We are pretty sure that you’ve heard the phrase ‘Dropshipping is dead‘ thrown around loosely on the internet.
If you are a budding entrepreneur who wants to wet their toes in dropshipping, this is enough to throw you off.
You start to wonder, whether it’s really worth the effort. What if the saying is true and dropshipping is indeed dead.
What about all the good things you heard about dropshipping? We have some eye openers for you.
Relax! Dropshipping is far from dead.
In fact, it’s alive and kicking, in all its glory. We are not talking about standard dropshipping though. Even though standard dropshipping is still profitable and has the low barrier to entry, it has more or less been phased out by branded dropshipping.
Branded dropshipping is a type of dropshipping that uses private label products or white labeled products. Let’s say there is this winning product that you have been selling with steady sales volumes. You can either customize this winning product before branding and reselling it, or you pick a generic product and brand it.
Either way, the focus is on creating a trustworthy brand rather than just dropshipping a nameless product sourced from Aliexpress.
This in all probability is dropshipping 2.0 folks.
7 Reason Why Dropshipping isn’t Dead
If you were swayed by the claims that dropshipping is not worth it anymore, then this we have for you 7 fact based reasons that show you why it is completely worth it. Now more so than ever.
1. Ecommerce is growing
We still remember how the naysayers were predicting the end of the ecommerce industry a few years ago. Guess what? Ecommerce has just grown and grown, more so in the recent past.
Statista reveals that Global Ecommerce Industry rose to $4.28 Trillion in 2021. It’s expected to rise to $6.38 Trillion by 2024.
That’s an indicator of things to come. Part of this growth has been triggered by the Covid-19 pandemic which forced brick and mortar outlets to shut store, or migrate to Omni channel sales.
Customers were no longer willing to go to shopping malls and the like. Even if they did, restrictions forced people to switch to the digital model where they could order just about anything in the world without stepping out of their homes.
Contactless shopping has become the norm. Forbes mentions that this is not merely a temporary switch. It’s a massive shift in consumer behavior that otherwise takes decades to happen.
Only this time, it happened in a span of months, if not less. These numbers don’t lie folks. With these kind of numbers, you can think dropshipping is dead as much as you want, but the fact remains that it’s still very profitable and isn’t going anywhere for a while.
2. Low Capital Required
The traditional model of ecommerce was capital heavy that required a huge investment upfront for purchasing inventory, stocking it, warehousing and logistics.
However, that has flown out of the window with dropshipping. Dropshipping does not require a huge investment, which is generally one of the barriers for entrepreneurs who do not have a huge capital pool to tap into.
You can easily get started with a small capital. In fact, dropshipping is one of the only business models that allows you to channelize your capital into areas of business that are profitable.
Since the sourcing agent or the supplier handles fulfillment, you practically eliminate the entire chunk of investment required for that part of the business.
Once you start to generate sales steadily, you can seamlessly switch to branded dropshipping, instantly increasing your potential for profits, as well as the longevity of the business model.
It’s a tried and tested model that we do not see dying anytime soon.
3. Easy to Setup and Get Things Going
Name one other business model with such a low barrier to entry. We bet that you cannot even find a single one. Dropshipping has enabled thousands of entrepreneurs to set up and run successful businesses with millions of dollars in annual returns.
If you analyze some of the ecommerce brands on the internet today, you’d be amazed to know how many of those started off as dropshippers.
For example, Oddity Mall. This ecommerce store is one of the most profitable businesses on Shopify in the ‘Bizarre Gifts’ Niche. However, it started off as a humble dropshipping store that eventually scaled to what it is today.
Even more awe inspiring are online brands that have done similar success stories without spending much on marketing or endorsements – reaching millions in returns. Now they are brands that people associate with a certain product. They wouldn’t even believe if we told them that they are just Private labeling or White labeling things.
As long as there are brands with amazing success stories that started from dropshipping, we dont see how or why dropshipping could die off.
4. Shortens Your Supply Chain
Let’s talk about the traditional ecommerce supply chain.
The supply chain is the journey of the product from the supplier to the customer. This journey involves a lot of stages or touch points, and each stage in itself is a cost center for the business.
The traditional ecommerce supply chain worked like this.
You find a dropshipping supplier who can manufacture your product or offers similar products. You need to negotiate with them for prices and quality of the item, as well as the time frame you’ll want it delivered in.
