Why dropshipping is not easy as it sounds?

If you did not know, dropshipping has made quite the waves in? the entrepreneurship world lately. It is essentially the art of the middleman - the store sells the product and passes on the sales order to a third-party supplier, who then ships the order to the customer. A lot of dropshippers have propped up in the last few years, with more and more people interested in dropshipping.

However, having worked with hundreds of e-commerce businesses at Oxedent in the last few years, I have come to realise that dropshipping is nowhere near as easy as it looks. If you are interested to dropship, here are somethings you should be aware of:

- Your niche really, really matters

As I have mentioned before, there are many, many dropshippers active across Amazon, Ali Express etc. currently and thus, the market is overcrowded. In such a scenario, the? niche you operate in really makes the difference. The tricky part is not only finding a suitable niche, but also ensuring there is enough demand to be able to make a decent margin.

- No control over your supply chain

As mentioned before, dropshippers are essentially third party merchants who transport an ordered product from a manufacturer/store owner to the customer. In such a scenario, the customer is directly in touch with you and you shall always be their first point of contact. Their is also always the risk of delay in production side for the supplier, which will again put you in a difficult scenario as well with a customer explicitly expecting a fast supply.

In such a scenario, product quality, fulfilment speed or return policies - none of the 3 most important factors for e-commerce customer satisfaction is in your hands. Thus, you have to spend a lot of time balancing the demands from the customer as well as ensuring your supplier keeps producing quality products.

- Brand building is extremely hard

While manufacturers/ shop owners can easily build a brand faster by virtue of their product, the same is much harder from dropshippers. If you are not white labelling and the product is good, the customer will praise the manufacturer as it will be their logo on the box but if it is bad, you will always be the one to bear the brunt as explained before.

If you are white labelling, the chances are you will find it hard to add a differentiator in your product which makes it hard to stand out from the other brands in an overcrowded market.

- Social Media and Google Ads keep getting more expensive

Facebook Sales Channels are no longer as cheap or as effective as they used to be and the dropshipping industry is finally coming to terms with that. With many players already, establishing a new brand is harder - even with a paid sales channel. And it gets even more challenging if you have a tight budget to begin with.

- Pricing your product accurately

The CPM(cost per mile) and CPC(cost per click) on all major ad channels are no longer cheap. Even if you have a 2-3% conversion rate (the avg. e-commerce conversion rate is 1%), you will still end up having high CPA(Cost Per Acquisition).

Under such circumstances, you need to consider the customer acquisition while pricing your product. It is mandatory to have at least 50% margin before the ads cost to hit breakeven faster with ads - be it on Facebook/Google or YouTube.

You also need to keep a couple of other things while deciding the pricing:

1. At what price Amazon and Walmart is selling your product??

2. Value proposition- i.e how much better is your product solving a problem for the customer than the other players in your category.

As you can imagine, pricing is a very tricky game to master as a dropshipper and most have to shut shop because they could not do the same.

What do you think? Would you consider dropshipping despite the challenges?

Let me know!