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The 51Ƶ Blog>“Dropshipping Business? Does It Still Work?”

“Dropshipping Business? Does It Still Work?”

Posted by Anastasia Prokofieva

Dropshipping has become apopular business model forentrepreneurs looking fornew ways tomake money inecommerce. When using dropshipping money, aretailer can sell products inanonline marketplace (Amazon, Walmart Marketplace, eBay, etc.) without needing topay forstorage orshipping. That’s because these aspects ofthebusiness are handled byathird-party vendor, thedropshipper.

Sellers can partner with dropshippers tobuy their inventory inbulk, where itisstored inthedropshipper’s own warehouse. Then, ascustomers place orders intheseller’s online store, their order information isforwarded tothedropshipping provider. That provider then packages andships theitem ontheir own without involvement from theseller.

For marketplace sellers, this arrangement offers asimple, low-cost way tooperate abusiness online. Many retailers have already used this strategy successfully, andthere are dozens ofdropshipping providers available aswell. Some, such as are major businesses oftheir own with massive inventories.

Inspite ofits popularity, it’s still reasonable toask, “Is dropshipping worth it?”.

The dropshipping business model isnot without its drawbacks andcomplications. This guide will explain whether ornot dropshipping isstill viable, aswell asits risks andbenefits.

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Does Dropshipping Still Work?

Dropshipping has become more popular inrecent years, but ithas actually existed for. However, beginning in2020, theeffects ofthepandemic thrust dropshipping into thelimelight forecommerce. Asbusinesses were forced totemporarily close their physical stores, they needed toturn toonline retail tostay afloat. With limited storage andfulfillment resources available tomany ofthese businesses, dropshipping presented anobvious solution.

Despite its relative novelty, many people today are asking: Does dropshipping still work? And isdropshipping profitable? The answer toboth questions isyes.

Dropshipping has been, andcontinues tobe, aneffective business model foracouple ofreasons.

First andforemost, dropshipping comes with little tonooverhead costs. This iswhat sparked thedropshipping trend inthefirst place. Sellers who use dropshipping never need topay formanufacturing, storage, shipping, orhandling. All they need todoisbuy aninventory andfacilitate customer purchases. This allows business owners tofocus their time andresources onother aspects ofthebusiness, such asmarketing. The low cost ofdropshipping remains asvalid today asitwas several years ago.

Another reason behind theviability ofdropshipping isthat itallows forincredible product diversity. Businesses can use dropshipping tosell anything from clothing toelectronics andappliances. They can also carry anextremely wide variety ofproducts andsell them forprofit.

The product diversity ofdropshipping leads toanother major benefit: excellent scalability. Itismuch easier toexpand your business when using dropshipping than itwould beintraditional business. Dropshipping allows businesses toexpand their inventory andmarket reach without increasing overhead costs.

IsDropshipping Legit?

Some business owners may beconcerned about thelegitimacy ofdropshipping. But dropshipping, when done properly, iscompletely legitimate andethical. However, itisimportant tonote thedifference between dropshipping andsimple reselling.

With dropshipping, sellers use athird-party vendor forstorage andshipping services. Sellers still purchase their inventory wholesale from these vendors. Insome cases, sellers even have theopportunity tocustomize some oftheir dropshipping inventory. For instance, many companies sell custom T-shirt designs through dropshipping. The key todropshipping isthat theinventory ispurchased inbulk fortheexpress purpose ofresale.

Some online marketplaces, like eBay, have . That is, sellers are not allowed tobuy anindividual product andthen immediately resell ittotheir own customers. However, eBay, andmost other platforms, allow dropshipping andare home tomany stores that use dropshipping retail models.

IsDropshipping Hard?

Many entrepreneurs start dropshipping businesses because it’s alow-cost business model, andagood way toget started inecommerce. However, this can lead tosome misconceptions about thechallenges involved indropshipping.

