If you want to get into dropshipping because you think you can make money while doing nothing, think again. There is still opportunity in dropshipping, but you better have a strategy.
Dropshipping is often cited as a good first entry into eCommerce. I have, sadly, heard the term “dropshipping bros” referring to, albeit sarcastically, the tone of many stories of dropshippers sipping daiquiris on a beach in Thailand — it’s always Thailand — while their store runs itself and makes them buckets of cash.
There are elements of truth behind every scheme or myth, and this isn’t any different. There have been many successful dropshippers, and there still are today. While a certain style of dropshipping is easy to setup, it’s no guarantee of success. And in fact, unless you are smart about how you get started dropshipping, you’ll likely just waste a lot of time and energy, and maybe money too.
Yesterday’s dropshipping gold rush is today’s dropshipping myth factory. You should be prepared for the realities of dropshipping today in a highly competitive environment, and know that it’s not as easy as some of the stories you’ve heard. But that doesn’t mean there are not still legitimate opportunities in dropshipping.
Dropshipping generic goods from China
The most common story you may have heard about dropshipping is one where you automatically import hundreds or even thousands of SKUs (stock keeping units, or products) into your eCommerce store, and they are directly sourced from outside vendors from China or another low cost manufacturing source.
There are services like Oberlo that promise easy dropshipping setup, with direct integrations to AliExpress — enabling a direct link with thousands of suppliers and a ridiculous number of generic products.
I equate many of these kinds of products to the kind of stuff you find on airplane shopping magazines: junk. I’m not saying there isn’t good stuff, but there’s a whole lot of junk. And moreso, a store that sells everything is likely not selling anything well, because the store is addressing far too large of a market, that will never compete with more reliable sources of similar style goods, like Amazon.
Furthermore, while a dropshipping service can enable offloading order fulfillment and inventory management, there are still plenty of risks by not having relationships with the source of the goods.
I don’t wish to speak poorly of services like Oberlo; I actually think it’s a great service. But you need to remember what you’re getting into, and if you do it, do it right. Just with Oberlo, they cite 30,000 stores; each of those stores is a potential competitor, because you all have access to the same products.
Risks of generic dropshipping
With dropshipping, the promise is that you don’t buy the inventory, and the upfront costs are very low. You simply list the products, manage the customer engagement and sale, then send the actual order, with your dropshipper’s price, to the company actually fulfilling the order.
The risks of selling generic goods by dropshipping are easy to identify:
- You likely aren’t the only person selling the product. You could be one of thousands of vendors for this product.
- Because you are competing with many other stores, you are forced to have very low margins. I’ve heard people cite anything from 0% to 20% margins. Considering you are one of many, many stores selling the same item. It makes price shopping easy, and stores can undercut you
- You manage the sale, but not the fulfillment. Your reputation is on the line with the customer if the fulfillment process goes south.
- It’s hard to brand for your store, because you are buying from a company that does not personalize items for your brand (that would be white labeling, and is out of scope for most dropshippers).
- There is little guarantee of quality, and if you have returns, it will cost you money and energy working with the actual fulfillment company to reconcile.
- You can’t manage or customize packaging and general customer experience, as you don’t have direct control of the item.
- Your listed pricing in your store could get out of sync with the pricing from your source company. You could lose money if they raise prices but you keep selling the item cheaper.
- Dropshipping from China could take weeks to fulfill a single order, which is unacceptable in today’s eCommerce environment.
The list could easily go on. These are just some initial things to consider before you get into dropshipping.
It doesn’t take long to realize, if you want to get into dropshipping, you’ll be better off if you take a more unique angle.
You can take several paths when dropshipping, and sometimes they aren’t really called dropshipping, even though it’s basically the same thing.
Today, I’m going to highlight three methods of dropshipping that will give you a better chance for success.
Niche down your dropshipping operation
The easiest way to increase your chances for success is to focus on a niche. Choose a product group, or a buyer group, that allows you to better target the perfect customer.
The first way to niche down is by product type. Perhaps you sell just tea and tea related items. Or maybe you sell mugs, or notebooks, or socks, or resume paper, or whatever.
The second way to niche down is to target a buying group: young male hipters, or teenage girls, or retired veterans. You can have a broad array of products, all targeted to a specific style of buyer.
By niching down, you can advertise to a smaller group of people, better learn the niche so that you can create better listings, offer better service, establish a stronger brand, and perhaps gain enough traction to graduate to wholesale or even proprietary products within that niche.
When you aim for a niche, you won’t always have to be a low margin dropshipping operation. If you find an audience, you can begin to wholesale your best selling products, or white label products to establish your own brand, or even start improving products and create your own proprietary goods.
When you niche down, you aren’t just doing a cash grab, but you are using dropshipping as a foothold into a specific market, so that down the road, once your idea has traction, you can improve both your product line and your potential profits.
Dropship personalized or custom designed goods: the merch way
One effective method for dropshipping is to layer a custom design to a generic good.
Technically, custom designed merchandise on demand is still dropshipping. As the store owner, you do not fulfill the order or make the origin product, but you are responsible for the design that’s applied to the product.
