products.

STAY AWAY from such websites! In most cases they’re nothing more than scams tricking people and making money out of those sign-up fees.

It’s not that a joining fee is necessarily a bad thing – the problem is that these websites claim that you’ll get super low prices on popular items, but when you join, you realise that it was all blatant lies. Usually the prices in these dropshipping networks are above the RRP and the product range is very limited!

If a supplier can’t show you a price list BEFORE you have to pay a joining fee, then STAY AWAY!

These marketers use all kinds of tactics to get you to sign-up, like offering FREE, pre-made, pre-populated online shops (which are complete rubbish) and other such gimmicky nonsense. Don’t fall into this trap and stay away from any such ‘dream come true’ schemes.

The only one such LEGIT dropshipping company I know is Doba, based in the US. Yes, they have a membership fee BUT you can get a free trial, check out their prices and product range and THEN make a decision on whether or not you want to pay to join. DOBA is very popular in the US and can be used to stock up an eCommerce Shop or say to add extra product lines to your existing business.

In UK, many people also use Amazon as a dropshipping company but it’s not a true dropshipper as you don’t get plain packaging from them – your customers will know the package came from Amazon!

With true dropshippers, your customers will never know that you’re using a dropshipping company as all goods will come in plain packages, invoices will have your logo on them and some companies will even offer customised return shipping labels with your company details.

I’d say that dropshipping can work if you’re based in the USA or have an online shop targeting the US market. But it’s really not something you want to do in the UK, unless of course you have found that perfect dropshipper who has a solution to all of the disadvantages covered earlier.

Dropshipping is also more suitable for an online shop, rather than for eBay. On eBay you’re not in control as buyers can and will leave you negative feedback for messed up orders. If you run your own eCommerce Shop, this is not that big of a problem and you can usually fix it all just by communicating with your customers.

Also, if you’re new to eBay, don’t forget that PayPal will hold your money from sales for up to 21 days or until feedback is left by the customer. So it’s not like you can start a dropshipping based business with no money and start making thousands in sales from day one. You can’t as PayPal will hold your money and you’ll still need to pay dropshippers to dispatch the goods.

Ok, Andrew – but what do I do if money is tight and dropshipping seems the only way to start an online business?

a) If you have next to no money, use this business concept of buying and selling used goods on eBay. This is the easiest way to get started on eBay and make your first few hundred pounds in profit.

b) If you have at least a few hundred pounds, go wholesale! Be it a UK, China or USA based wholesale company – start buying something in bulk, at wholesale prices, and build up your capital by re-investing all profits back into stock.

c) If you have a few thousand pounds or more, start importing directly from China! It can of course be other countries too but in general, and for most unbranded goods, China will be your best bet as a product sourcing channel.

If you’re US based or target US customers, dropshipping can still work for you. IF you can find a good dropshipper in the UK, it can still work for you. But in general, dropshipping is not something I would recommend people try as it simply comes with too many risks and too little advantages.

Some wholesalers will also offer dropshipping, even if they don’t advertise it. So if you start working with a wholesaler and over time build a good relationship, at one stage you can ask whether they would be okay with dropshipping for you? Some will agree and this can allow you to quickly expand your stock range without investing large sums of money up-front.

This is how I feel about dropshipping. Some people may be huge fans of it, and that’s fine. I have just tried to express my views in this post and hopefully open the eyes of some newbies who think dropshipping is an automatic gold-mine and hassle free way of running an online business.

Thanks,
Andrew