You’ve probably heard mixed things about dropshipping.
There’s one part of the internet that raves about how dropshipping helped create millionaires who travel the world while they run their businesses.
Another part of the internet (and perhaps, that’s why you’re reading this) that talks about how dropshipping is not ideal anymore.
The business model is long dead and saturated. You want to know which part to believe.
So, in this post, we are going to list down some facts that will help you make an objective decision.
Is Dropshipping Bad?
Yes, the standard or conventional dropshipping model is not as profitable or sustainable as it once used to be.
By standard, we mean the dropshipping model where you source products from dropshipping suppliers or wholesalers, list them on your store and try to generate sales. Once the orders come in, the supplier or wholesaler fulfills the orders, while you get a small percentage as profits.
But not anymore. We emphasize on “standard” because there are other business models where dropshipping can be profitable (more on that later).
7 Reasons why (Standard) Dropshipping is Bad
We’d rather talk facts than make random claims. So let us present 7 reasons why we believe that standard dropshipping is an obsolete business model.
1. You’re not Building a Brand
Branding has always been the key to a successful business. This is a universally accepted fact. It’s plain Business 101. We are not reinventing the wheel here.
But the standard dropshipping model eliminates the possibility of building a brand entirely. You are just sourcing a generic product from a manufacturer and listing it on your ecommerce store. There’s no custom branding, no effort to make the product promotion-worthy.
Now we know that you might be thinking: “I’ve seen tons of stores doing well with standard dropshipping model!” And we agree, but again: It’s just not sustainable.
Because Social Media has transformed into the biggest marketplace. Smart businesses know this and they are building brands that customers can identify and relate with.
Think about this from a customer’s perspective. They are exposed to hundreds of product advertisements daily from branded products with distinct personality traits. How can your generic product stand out from the crowd?
Branding builds relationships. Business in 2021 works on relationships, trust and credibility. We can go on and on about this. But we are sure you get the gist.
As we mentioned before, brands provide a way for businesses to establish relationships with their customers. In this digital age, people like it when they feel connected with someone. They like to be recognized as individuals instead of one among many. Brands provide your customers with the opportunity to feel like they are part of something.
And when you build a strong brand, it’s easier to market new products because your current audience is more likely to trust you and pay attention.
2. You are Not “Unique”
Generic, unbranded products do not evoke the same emotion and excitement as branded ones do.
Put yourself in your customer’s shoes. You are shopping on social media and you see a great video about a pair of sneakers. They look so cool that you want to own them right there.
But, you see that there’s no brand. You think, “yup.. it’s a good product.. no wow factor though.”
On the other hand, your competition who’s also dropshipping by the way, offers the same pair of sneakers with a custom logo and packaging. Both are selling the same product, mind you.
Only, the competitor is more likely to win the sale because he/she has established a strong brand. And, your social media update is just another pair of generic sneakers with no marketing value. That’s despite you selling the product for a much lower price than them.
On the face of it, branding seems like pasting some fancy colors and logo on a product. But it’s much deeper than that.
It’s not just about price folks. It’s about brand recognition. It’s about standing out from the crowd.
This is why most standard dropshipping fails eventually, despite offering some profits early on. Because you cannot customize your product. You just sell what a thousand others are also selling.
3. No Control on Costs
In standard dropshipping, you are sourcing a product from a wholesaler or manufacturer and selling it on your ecommerce store. You have no control over the product price because the seller determines it. Not you.
The product price, the shipping price, everything remains the same. The only thing that might change is the advertising costs for you during peak season because of the competition (If you are running paid ads).
So, your procurement cost increases. But you cannot increase the price yourself, because there will always be someone who’s willing to undercut you to sell the same product for cheaper.
That’s the problem when you are using price as the only distinguishing factor for your product. The moment someone sells it for cheaper, your product is overpriced.
At best, you can compare and shop while selecting a supplier. You can look for quotes from multiple suppliers who might offer the same product at lower costs. Then you’ll have to compare the quality to ensure that you are still selling a good product.
But there’s no guarantee that you will always get the best deals on products. And what if your suppliers increase their prices? What do you do then? You do not have inventory in stock, remember?
You thought that no MOQ was an advantage. Here’s the flipside.
What if this happens during peak season when you are just beginning to get a steady volume of sales?
It’s not practical to operate a business this way because it can be quite stressful to find new suppliers all the time for your products. Then you’d have to go through the whole process again.
4. Inventory is Not Guaranteed
We briefly touched on the importance of having control over inventory earlier. One of the big draws of the standard dropshipping model is the low upfront investments, particularly for beginners, because you do not have to invest in inventory.
You can build an ecommerce store without investing much capital, especially if you are sourcing the products from AliExpress or another B2C portal. There’s practically no MOQ. This means, you can find a product, list it and start taking orders immediately.
You are rejoicing because you think that this business model is incredible. You are actually managing to sell a product without ever stocking a single piece, or paying for storage.
But what happens when your supplier starts to run out of stock? This happens more frequently than you’d imagine.
That’s right. It’s not guaranteed that any supplier will have inventory in stock at all. You are probably not the only business in the world trying to source the same products from this supplier.
Moreover, if the product is trending and the sales are coming fast, then there will be phases when the supplier runs out of stock.
So, you either wait until the supplier releases more stock or switch suppliers. But if you are already taking pre-orders for this product, how do you manage to switch your supplier midway through?
It would be quite complicated because of all the existing correspondence with clients regarding their products. You’d have to refund or find alternative products until you find a new dropshipping supplier.
It is highly impractical if you are just starting out because it can cause a significant drop in sales. Unforeseen events like these have the capacity to damage your business beyond repair at this stage.
