Why Dropshipping is hard: The Challenges You Need to Know

What makes dropshipping hard or should I say what makes dropshipping look hard is how we perceive it. We consider dropshipping as an easy way of making money, some look at it as an easy way to start a business, that is true but it is one of the pros of using dropshipping in business. We need to be completely aware of all the pros and cons of the dropshipping model to know why to some people it looks so hard.

The Most common reason is that people look at dropshipping as a business model but it is actually a fulfillment model and they overlook some basic D2C E-commerce business aspects.

What is dropshipping? This you probably already know but I would just sum it up in a few words. Dropshipping is where you don't have to build and manage an inventory to start a business. You get your order and someone else ( your manufacturer ) makes a single-unit order for you on demand.

Your manufacturer puts your brand label on the product, packs it for you, and ships it to your customer. This is the whole supply chain in the dropshipping fulfillment model.

The mindset and approach you take in dropshiping matters a lot. If you consider this as an easy way to make money. You will surely fail at it or you will feel that it is hard. Please consider dropshipping as a normal D2C business and follow the framework of an E-commerce business then your chances of achieving success would be much higher.

Pros of the Dropshipping

No inventory Management - Dropshipping has the biggest advantage in that you do not have to worry about managing or building an inventory.

Less Capital Required - While setting up a business using the dropshipping fulfillment model requires less money because you are not spending money on inventory management. Less overhead and operational costs.

Small supply chain - If you are using the dropshipping model, then most of the work is done by your manufacturer, from your product manufacturing, branding, and packaging to manufacturing the product to your customer is delivered by your dropshipper.

Less risk - When you have less money involved, so you have less risk. No inventory wastage and dead stock risk. If things go south, you won't have to suffer a greater loss.

Easy to start - When you start an E-commerce business using a normal business model, then the frame you follow to start the business is quite lengthy than the dropshipping, the supply chain is bigger, the risk is high, and the operational cost is more than the dropshipping. So starting a business using dropshipping is quite easy.

Product Testing - If you are running a business already or you are looking to start one and you wants to check out the demand for that product. In this step you can also use market research and check the trends but to check out the real demand in the real world you can use dropshipping.

Cons of Dropshipping

Low profit margins - One of the biggest problems in dropshipping is lower margins. Most of the money is made by your dropshipper. They build a single unit for you and this leaves with you a lesser margin because of this your hands are tight on other things such as marketing spend, Website optimization, etc.

Competition - Now in India, or anywhere else in the world, E-commerce is on the boom, and if you will notice most of the fundraising is successfully done by D2C brands only. Dropshipping makes it quite easy for anyone to start the business and this leaves you with multiple players in the field to play, meaning too much competition.

No USP - Having a unique value proposition is pivotal in any business. If you don't offer something which is not unique in nature or it is offered by someone else as well then it leaves your customer with too many options to go. If you have USP your users will stick to you.

Poor Customer Experience - In any business customer experience is a critical factor to increase retention rate. Your success in business is measured by your revenue, profit, and retention rate but in dropshipping it is very hard to give your users a better experience in product, delivery, and after-sales services as the control is in the hand of your dropshipper and not you.

Lack of control - As we have discussed above that is just one point but in dropshiping your crucial aspects of business are controlled by your dropshipper such as branding, product development, packaging, delivery, assistance in delivery, etc.

RTO’s Management - Any online owner store owner can tell you what is their biggest business threat, it is returns of the orders. When customers do not accept the order.

There can be other situations as well such as the shipment weight was higher than you told them, which leaves you with paying additional charges and more cost per unit. If your customer is asking for more attempts on the order, you want the delivery person to contact your customer on other number. You can only know about such situations when you actually do this on your own but in dropshipping it is very hard to manage this.

Product Quality - You have less control over the quality. Let just say you are selling a T-shirt and you want to sell a T-shirt of 220GSM but your dropshipper is only has a 180GSM T-shirt. Let's go more deep into this problem. Now let's say you want some adjustment in the fabric quality, but you can not do that. You are relying on someone else on the quality of the product which you are selling to your customer.

Less Retention - To win any business your customer acquisition cost has to be lower and one of the best ways to lower your CAC is spending less on marketing to acquire new customers. If you can provide the best experience, better quality, and better support to your users, they come back to you and you have a great business. This is what you will face problems in the dropshiping business.

What can we do to improve things?

Check product quality - You need to make sure while selecting the manufacturer for your product that their product is of good quality. If you have a good quality product then you can play on price too.

Provide top-notch customer experience - Your ultimate goal should be helping your users, when you are the founder of a business, you are basically working for your customers and ethically you should be passionate about providing a world-class experience to your users. This is what you need to do in dropshipping if you can achieve this, Dropshipping will look so easy.

Branding - How you brand your product is equally important to be successful in dropshipping. How you want to perceive your product is branding. How do you want people to relate to your brand is branding, and how do you want people to remember your brand is branding? It is not just about the logo. Keep your branding part always up.

UI and UX - Make a better user interface and provide the best user experience on your e-commerce site.

Give flexible payment options - This is most applicable when you have a higher-ticket product. You need to make it affordable to your users by giving them flexible payment options.

Manage RTO’s - Be proactive in delivery, ask your dropshipper to give you an account manager and you need to make sure about the whole supply chain until your order is not delivered. You need to learn ways to manage to deal with weight discrepancies. When a return is coming, check out if the user has given the proper reason for the return and if the reason is not valid, call your customer and ask them what went wrong? Doing such practices will reduce the rate of RTO and will give higher chances of achieving success.

Choose A niche product - To stay ahead of the competition, you can always choose your niche. This will obviously leave you with less TAM but it is always good to be known for specific things and people can know you for your niche product.

Call on COD - Most returns come on COD orders because they are mostly placed by bots, competitors, and by mistakes, so it is always good to call on the COD orders before processing them. This helps in lower returns and ensures a better cash flow.

Focus on Retention - Provide the best experience to your users and make it your mission to bring your acquired customer back again to your website to make another purchase. Following this you will spend less on marketing and you don't have to worry about acquiring new customers.

Now you will agree on this, it is crucial to consider its pros and cons and use them to your advantage, and by understanding the challenges and opportunities, you can walk towards a more practical and balanced approach.

Like any other business model or business, dropshipping has its unique challenges and advantages You have to view it through a neutral approach rather than giving it a tag of hard or easy. Every business or startup demands a holistic approach and dropshipping is no exception.

I have worked on dropshipping model for around 2 years, If you are looking to get any assistance, you can book a call with me. Book my Time