Dropshipping is it Worth It?

Drop shipping has become the buzzword on online commerce in recent years and it has attracted many people looking to make a start in online selling. It’s proved very popular as it allows sellers to offer products for sale without buying them first or storing them. You can literally start selling straight away. But is it that easy? And can you make good money from it?

The quick answer is yes and no and yes but as with most things there’s more to it than a simple yes or no so lets look at this in a little more detail.

Dropshipping has it’s good points and bad points, the good points are fairly obvious, there is virtually no start-up costs and it’s very simple to start selling online, essentially anyone with an internet connection can become a Dropshipper in a very short space of time.

It sounds too good to be true and in some ways it is, the chain of command from manufacture through to retail is in place for a reason and it’s always focused on costs and efficiency. Manufacturers don’t usually get involved in retail as it’s not an efficient way of moving their produce. they make things on a large scale to keep the costs down, they sell the products to a wholesaler in large volume, quite often in multiple container loads. Buying in large quantities means the manufacturer has to only deal with a few buyers and gets to move large volumes of stock, in turn for dealing in large quantities the wholesalers get a good price. The Wholesaler will then break down these products into smaller lots maybe pallet loads and store them at their warehouse while they sell the items on in the smaller quantities. He will add on his own margin to cover the cost of the stock, transport, storage and finally profit per lot.

So as the produce gets passed through the line the required order quantity gets smaller and the price gets higher. This is a logical progression. You will never find a source manufacturer selling in small quantities to retailers because they are not interested in such small amounts, they need to move large amounts and regularly to keep the factory process moving they need the space and cannot afford to keep large volumes while they sell of bits and pieces. So each part of the chain specialize in their own section and do that as efficiently as possible to keep costs down and profits up.

For that reason if you find a business willing to sell you items one by one at a ‘wholesale price’ we already know something’s not right here, it goes against the supply sequence. We know a manufacturer wont sell items one by one, they would have to be mad, the costs involved in dealing with the public and the staff required to do so would far outweigh the tiny profits gained from selling a few things here and there. We also know that the wholesaler doesn’t sell items one by one, he has spent possibly hundreds of thousands in buying in the stock from the manufacturer and it’s taking up valuable space in his warehouse, he needs to move the stock quickly and in bulk, usually pallet loads sometimes half pallet loads but as we already know the smaller the amount you ask for the higher the unit price will be so it makes sense to always buy in as larger quantity that your budget will allow.

The the idea of Dropshipping doesn’t quite add up, many will use the phrase ‘wholesale prices’ but if you were to look a little deeper you would find that the dropshipper is in fact a retailer, someone at the end of the supply chain that is used to buying in pallet loads and then selling the items individually to the general public, this is what’s know as retail.

So the retailers are the only ones that can afford to sell items one by one, they are set up for this and that’s how they make their money, so dropshipping has evolved from retailers looking to find other ways to make money and so offering items to third parties to sell, the genius of this is that they use their strengths to their advantage, they are already set up to sell in that way so they offer the same items to the those looking to sell the stock, the only issue is that by the time the retailer gets the stock the price has risen with the transport , handling and profit at each stage so the retailer simply cannot sell an item at a wholesale price as that’s what he has bought it for, they would effectively be selling at a loss, so what you have is a compromise, they sell to you at slightly less then retail and you sell it on at slightly more which is then the retail price, it’s basically splitting the retailers profit margin, but as you can expect it’s always in the retailers favor as they are the ones doing all the work.

So now we understand the process we can conclude that Dropshipping prices are not wholesale, they are simply at bit less then retail, which doesn’t mean it’s a bad idea, but you need to be going into your new business with your eyes open and knowing what to expect. You can’t expect someone else to spend out all the capital, store the stock and deliver it to your customer and still give you a hansom profit, it’s just not realistic there is simply not enough profit left.

This lack of margin has other considerations too, depending on what markets you are selling in it could mean that your competition is far cheaper than you can sell for, if there is another retailer who has bought the same stock from a wholesaler in the normal wholesale quantity then they will have the usual profit margin for that given market sector, which means they can afford to discount the item and still make more money than you and in this online world where quite often price is the only difference between seller and another this can seriously effect your chances of making a success of your business. Of course there are other factors involved in doing business and if you excel at customer service and your website is better than your competitors then you can grind out an edge but you are always on the back foot it they constantly have the upper hand with the prices. lets face it, a buyer might never know how good your customer service is if they have not been first tempted into buying from you by the price of the item.

So chose your market carefully, take time to look at each of the items you would like to sell and research the marketplace to see the average selling price, can you compete?  You don’t have to be the cheapest but you do need to be in with a chance, I know from experience that when it comes down to just a few pounds many will choose to pay slightly more because the delivery method might be more convenient or the retailer has their preferred payment method etc, so it’s not all about the bottom line but you need to be at least in with a chance.

So is Dropshipping worth it? Yes, is it,in the right situation it can be a very useful tool in building your online business but it’s not the whole deal.

Don’t be in too much of a rush at the beginning, take enough time to plan your business and make sure you know the full picture before rushing headlong into something only to become disheartened. There can be allot to learn and I’m afraid Dropshipping doesn’t have al the angers but it can be a great way to experience the enjoyment of selling online and also a great way to test out a market to find if there is a demand for a type of product, if you find you are making some regular sales with your dropshipping items then you can always use some of the profits to buy some stock wholesale and thus gain some of the full profit potential.

If you have had success with dropshipping why not share your ideas and tips in the comments below.