Before You Start Drop-shipping, Know These Insights
- jkfitday
- Oct 2, 2024
- 7 min read
Here is the process that many people tell you to do. However, we will cover what people don't tell you:
The Process
1. Choose a Product or Niche: First, you decide what kind of product you want to sell. It could be anything—from phone cases to workout gear, or even pet accessories. This is called your niche, and you want to pick something people are interested in but isn’t too competitive.
2. Find a Supplier: Next, you find a supplier (the people who actually make or store the product). These suppliers are the ones who will handle all the stuff like packaging and shipping the product to your customers. There are websites like AliExpress, Oberlo, or SaleHoo where you can find suppliers for almost anything.
3. Set Up an Online Store: Now, you need a place to sell these products, right? So, you set up your own online store. The easiest way to do this is using platforms like Shopify or WooCommerce. You upload pictures of the product from the supplier, write descriptions, set your prices, and boom—you’re in business.
4. Promote Your Store: Once your store is live, you need people to actually visit it! You can promote it by running ads on social media like Instagram, TikTok, or Facebook. Or you can get creative and make posts or videos about the product to attract customers.
5. A Customer Buys from Your Store: When someone buys a product from your store, they pay you the price you set. Let’s say you sell a t-shirt for $30. You get the $30 from the customer right away.
6. You Pay the Supplier: After the customer pays you, you then go to your supplier and order that same t-shirt. The cool part? The supplier sells the t-shirt for less than what you sold it for. For example, the supplier might charge you $15. So, you keep the difference—$30 from the customer, pay $15 to the supplier, and keep $15 as profit!
7. Supplier Ships the Product: Here’s the best part of dropshipping: you don’t have to worry about storing or shipping the product. The supplier does all of that for you. They’ll package the t-shirt and ship it directly to the customer. You don’t even have to touch the product!
8. Customer Receives the Product: The customer gets the product in the mail, and they think it came directly from your store. As far as they know, you’re the one who sent it. You’ve made a sale, kept the profit, and didn’t even have to handle the inventory or shipping!
Pros & Cons of drop-shipping
Pros | Cons |
Low Startup Cost: You don’t need to buy products upfront or store inventory. | Low Profit Margins: Since you're buying from suppliers and selling at a markup, your profits per sale are smaller. |
No Need for Inventory: The supplier handles storage and shipping, so you don’t have to manage physical products. | Less Control Over Shipping: You rely on the supplier for shipping, and if they delay, your customers might blame you. |
Easy to Start: Setting up a dropshipping store is simple with platforms like Shopify and Oberlo. | Higher Competition: Many people sell the same products, making it harder to stand out. |
Flexible Location: You can run your business from anywhere, as long as you have an internet connection. | Supplier Issues: If the supplier makes a mistake (like sending the wrong item), you have to fix it with the customer, even though it's not your fault. |
Wide Range of Products: You can offer a variety of products without worrying about storing them. | No Quality Control: Since you don’t handle the products, you can’t ensure their quality before they reach the customer. |
Scalable: You can grow your business without worrying about running out of space to store products. | Customer Service Challenges: If something goes wrong (like shipping delays), you have to manage customer complaints even though you don’t control the process. |
In dropshipping, high maintenance and bad return processes can lead to financial losses for a business. Here's how these issues arise and why they can be problematic:
Problems with High Maintenance and Stress
Supplier Communication: Managing multiple suppliers can become time-consuming. If you sell different products from different suppliers, you’ll have to coordinate with each of them separately for inventory updates, shipping timelines, and order issues. This constant back-and-forth can eat up your time and make the process feel like a full-time job.
Inventory Management: Even though you don’t store products yourself, keeping track of what’s in stock with your suppliers can be tough. If a supplier runs out of an item and you don't update your store in time, customers might order out-of-stock products. Then, you have to deal with refunds, unhappy customers, or delays—creating a chaotic experience.
Shipping and Delivery Problems: When products come from different suppliers, especially those overseas, shipping times can vary widely. If customers experience long wait times or receive their products late, it leads to complaints. Resolving these issues with the supplier can be difficult and time-consuming.
