The Real Truth about Dropshipping!

Many e-merchants praise the benefits of dropshipping. Earning millions without doing anything from home is definitely something to dream about! But obviously, the reality of dropshipping involves a little more work than that. This begs the question: we often talk about the incredible and immeasurable benefits of dropshipping, but does this business model have only advantages?

By
Julie Ribeiro
Created
July 23, 2020
Modified
July 24, 2020

Between delivery times, competition, and logistical dependence on the supplier, dropshipping can be more complicated than it seems.Before embarking on this venture, it is therefore prudent to weigh up the pros and cons.

Advantages and disadvantages of dropshipping 

Dropshipping is a very advantageous business model to start up at the very beginning of an activity. Indeed, access to the dropshipping market is facilitated by the numerous platforms and is almost completely free of charge.

It is only once dropshippers have their foot in the door that they become aware of some practical drawbacks. Between the financial aspect, the interdependent relationship with the dropshipping supplier, the competition, and the logistics, dropshipping is not the goldmine you expect it to be. And before taking the plunge it's a good idea to know all the ins and outs.

The financial aspect: advantageous or costly?

The first aspect to take into account before jumping into the lion's den: the financial aspect. If dropshipping is not profitable for X or Y reason, perhaps we should reconsider the question?

The advantages

At first glance, dropshipping is clearly a plus for easing into the e-commerce scene. Whether you choose to set up a dropshipping website, or go through a dropshipping platform, the initial investment costs will be low.

The creation of a website is made easier by the existence of many CMS whose prices are very low.

Moreover, according to the dropshopping principle, the dropshipper (and therefore you) has no land, equipment, or stock costs to bearthe burden of: this is the responsibility of the provider you have chosen!

Between the absence of payment for the production chain, packaging design, and delivery, the financial difference in expenses compared to traditional e-commerce is substantial. 

Not to mention the fact that a dropshipping e-commerce has a higher scalability than a traditional e-commerce! Let's imagine you are working with a supplier who produces UV machines for nail polish application. During the Christmas period, you receive a lot of orders for this UV machine. If you were a normal e-commerce company, you would be out of stock. With dropshipping, suppliers produce in bulk which means no downtime!

The disadvantages

But all is not rosy in the financial world of dropshipping. Indeed, not incurring storage and delivery costs has a fairly significant impact on your margin per order.

To buy a UV nail machine, your customer pays for his product on your site. Once you have received the money from your customer, you place the order yourself with your supplier. So even if you don't need to advance cash, since you are only an intermediary, the margin is less. 

Having said that, it is not because your action is minimal that your involvement is also minimal, since it is the seller (you) who is responsible for the 2-year legal guarantee following receipt of a product.

In the same way, when the customer pays, all costs must be included in the general price list. So, for intra-community trade, you must apply the intra-community VAT at the right rate, without making any mistakes. If you don't do this, you run the risk of having to pay a hefty fine!

Bigblue tips: If you're just starting out on the e-commerce scene, dropshipping can be interesting. Nevertheless, since margins are eaten up compared to traditional e-commerce, it's important to make sure the cost/benefit balance is on the right side. 

Logistics management: delegation or unavoidable weight?

The second attractive aspect of dropshipping: the logistical dimension, which is very minimal compared to online shops.

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The advantages

Since your supplier takes care of production and delivery, you are not in charge of carrier management or packaging.

And although it may sound simple, not being in charge of logistics is a major thorn in the side of many e-merchants! Indeed, the choice of carriers, the palletization, the organization of the rounds... All this can quickly turn into a nightmare, especially if you are just starting out in the trade.

The disadvantages

But as every advantage comes with a disadvantage, the logistics of a dropshipping activity is not that simple to manage!

According to the principles of dropshipping, you are only responsible for the transmission of the order. This means that you have no control over the presentation and condition of the packages. However, if there is a problem during delivery or reception, your customer will contact you directly. If your supplier has a UV coating machine delivered in a dented and damp package, YOU are in charge of the after-sales service, even if you are not the cause of the problem!

And when you see that almost 20% of the products ordered in France are returned to the warehouse, you quickly realize that there is indeed a huge element of logistics management in dropshipping. Not to mention the fact that in the event of a product return, they are sent directly back to you. This means you can still end up with a stock on your hands!

Moreover, you have no control over delivery times. Asa general rule, dropshipping deliveries take between 15 days and 1 month (and with COVID, it's getting worse and worse!). However, 72% of French people want next day delivery, which does not necessarily fit with the constraints of dropshipping. 