Once the order is completed to your satisfaction, you engage a 3PL or the manufacturer ships it via Air or Sea Freight to a warehouse of your choosing. Often this might be in a different country, like the US or UK which is your target market.
Then you engage an order fulfillment company for inventory management, warehousing and order fulfillment, or you do everything by yourself with a good shipping software. A carrier handles the last mile delivery and then you handle post sales customer support dealing with returns and refunds.
That’s a long supply chain with numerous touchpoints and multiple business partners.
It was a scattered supply chain model with ample scope for things to go wrong. Even with a sizeable team of professionals, most businesses would have to be on top of the supply chain monitoring it minutely to keep themselves updated about each stage.
Not an ideal model for one-man bands or small startups.
Dropshipping cuts the supply chain down massively not only in terms of touchpoints and business partners, but also the amount of money you need to invest.
You hire a dropshipping sourcing agent who finds you a supplier from a list of vetoed and verified suppliers. Automatically, the communication becomes smooth. You don’t have to bother with negotiations and language barriers.
The agent will source the product at a favorable price and quality, send you photos of sample products for approval, which should take about 2-4 days max. Once you approve it, they place an order on your behalf with the supplier.
They will conduct quality checks and send you a sample product once it’s ready, if necessary.
Once the order is completed, the agent will ship it to a warehouse of your choosing using sea or air freight. At Sourcingbro, we offer an option to stock our clients’ inventory in a secure warehouse in China. But we also offer Delivery Duty Paid service where the inventory can be securely delivered to any warehouse around the world, without the hassles of customs clearance.
The Agent will handle the complete order fulfillment including branding, pick and pack, and shipping. They will also oversee returns and refunds as well as track packages that get lost or get stuck.
There’s only one point of contact, the sourcing agent. It’s a very flexible and manageable business model where you only do minimal work that’s required on your part.
A reliable agent can handle most of the messy bits which eat into your time, allowing you to focus on your marketing and product development.
5. Have Better Cash Flow
A shorter supply chain has more innate benefits than the obvious ones that we just shared. One of the most underrated and often overlooked ones, is cash flow.
When the touchpoints in the supply chain are minimized, the entire operation becomes smoother and faster. The turnaround times are predictable and reliable.
You can finally have inventory in stock on time for the peak business season rather than facing logistics bottlenecks. This translates into quicker and better cash flow.
The sooner you sell and clear the inventory, the quicker you have funds in hand. These funds can then be redistributed into product development or marketing channels that require sizeable investments.
Rather than being stuck with your first batch of inventory that’s eaten into most of your capital, and then waiting for the inventory to sell so that you have funds in hand, this is a quicker and more efficient model.
Many good sourcing agents can renegotiate terms with suppliers allowing you to get started with a much lower MOQ. Not only does this minimize the risks to you, since you do not need to invest as much as you’d do normally, it also clears the inventory much quicker.
You can replenish the inventory in days instead of months. This reduces the possibility that you might be caught with a shortage when it matters the most. You clear inventory fast and you replenish the stock in advance.
Lastly, you spend much less cash on the backend operation such as inventory stocking fees and logistics. A reliable sourcing agent offers all of these as part of their service at a very reasonable cost.
Branded Dropshipping requires less capital, reduces the number of complicated business relationships, offers your customers greater convenience, and brings you better cash flow.
6. International Fulfillment is Cheaper
There seems to be a rising belief amongst ecommerce entrepreneurs that it’s always better to stock inventory in the same country as your primary target market.
Since this allows you to ship faster to your clients. Normally, that would make sense. But just like everything else in business, there’s more to it than what meets the eye.
We conducted a detailed study on ecommerce fulfillment. Guess what we found?
If a parcel weighs 0.2 kg, International shipping to top countries in EU from the US takes approximately 52% more cost as compared to shipping from China.
You can read more details about the study over here.
The takeaway is this. If you are looking to sell internationally, then stocking your inventory in a warehouse in China might be the most cost effective choice. You can save on freight cost, customs cost, MOQ & the shipping cost.
However, that’s when parcels weigh less than 1 kilogram. For more than 1kg the shipping costs from China starts to get more and more expensive. So, if you are dropshipping from China to the North America and Europe, its ideal to pick products that weigh less than 0.5 kilogram.
7. Logistics Infrastructure is Improving by leaps and bounds
As an ecommerce entrepreneur, the worst thing is being shoehorned into selling in a specific part of the world because the logistics is not equipped to reach the other parts.