Insome ways, using dropshipping iseasier than running atraditional business. Asmentioned above, itiseasier toscale your business upward when using dropshipping. Byeliminating theneed toplan forstorage andexpansion, businesses can devote more resources elsewhere. This removes some common obstacles from business operations.

However, this isnot tosay that dropshipping iswithout its own set ofchallenges anddrawbacks. Business owners should carefully consider several other factors before making thedecision todropship.

Low profit margins

The dropshipping business model requires retailers tosell their inventory atamarkup from theoriginal price. This tends toput amodest cap ontheprofit margins ofmost oftheinventory being sold.

Ifyou mark your products uptoo high, customers simply won’t buy from you. Ifyou gotoo low, you’ll have ahard time turning aprofit. Finding theright price takes abit ofresearch, andisalso impacted bythenext item onthis list.

Extremely competitive markets

Dropshipping has alow barrier ofentry. Any business can reach anagreement with adropshipping provider tosell its products. This isadouble-edged sword formany businesses that rely ondropshipping fororder fulfillment.

Because somany businesses can get inondropshipping, themarket tends tobeextremely competitive. This can cause acouple ofproblems. First, itmakes itmore difficult tostand out andbenoticed bypotential customers. And second, theincreased competition puts aneven tighter cap onyour profit margins.

The more competition you have, thelower your prices need tobe. Ifshoppers have five options tochoose from when looking foranitem, they’ll always choose themost affordable one.

Product research required

One ofthebiggest mistakes people make when getting into dropshipping isbelieving that anyone can doit. While itiseasy toget started, itisnot always easy tobesuccessful. This isbecause there isabit ofwork involved indetermining what products tosell.

The key tomaking aprofit with dropshipping isfinding high-demand, low-competition items tosell. You’ll need toconduct research into what products people want, but don’t currently have great access to. Then you will also need tofind adropshipping partner who can provide that item inbulk. This isoften easier said than done. Figuring out what tosell requires market research andtrend forecasting.

Less control over supply chain, product quality, andinventory

The convenience ofnot needing toworry about storage orshipping isanother double-edged sword when itcomes todropshipping. While this does remove some obstacles, italso creates new problems.

Namely, you have much less control over your inventory andproduct quality. Any supply chain issues are also beyond your control when you use dropshipping. This can lead tocustomer dissatisfaction, which isthen also harder todeal with.

For instance, how doyou handle returns, refunds, andproduct replacements when customers experience shipping orsupply chain problems?

Most reliable dropshipping partners are good atnotifying sellers about potential inventory andsupply chain issues. However, itisalways possible forstock torun low oncertain items. And when this happens, you still need tofind away tofulfill orders andaddress customer complaints.

This issue highlights theimportance ofchoosing theright dropshipping partner foryour business.

Harder toestablish abrand

While dropshipping isagood way tomake money foryour business online, itdoes not help with brand growth. This may not beaconcern forsome business owners. But forothers, growing andpromoting their brand isamajor priority.

This does not mean you should avoid dropshipping ifyour goal istogrow your brand online. But you should beaware that dropshipping does not help with brand growth. You can still sell other products from our own online store alongside your dropshipping products.

Infact, this combined business model isextremely common, andcan behighly beneficial. Adding dropshipping toanexisting business helps expand inventory andadd revenue without much-added hassle. Inturn, this provides more resources togrow thebusiness inother areas andbuild astronger brand.

IsDropshipping Worth It?

So, after learning all that, isdropshipping worth it?

Your answer tothat will depend onyour goals. Ifyou are anestablished brand focused onthings like customer service andbrand reputation, you may not need toadd dropshipping toyour business. But ifyou’re looking foralow-risk way tosell online oradd revenue, dropshipping can begreat foryou.

About The Author
Anastasia Prokofieva is a content writer at 51Ƶ. She writes about online marketing and promotion to make entrepreneurs’ daily routine easier and more rewarding. She also has a soft spot for cats, chocolate, and making kombucha at home.

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