Product Quality Issues: Since you never physically handle the products, you can't guarantee their quality. If customers receive poor-quality or damaged products, you’re the one who has to deal with the backlash—even though it’s the supplier’s fault. Constant quality problems mean handling more refunds and replacements, which takes up your time and money.
Unresolved Issues with Bad Returns (Return Turmoil)
Returns are where things get really messy in dropshipping:
Complicated Return Process: In dropshipping, returns often involve shipping items back to the supplier, which may be located overseas. This process can be confusing, slow, and expensive for the customer and you. If the supplier’s return policy is strict or unclear, customers will get frustrated, and you might end up issuing refunds without being able to recover the product cost.
High Return Rates: Since you don’t inspect the products before they reach the customer, there’s a higher chance of issues like wrong items, poor quality, or damaged goods. This leads to more returns, which can hurt your business financially. Each return means lost revenue, as you likely still have to pay the supplier.
Return Shipping Costs: Often, customers expect free returns, but in dropshipping, you may need to cover the cost of return shipping, especially if the supplier doesn’t offer it. This can quickly add up, especially if the products are large or shipped internationally.
Refunds Without Returns: Sometimes, handling returns is so expensive and complicated that it’s easier to refund the customer without even getting the product back. However, this means you’ve lost money on the product and the shipping, and you don’t even get the item back to resell.
Financial Impact of Having Mistakes
Customer Dissatisfaction: If your customers have to deal with long waits for refunds, poor communication, or bad product quality, they’re unlikely to return. Negative reviews can also hurt your business reputation, leading to fewer sales.
Lost Revenue: Every return is lost revenue. If a customer wants a refund but the supplier doesn’t accept returns, you’ll be stuck absorbing the cost of the product and shipping.
Increased Operational Costs: Managing the returns process—whether through customer support, paying for return shipping, or resolving disputes—requires extra time, money, and effort. The more returns you have to handle, the less time you can focus on growing the business.
In summary, high maintenance and bad return processes in dropshipping can drain both your time and money. They lead to lost revenue, unhappy customers, and extra work dealing with suppliers and product issues.
In the dropshipping model, the retailer (you) bears most of the risks, including issues related to consumer damage. Here's a breakdown of who holds the risks:
You are responsible for all risks
Consumer Damage/Complaints: If a customer receives a damaged or defective product, you’re responsible for resolving the issue, even though you didn’t directly handle the product. This can involve offering refunds, sending replacements, or dealing with returns. The customer will hold you accountable, not the supplier.
Refunds and Returns:If the product needs to be returned or refunded due to damage, the process can be complex. You might have to issue a refund before you’ve settled the issue with your supplier. In many cases, suppliers have strict return policies, and you may end up covering the cost of the product and shipping.
Shipping Issues:If a product is delayed, lost, or damaged during shipping, the customer will come to you for answers. It’s your job to follow up with the supplier or shipping carrier, but you’re the one facing potential complaints or demands for refunds.
Customer Service:You are responsible for all customer service. If there are any problems with the product, such as wrong items or poor quality, you must handle the customer’s concerns and complaints. This often means taking on the costs of returns, refunds, or discounts to keep the customer satisfied.
Reputation Risk:Negative reviews or complaints about product quality, shipping delays, or poor customer service can damage your store's reputation. Even though the problem may have been caused by the supplier, the customer sees you as the face of the business.
Supplier’s Limited Risks
Product Manufacturing: The supplier takes on the risk of producing and holding the inventory, but their responsibility largely ends once the product is shipped. They may offer replacements or refunds for damaged goods, but only if their policies allow it—and these policies often favor the supplier.
Shipping & Fulfillment: While suppliers are responsible for shipping the product, they aren’t held accountable for consumer dissatisfaction, delays, or damages during shipping. You still have to manage customer complaints related to shipping issues.
Conclusion (Key Point):
In dropshipping, you take on most of the risk, including handling customer complaints, returns, refunds, and damage claims, while the supplier mainly focuses on supplying and shipping the product. This makes the retailer vulnerable to losses when things go wrong, even though they have limited control over the process.