You should be focusing your energy on generating business. Not dealing with unreliable suppliers and an avalanche of return/refund requests.
This is how standard dropshipping stores shut down in months.
5. Lose Quality Control
When you are sourcing a generic product from a supplier, it’s impossible to control the quality of the product. Because you might not know how they were made exactly, and under what conditions.
Some suppliers will send you a different sample initially and then, switch over to a low quality product once you start sending orders. There’s no way to know unless customer complaints start to pour in along with return/refund requests.
Then you have to deal with an unscrupulous seller who will deny any wrongdoing. There is no way to establish any quality control mechanism in standard dropshipping, unless you are willing to stock inventory and work with a reliable dropshipping sourcing agent.
A dropshipping agent can play the vital role of establishing quality control of the products you source from a supplier. In fact, they can inspect the products at different stages and verify quality before it reaches your end customer.
But, if you are sourcing from B2C portals and using the standard dropshipping model, then all of this flies out of the window.
6. Sales are Not Consistent
Coming to the most important aspect of standard dropshipping, generating steady sales.
In Standard dropshipping, you are not selling a branded product. So, there’s no brand recognition. There’s no brand identity. Zero trust. No credibility.
It’s just another generic product that’s vying for attention. In other words, you are relying completely on cold traffic. Traffic that has to be nurtured through the entire sales cycle.
Sales rely on a steady stream of interested buyers, who have to be convinced that this product is going to benefit them in some way. And it takes time and effort for this process to happen smoothly.
Otherwise, cold traffic can just give up mid-way through the sales cycle. This results in an obvious drop in sales.
If you want a steady stream of sales, then it’s going to be hard work and long hours at the beginning. Or else, it will just be a matter of time before your store falls flat on its face due to no sales. And this is exactly why most standard dropshipping stores fail within months.
They have only one source or sales, which is paid advertising. But paid ads are getting more and more competitive by the day. The average CPC on Facebook for ecommerce has steadily increased.
Also, advertising platforms are getting more stringent by the day. So, there’s every possibility that your advertising account might get banned due to violations that you never knew existed.
Many new dropshipping stores are unable establish themselves as profitable businesses because of lack of sales and mismanagement. They have no backup plan in place for traffic, apart from paid ads.
7. Shipping Can be Expensive and Limited
Since you are completely reliant on the supper for inventory, they also control shipping.
This can cause a cascade of problems starting with the shipping price. If you have a multi-product store, then you are in all likelihood sourcing the product from different suppliers, who have different shipping prices.
But you can only have one or two standard shipping prices on your store. Let’s say a single order has five products from different sellers. The customer has clubbed it in one order. But you have to pay five different suppliers the same shipping cost.
Neither are sustainable for a long time.
On the other hand, if you are sourcing from Aliexpress, then the shipping options are terribly limited. There’s only Aliexpress Standard shipping which can take almost 25-30 days during normal sales season.
It’s terribly unreliable during peak season. You do not have faster and more efficient shipping options like Yunexpress, 4PX & Yanwen that most ecommerce brands use these days.
What is the Better way to do Dropshiping?
If that doesn’t convince you about the potential pitfalls of standard dropshipping, then we don’t know what will.
You might be wondering, then what’s the right way to dropship in 2021?
Is the business dead entirely? No, it’s not dead entirely.
It’s just the standard dropshipping business model that has become obsolete. There’s a more refined business model that has emerged. One that gives you, the business, more control over the supply chain.
Right from the cost to the shipping, there’s absolutely no need to depend on external suppliers.
This is called branded dropshipping.
What is Branded Dropshipping?
Branded dropshipping is a more current and efficient way to dropship. It takes the best aspects of dropshipping and clubs it with branding. The result is a business model that’s phenomenally more efficient and sustainable.
You are essentially still sourcing products from suppliers and reselling them for a profit. But there’s one vital addition. The products will be branded to your specifications.
Confused? There are two separate ways to do this.
White Label Dropshipping
White label dropshipping is an online business model in which you source products from a supplier in bulk, rebrand them with your own logo and sell the products in your store. The end result is that it looks like unique product that’s being sold by a brand.
For example, if you were selling a dog collar and you realized that there’s a huge untapped market for this, you switch over to While labelling the dog collar.
This gives you multiple advantages.
You are not bound to a supplier who might be difficult to work with. You can source from private suppliers as well as work with a sourcing agent who can veto suppliers for you.
By branding the product yourself, you can increase its demand and control costs. If you have a product that’s branded well, then this will pique the interest of your target audience and generate more sales.
White Label dropshipping is the perfect step up from a standard dropshipping store. It’s still reasonably low investment, considering that a sourcing agent can do most of the heavy lifting, including fulfillment.
Private Label Dropshipping
Private label dropshipping goes one step further. It allows you to customize a product, or design/develop one from scratch according to your liking.
The end result is an exclusive product that’s only being sold by you. You control the entire process from production to sales.
In the above example, you have received customer feedback that the dog collar could have been much better had it been two inches longer (just an example), or had three extra holes, or an LED light.
So, you realize that there’s a huge opportunity, waiting to be tapped.
You design or develop an improved dog collar with your own label on it, basically creating your own exclusive brand of dog collars with all these features.
Private Labelling requires a larger budget, but yields much stronger results in the long run. If done right, this can become your niche and you could easily dominate it.
The takeaway is this.
If you are looking to dropship in 2021 and going forward, don’t get swayed by the fancy things you read on the internet about standard dropshipping. That business model is redundant and will, in all likelihood, be phased out soon.
Instead, focus on building a brand and relationships. Branded dropshipping is the way forward and will ensure that you are building a business for years. Not a temporary one for months.