Recently, the subject of dropshipping has come up from a couple of readers, and between that and a few other experiences we’ve had recently, we thought it is definitely worth a revisit. As anyone who has spent some time with us knows, we’re not inherently against dropshipping per say, but we don’t use it as part of our business model.
If you’re new to online commerce, dropshipping is where you don’t actually stock any product. When somebody orders a product through your website, you go and then order it from the “dropshipper”, who will then send the product out to the customer (usually with your details on the package). The advantages of this are pretty clear. Firstly, you can completely forget about all of the hassles involved with the logistical side of the e-commerce equation (of which there are many). You don’t have to worry about the initial capital cost, storage, stock control, wastage, or any of the issues that stop a lot of people from getting into e-commerce in the first place.
Secondly, it allows you to get your business going much quicker. If you don’t have to setup up logistics or invest capital, then you can be selling products as soon as you have a website and some traffic. So why don’t we do it?
Let me just say firstly that our business model isn’t the “be all and end all” of e-commerce. It is just what has worked for us, consistently, and repeatedly. There are no doubt people out there with a dropshipping model that do really well. One of the first issues you might face is the lack of dropshippers available for your niche. We always find our niches through keyword research first and foremost, and this is the most important part of our model. So if you find a great niche for “blue widgets”, then you can’t find someone who will dropship blue widgets, then immediately dropshipping is off the table anyway.
Even if you do find a dropshipper, it can still be fraught with problems. With our businesses, we always have around three suppliers we can go to at any given time. This is because over the years we’ve seen suppliers come and go with management changes, going out of business, quality control changes, policy changes and many reasons why they are great suppliers one year, but not the next. This is why we would never want to be reliant on only one supplier, whether that’s to produce product, or dropship it for us.
So even if you find a great dropshipper for your particular niche, unless you find at least one or two more, your whole business is going to be reliant on them. This significantly changes the risk profile of your business, and of course, the dropshipper will know this as well, which is why there’s always a monetary price to be paid as well.
So let’s say you’re super lucky, and have found a low competition, high search niche, that just so happens to have a couple of great dropshippers as well (I’m sure these exist… don’t they?). The final issue for us is making sure you are providing a consistent experience to your customers, that is also better than your competition. This means shipping and processing times must be consistent, returns and exchanges must be dealt with in the same manner, and your packaging and branding must also be consistent. Getting even a single dropshipper to ship your items with your unique branded packaging can be difficult (unless you’re doing amazing volume), let alone two or more.
So are we totally against dropshipping? Not necessarily! In the long term, it’s not something we can see ourselves doing. Once you have your logistics set up for one e-commerce business, all of a sudden, adding more businesses isn’t very difficult at all, and we think the long term benefits are quite significant. Where dropshipping can be very useful is in the startup phase of your business. When you first put products on your site, it’s really important to watch your analytics closely to determine what products your customers are looking at, and ultimately what products they buy. This helps you put your capital where it will get the most return.
Dropshipping may help you in this phase, because you can actually see what people are willing to pay money for, so that when you do buy your own stock, you’ll have a better idea of where to focus your product range. One caveat to this, is that you should try to use a domestic dropshipper where possible, as this will give you a more accurate picture of what your conversion rate might be. Many people in Western countries prefer to buy from a domestic business (70-80% in Australia at last survey, although I’m sure every country is different), so if you’re dropshipping from China, you may not get as many conversions as if you were shipping from a domestic address.
I just want to finish this off by re-iterating that I am sure there are those out there with great dropshipping businesses. We have (hopefully) clear reasons why we don’t use them anymore, and this article hopefully goes some way to explaining why.