Custom t-shirts, koozies, tote bags — you get the idea. Print on demand services allow single-item fulfillment of custom designed goods, which is awesome. Popular services like teelaunch and Printful enable you to create and market a design without having to carry inventory or fulfill orders.
Print on demand services enable a store owner to verify an idea, just like other dropshipping services, except as the store owner you can design a generic item to have your own personal tastes added to it.
Another benefit of print on demand is scale — even above manufacturing your own stuff. With print on demand, your source company is dealing with scaling their production capabilities, whereas if you were screen printing your own shirts, for instance, you would have to take your own time to fill every order, and could run out of stock for a hit product.
Print on demand is also very valuable for people that run a store but running the store isn’t their business. Bands, podcasts, non-profits, or indie artists can all create a store to be able offer their fans custom designed products that require little work to manage and fulfill.
If you mix a niche and print on demand, you can really start to narrow down your target market and give your dropshipping business a fighting chance.
Print on demand merchandise is still not super simple. You have to either hire someone to design what you want to print, or be able to design yourself. But if you can design a hit product, you can worry about the design and marketing and let your print on demand provider worry about the product creation and order fulfillment. Furthermore, with this model, nobody else will have your exact design, because you made it.
Dropshipping with exclusivity: build mutually beneficial relationships
If you are getting into eCommerce, you likely have a very curious mind, and probably have a specific set of web skills that many people do not have — including people who make really nice stuff.
Plenty of traditional manufacturers or even retailers have not transitioned well to offering their products online. This presents an opportunity for the savvy eCommerce store owner.
If you are willing to put your salesperson shoes on, hit the pavement, make some calls, and shake some hands, you can perhaps get an exclusive or semi-exclusive agreement in place to sell another company’s products online.
I live in Alabama. A lot of companies in Alabama make really special products that are either not easily available online, or not available at all. Even some folks who do sell online are not executing well.
If you establish a relationship directly with a retailer or manufacturer, you can negotiate to help them sell online, where you take the orders, and they fulfill them.
This is a route I am exploring right now. I have been talking to several people who make stuff within the niche I want to sell in, but they just aren’t up to speed with the web and eCommerce. They’ve been doing orders by phone or similar old-school methods of selling for years, or even decades.
My job is to pitch them how I can help them increase their sales volume by providing them a high quality presence online, through my store.
By working directly with the vendor, you are still dropshipping, but you have exclusivity, or at least a lot less competition than working through a huge marketplace like AliExpress.
I like this model for a whole lot of reasons.
- When I work with a local manufacturer, I’m selling something made in my home town, or state. It makes me feel good, and provides a great marketing angle.
- I can sell something with many of the same benefits of more programmatic dropshipping, but I have a direct relationship with the vendor for troubleshooting issues that may pop up.
- Often times, if a manufacturer is willing to work directly, the good you are selling is higher end, with a higher price tag, than goods from huge marketplaces overseas.
- With less competition online, you have more control over the markup for retail pricing, and you have a direct line with the product creator for negotiating pricing that works best for both parties.
- When you have a relationship with the product creator, you can iterate over time to better suit for selling online, compared to how they may manage their traditional sales.
Selling like this has many benefits, I think, but it’s not without risks, and you should consider them.
- The manufacturer could cut you out, if they decide to invest more heavily into their own online presence. They may take many of the strategies you helped develop with them, burning the relationship along the way.
- You still run risks with fulfillment issues, as you don’t have direct control over the shipment of the product.
- Higher pricing for locally made goods can also make them harder to sell online — a more competitive environment than in-person retail — if there are alternative products from cheaper sources. You still need to research the product market before you invest too heavily into making this online store work.
- If the manufacturer is a small shop, you may have inconsistent turnaround times, making quick delivery (something many eCommerce shoppers now expect) a challenge.
Despite the risks, working directly off a vendor relationship — and preferably a vendor near me, that I know in real life — is most exciting to me.
Establishing vendor relationships, writing contracts with them, and getting setup with the inventory online is not going to be as simple with this route. It’s not a point and click integration with your eCommerce software. But I think there is a lot of reward if you do this and it works out.
Combine multiple methods
One of the things I’m doing with Commerce Notebook is taking the methods I write about and putting them to practice.
I think there is a lot of potential to combine multiple methods I’ve outlined above.
Personally, I’m aiming to reveal a store to readers soon that combines print on demand with a niche, and eventually some exclusive products based on vendor relationships I’m developing right now.
Dropshipping can work, but the gold rush is over
Dropshipping can be very effective. But the gold rush stories of “dropshipping bros” getting rich while they do very little are few and far between.
Here’s a hint: if you hear a story about someone getting rich in a quick and easy way, it’s probably a lot harder to do the same thing now. People don’t like to share their secrets until the secret doesn’t work anymore.
Be careful when you get into dropshipping. It can be very effective, but it doesn’t make it a guaranteed hit, and if you think you’ll just turn it on and start rolling in profits, think again.
That said, if you are smart, hardworking, and keep your head down, you might be able to create a valuable online store where you don’t have a single item in inventory, and don’t have to manage fulfillment yourself — which of course is the very definition of dropshipping.