Finally, forget the small gestures and personalization towards your customers: you don't have access to the parcels! So, you can't put 1 small flyer here, 2 or 3 advertising pens there... Personalization is very limited.

Bigblue tips: Some dropshippers have problems with their suppliers.To prevent this from happening to you, you can directly delegate the logistics management to a logistician who is familiar with this. This way, the 10% return margin is handled professionally, and you always have a say.  

Working with a wholesaler: freedom or constraint?

Every dropshipper works in collaboration with a supplier, whether he is a generalist or a specialist in a product area, such as nail cosmetics for example. Dropshipping is a service to both parties: the supplier sells its products without having to focus on marketing, and the dropshipper gets a commission without having to worry about production and logistics. It's a win-win situation!

But like any business relationship, it comes with advantages and disadvantages.

The advantages

The most important thing about working hand in hand with a supplier is that you don't have to worry about the production, logistics, and delivery of your products. Knowing that you are interested in e-commerce, and that the core business of commerce is... selling! And not production.

This way, you can concentrate solely and fully on the work of your brand image, and on the marketing dimension of your e-commerce site. Optimization of your UV machine product sheets, traffic acquisition, customer retention, loyalty building... All this without having to worry about the purely technical side of production. 

Disadvantages

In theory, being able to count on someone in a business relationship is very positive: dropshipping is therefore a good exchange of good practices which should go well. In practice, suppliers tend to lead the way.

The number of dropshippers has exploded in recent years. As a result, there are more dropshippers than suppliers. Some wholesalers (in particular the larger ones in the market) therefore tend to impose rather strict guidelines on their dropshippers. And failure to comply with these guidelines can lead to the termination of your contract.

They have full control over the selected carriers(although you may be more familiar with local carriers), packaging, and price variations. This means they have control over the goods. Basically, even if you spend 3 months writing product sheets for an entire category of UV lamp machines, your supplier can choose at any time to change the color of the product, or simply to stop selling it. And for you, you end up with 3 months of work lost!

To overcome this kind of problem, you can work with several suppliers. This would allow you to expand your product catalogue on your website. That said, it also means that if your customer orders a UV nail machine and a weather station, they may not receive them in the same package. An order can centralize different suppliers, and they may arrive at different times. This is not good for your image!

Bigblue tips: In the supplier-dropshipper relationship, communication is the key to success. Make sure you maintain a good rapport with your wholesaler, and you will be aware of any changes! 

Competition: an open or closed market? 

The final point to consider before going into dropshipping, and not the least is competition! As mentioned above, there are more and more people getting into dropshipping. This allows the market to turn at a crazy speed! Subsequently, however, this also makes it more complicated to access.

The advantages

More and more dropshippers are going into business, all hoping to prosper. But they all buy from the same wholesalers! This means that your competitors have nothing more than you have: they sell the same thing. So, to stand out, you can throw yourself body and soul into working on your brand image and the marketing dimension!

In addition, you can analyze your competition to see what customers like, what they buy most, and the most flourishing formulations, etc. In short, dropshipping allows you to enter a new market with full knowledge of the facts, instead of running in blind. All this without investing a penny!

If you choose to do dropshipping in a niche market, you can add other products little by little, and study the reception of your customers. Ideal for anticipating your future catalogues! 

The disadvantages

The fact that your competitors are on the same level as you can be a positive thing. But it also means that your products are no more special than theirs. This can make it difficult to find your place in an already crowded market.

You can of course turn to dropshipping platforms which make on average 10% more turnover than a simple dropshipping site. But the competition on marketplaces is even tougher than on the net! Standing out from the crowd therefore implies a certain amount of work.

Bigblue tips: Dropshipping is an ideal business model to start a business or a market. But it's only afterwards that things get more complicated. So why not take advantage of the advantages without suffering the disadvantages? 

You can enter the e-commerce market thanks to dropshipping, then once you have your dropshipping business installed, you can then take over part of your production. The right balance between e-commerce and dropshipping, an explosive cocktail of success!

Do you want to give e-commerce dropshipping a try?

 

Dropshipping is a real springboard within e-commerce.Unlike e-merchants, dropshippers have no stock, delivery, or e-commerce logistics to manage. They therefore do not suffer any indirect losses, whether they are financial or time related.

Having said that, dropshipping is far from a perfect business model: it has many disadvantages, which can really slow down commercial activity. No matter what you expect from dropshipping and your status in e-commerce, it is important to consider the advantages AND disadvantages before jumping into the deep end!

 

 

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Julie Ribeiro
Marketing specialist and content writer at Bigblue.
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