Dropshipping has been around for a few years now, but there are still many myths floating around about exactly what it involves and means to ecommerce.
In a nutshell, dropshipping is where you sell products on your website to customers, but a supplier takes care of fulfilling and shipping out the order. Your customers shouldn’t notice this at all. For all appearances, their order should look like it comes from you, and you remain the point of contact for any order issues.
Dropshipping is popular as a lower barrier to entry to get into ecommerce. An advantage of this strategy is that you don’t need to spend a bunch of money on inventory. Your supplier holds the goods and sends them out as they are ordered.
Have you heard any of these stereotypes?
There’s a perception among many people that dropshipping involves the movement of otherwise low-quality products, probably made in sketchy factories. Like many stories, this one does have some grounding in truth, it’s just not the whole truth.
Yes, there are sketchy factories producing low-quality products that would love to partner with ecommerce stores to dropship their shady wares. However, there are also plenty of high-quality suppliers manufacturing popular goods who are open to a dropshipping arrangement.
You don’t have to go the low-quality route. In fact, we’d always suggest that you spend time on researching and discovering the best suppliers for the type of business you’d like to create. If you go to a marketplace like AliExpress, you’ll find a whole range of suppliers, some of them of the low-quality variety. However, you’re not limited to dropshipping marketplaces. Cast a wider net and start with the products you want to sell. Who can you find that makes a high-quality version of that product? Best of all, if you’re not bound to marketplaces you can often find some much more exclusive dropshipping partnerships.
Ha! This one is an emphatic no. Dropshipping is brilliant for offering sellers a legitimate, lower cost entry into ecommerce, but for most people, it is not a quick trip to riches.
On average, dropshippers make 20% to 30% profit for each sale on their site, and most make less than $100k in total profit per year. There are some notable success stories of businesses making a lot of money through dropshipping, but their secret is the volume of sales they make - they generally have a large audience.
In contrast, traditional ecommerce sellers who hold inventory and fulfill their own orders have the potential to make greater profits in return for their greater risk. They get to set their own margins, although the average gross margin for ecommerce has been found to be around 41.5%.
Dropshipping is unlikely to get you rich quick, but it can be a smart way to turn a profit for those who are prepared to work at it.
You may have heard that the “big guns”, including Walmart, Amazon and eBay offer dropshipping. This is true - in fact, Walmart is one of the largest retail ecommerce marketplaces for dropshipping. You can sell dropshipped products using suppliers that you find on their marketplace.
Many people assume that dropshipping is really only viable if you’re going through one of the big players, but this isn’t true. There are a multitude of small, independent drop shippers who operate via their own website or social media platform. In fact, doing so can be advantageous. You get the opportunity to carve out your own brand independently, rather than being one seller in a vast sea on a platform like Amazon.
If anything, knowing that the big ecommerce players dropship helps to legitimize it as a seller strategy. There’s no reason why a small business can’t also leverage this strategy and enjoy success from it. Your platform might not be as large, but you can carve out your own space.
Are dropshipping profits too small? That depends upon how you are set up. A basic calculation of ROI is: net income / costs x 100. Like any other form of business, you just have to do your math first.
What costs do you have? You’re not holding inventory, so your costs will be things like maintaining a website and other marketing costs. You’ve also got to account for your time - does the amount of time you spend on managing your business make the income worthwhile?
Average dropshipping profits are 20% to 30% per sale. If you’re able to sell a reasonable volume, then yes, you can turn a decent profit. As we’ll go into in the next section, it’s about having the platform and audience so that you have the best chance of making a decent income.
We always say you need three things to be successful with dropshipping: the right products, a platform to sell them on, and an audience. Like any other ecommerce venture, you can’t just assume shoppers will turn up if you build it.
That third aspect, having an audience, is critical to your sales. We don’t suggest you get into dropshipping unless you already have a large audience, or, you have a marketing plan that’s going to drive plenty of traffic your way.
As an example, some of the successful sellers we’ve seen had large audiences before they got into dropshipping. There are people with popular YouTube channels that attract audiences that are looking for the specific content they produce. Dropshipping has offered those content creators a way to monetize that traffic, where they weren’t earning money from it previously.
Build it, sure, but do the work to make sure people come!
This describes a potential pitfall of dropshipping, IF you’re not aware of this in the first place. Sometimes when sellers go through dropshipping marketplaces like Spocket or AliExpress, what they find is a bunch of suppliers selling very similar products. There’s also the fact that marketplaces are often arranged to show you more popular or better-rated suppliers first, so you end up buying and selling the same products as everyone else.
This doesn’t have to be the case though. It’s important to set your own business strategy and decide how you’re going to carve out your own position. Some people take the “dollar store” approach where they try to sell everything and set up as the next Amazon. Those tend to be less successful than sellers who create a clear niche and unique branding.
If you wish to be unique, design your brand first, then look for suppliers of products that will be a good fit. Those suppliers don’t have to come from a marketplace - you can find them by doing a Google search for products in your niche. Look for suppliers who have a wholesale section on their website, or who may be willing to chat with you.
We’ll say this: your product catalog establishes your brand. Spend time on deliberate design.
These are some of the common stereotypes we’ve heard about dropshipping. Here at Mothership, we’re obviously advocates for dropshipping and have many success stories to back that up. However, we encourage you to do your own due diligence!
Dropshipping is perfect for many ecommerce businesses, but do your research to decide if it works for you. And remember, you’re not stuck with a narrow range of suppliers or options for your business. It doesn’t hurt to ask a new supplier if they’d be open to dropshipping, and if they are, check us out!
Mothership works behind the scenes to help dropshipping sellers and suppliers sync up their orders and build out networks.