Dropshipping is an attractive business model as you do not have to pay any money upfront. Jon makes a good case for launching a dropshipping business, but I have had bad experiences with dropshipping for the reasons I outline below.
Who is right about dropshipping – you decide!
Jon’s take on dropshipping is that the only way to do it is to focus on high-ticket items. This gets around the problem of low margins, as a low margin on a high-ticket item can be a high dollar amount. That said, you will still have all the other issues I outline below. Some of these will be multiplied, as accepting the return of a high ticket item can be difficult and costly.
What is Dropshipping
Drop shipping where the seller accepts customer orders but does not keep goods sold in stock. Instead, they pass the order details to either the manufacturer, a wholesaler, or another retailer, which then ships the goods directly to the customer.
Dropshipping has many advantages on the face of it:
- No upfront costs. You pay for products as you sell them
- No overheads. No need for a warehouse for pesky things like warehouses or staff
- Access to an extensive catalogue. You do not have to worry about sourcing products, just publish the drop shippers catalogue and you have a ready-made business
- No work! No need to worry about troublesome things like packing
There is no such thing as a free lunch. In my experience, dropshipping is more trouble than it is worth:
- Competitive. Dropshipping products are available to a lot of sellers and so are competitive and low margin
- Limited control. As a dropshipper, you surrender control of the delivery process to your supplier.
- Poor consumer experience. In my experience, dropshipping is often a poor customer experience. Slow, difficult to arrange, bad communication.
- Long delivery times. If you are getting products delivered from overseas, delivery can take weeks. This is not a good customer experience
- Returns build-up. As the retailer, you will normally need to accept any returns yourself. These will quickly build up
Dropshipping I have tried
I’ve tried dropshipping in various ways, failing to take off.
In the UK, there is a huge book wholesaler called Gardeners books. They offer a straight-through processing service which we integrated with our eCommerce system. This meant that orders would automatically be fulfilled. We set this up and waited for sales to roll in. Bingo!
Unfortunately, this failed for several reasons:
- It was hard to calculate the shipping cost of each book so hear to know what to charge
- Low sales. Amazon was always cheaper
- We wanted to implement a long tail strategy, i.e. list 500K books on eBay, but eBay would only let us list 25K at one time
Furniture is a massive pain! It is heavy and prone to breaking, so perfect for dropshipping. However:
- Dropshipped furniture is widely available, so very competitive
- Hard to get stock updates from suppliers, so I frequently had to let customers down
Buy to order
Stock is a pain, so I thought we would try buying stock to order. I found a supplier who could provide a stock update feed. I fed the stock levels into our system, thinking this would mean that we would never oversell and put the lead time to 3 days, thinking this would work if orders were delivered the next day. Brilliant?
In my experience, suppliers do not have good stock levels and frequently deliver late. Platforms such as Amazon performance standards and if your supplier cannot meet these, the whole system fails. For example, if the max order defect rate on Amazon is 1% and your supplier can only deliver right 98.5% of the time, this will cause problems for your account.
Drop shipping seems like a good idea, as it avoids the requirement to purchase stock upfront and manage deliveries. Clearly, some entrepreneurs make it work as Jon can attest.
However, in my experience, it is more trouble than it is worth and there usually is no option but to get your hands dirty. As a retailer, your customer experience is the most important part of your business and you need to be in full control of it, or else your reputation will suffer.