But you’d be amazed to know that China has been overhauling their entire logistics network. It is known around the world as a major production hub for manufacturing. But it is an equally busy and booming logistics hub that has created one of the most advanced supply chains in the world.
The Chinese government is investing heavily into developing this supply chain further to make it more efficient and cost effective.
Recently, the Chinese shipping line which includes standard as well as priority shipping included customs clearance as part of the standard operating procedure. This was the first step towards making life easier for ecommerce entrepreneurs because they rarely have to pass the responsibility of customs clearance to their customers.
Earlier, entrepreneurs using DHL & Fedex would have to ask the customer to shoulder the responsibility of clearing customs and paying all necessary taxes.
But now, since it is included in standard rates, entrepreneurs can rest easy knowing that everything will be taken care of. This makes life much easier for ecommerce entrepreneurs who ship parcels from China into other parts of the world.
That’s not all. The reach is steadily expanding. Here’s a glance at some data from YunExpress which is one of the biggest Chinese Shipping Lines.
- In 2019, they reached 31 countries
- In 2020, this increased to 35 countries
- In 202, it has gone up to 46 countries
As a dropshipper, these are exciting times. You can now tap into a limitless global market with zero limitations based on logistics barriers.
But Dropshipping is Dead if You…
There are certain scenarios in which we can completely agree with the ‘Dropshipping is Dead’ saying.
In reality, it’s not dropshipping that’s dead. It’s a certain way of doing dropshipping which is obsolete and completely phased out.
Think of it like a mindset that people bring into dropshipping. If you venture into dropshipping with that mentality, then yes. This model is dead for you. Here’s a glimpse into that mindset.
Expect Success Overnight
At the exact opposite of ‘Dropshipping is dead’ lies ‘Dropshipping is easy’. A lot of people buy into this and enter the business with this mindset hoping to make a quick buck.
This is where they go wrong. Dropshipping is not a get rich quick scheme folks. It’s a flexible business model, but it requires a lot of hard work, research and problem solving.
Don’t treat it like some sort of lottery.
- You need to research on the niche. Is the niche evergreen? Is it super competitive?
- You need to find a winning product. Why do you think this product will work even when there are competitors willing to sell the same product at a lower price?
- Do you have an idea on how to run PPC ads? How are you going to generate traffic and subsequently, sales?
- Do you know how to stay one step ahead of the competition?
Even if you have a fair idea of these factors, it may still be a long time before you experience your first success.
And even after the first success, you will have to work harder and harder to achieve bigger milestones. But if this doesn’t sound too good to you, then maybe dropshipping is not for you.
Don’t have the Necessary Skills and Resources
Like we said, dropshipping requires a certain skillset. We know that you’ve heard that the barrier for entry is low and that’s partially true.
But the days when a rank, inexperienced entrepreneur could start a dropshipping business using free templates and stock images are over.
The more you delve into this trade, the more you’ll realize that the tools of the trade are changing at an exponential rate. The competition is picking up its game too.
You’re competing with crores of entrepreneurs from all over the world. And to stand a chance, you need to be an expert in certain skillsets like SEO, PPC and understanding your customers.
The first two require investments too. If you lack these three skillsets, then it will take a lot of time before you can finally get going.
Another thing that can set you apart is experience. If you have had successful ecommerce businesses in the past, you will be able to pick up where you left off. But if this is your first venture into ecommerce, then it might take a lot of time for you to get going.
Give up too Soon without Thoroughly Testing and Iterating
The get rich quick mindset gives rise to another issue where entrepreneurs give up too soon after starting out.
So you’ve found the winning product, know your customers and have a clear-cut plan on how to generate traffic.
Awesome! But this is when you need to push the gas pedal even harder. Test everything extensively, from landing pages, PPC ads to email marketing.
A/B test everything. Use Facebook ads to retarget your customers with specific ads that compel them to buy. Iterate and re-iterate till you’ve found the formula for success. And then push even harder with that winning formula!
If you just give up after trying out something or other, then it will take you a lot of time before you find ‘the winning combination’.
Conclusion: Is Dropshipping Worth it?
The short answer to this question is yes. The conventional dropshipping model might be saturated. But Branded Dropshipping is completely worth it and with the current ecommerce boom, we only see it getting better.
Dropshipping has its own set of challenges, but it can definitely be done right, especially if you have the necessary skillsets and resources. And even if you don’t have these two, there are many people who can help you get there.
A reliable sourcing agent will be a great first step.