What are the cons of running a drop shipping business?

1) Low profit margins.
2) Not everything depends on you. If your supplier will make a mistake, everything goes on you.
3) Difficult refund process

Returns, refunds, confused orders etc.

In answer to your question about the cons of dropshipping as a business model, I would suggest you think seriously about the pathetically low profit margins usually earned from dropshipping.

This is not just my opinion, you will find countless posts on WF talking about the low margins. When responding to one such post, a dropship aficionado spoke about his 20% margin!!!!! That margin is pathetic compared to the huge margins you can get by buying even small quantities direct from manufacturers in China.

People using dropshippers often do so because they lack the funds to purchase stock for sale and they lack the confidence to purchase stock that they have not yet received an order for.

Without the need to carry any inventory or even handle the goods, dropshipping can be a relatively easy way to run a small retail business with very little outlay.

BUT....... Now to show that this is not just my opinion, here are a few quotes from other threads on this subject:

"All the products I was interested in were being sold cheaper on eBay than I could buy them for from dropshippers. So, my question is does anyone here make money with dropshipping?"

"Why would you Drop ship when you can import and have full control over your inventory. It doesn't make sense."

"Explore China , You leaving a lot of money on the table trust me on this.
My first experience in China blew my mind ....If you get a chance to go over there do it. Your mind will spin because you'll see things in China for $5-$10 that are selling in Wal-Mart for $200-$300 ..... There is no reason why you can not do the same as them just in your own local market and your own product.
In a nut shell China is where the big profits are made. .... When you import and CONTROL the goods you CONTROL the price. .... When you buy from middle men your always buying at inflated prices."

"Customer returns. By far the biggest issue when dropshipping. Remember, Dropshippers DO NOT accept returns on items unless the item is faulty (some may accept item exchanges, though I have never come across one that accepts a return just because the end consumer changes his/her mind). When you buy from a Dropshipper it is classed as a Business to Business transaction (B2B), and the consumer protection laws do not apply in B2B transactions."

This last quote was in the context of the need to have sufficient funds to cover inventory, because if customers change their minds, maybe due to a model upgrade just released, you have to refund and suddenly finance those refunds.

You can buy small quantities direct from manufacturers at genuine ex-factory prices if you take the right approach, but for maximum profits you need to avoid traders, wholesalers, and dropshippers.

Walter Hay.

I'm making quite a bit drop shipping. I read all these posts every where, and it turned me off for several years. I decided to give it a shot and i wish i would have done this sooner! I think most people that write about how drop shipping sucks, are you can't make money from it has never done the research to find a legit drop shipping source, or drop shipping from a retail stores, or just dont know what they are doing.

My markup is 50% on every item i sell. If i get an item from my source for $1,300, and i mark it up %50, then i sell it on amazon for $1,950. When it sells, amazon takes 15% because of category i list in, then i pay my source $1,300 and i pocket $357.50.

If i pay 0.99 at the source, i markup 50% + i add $2 to cover the amazon fee and i list it for $3.48. When it sells, i'll pay my source $0.99. Amazon take a $1 and i pocket $1.49.

Even adding on 50%, i'm still coming under the lowest price on amazon for 80% of the items i have listed. I have got messages from my competitors asking for my source, which i respond "Commercial Secrete".

My current goals.

Save the money and buy my best selling products at wholesale.
Have a professional website built to eliminate the need for amazon.

Im thinking of setting up a Shopify online store.....and and have products drop shipped from banggood.com

Ill just mark up the prices from 15 to 50% to see how that works....then place ads on Facebook.....posts on related FB groups....and possible place ads in relevant magazines.

In to follow. I'm considering dropshipping. 15% to 20% margins are still better than the 8.5% I get from Amazon.

All of the above can go wrong if you're using the wrong suppliers and there are ways to avoid all of the above when drop shipping.

It's all about finding the 'right' niche and finding the 'right' suppliers that will meet or exceed your needs as a Reseller. If you partner with actual manufacturers, you will often receive the same pricing as Resellers that buy in small/medium bulk which will result in 30-50% profit margins, depending on the product.

I'm not much of a gambler, so the idea of buying large quantities of a product with no guarantee if or when it will sell is not appealing. That outlook has more to do with my bottom line rather than "confidence." If you're relying on others for product(rather than creating your own), drop shipping is just an overall accommodating business model and a great way to research and learn the ropes of starting a small business. After a product has shown success, it's definitely a smart idea to invest in it and buy in bulk, as I have done with a few products.

Where people often go wrong in drop shipping is in dealing with scammers and third party retailers rather than legitimate manufacturers and distributors. Do your research and vetting thoroughly.

There is nothing wrong with doing a mixture of all supply methods as long as it meets customer needs.

There are circumstances where supplying your own product or a value-added product to a customer makes sense.

Other times there are opportunities to drop ship.

It is designing the model that works best for you where you will get the best results.

I'll give you a couple of real life examples of where drop shipping did make a shed load of cash.

A client had been buying processed or value added products from us for a period of time and we were known to them as a supplier of a particular product.

Their usual supplier could not meet their demands for a large order...nor could we with what we were holding in stock.

There were serious consequences for my clients if they failed to meet deadlines to supply a product to a national chain who had begun a media campaign promoting a particular product.

All my competitors had insufficient stock to meet the order requirements.

I just drop shipped all the competitor's stock from three suppliers who were bitter rivals to my client and made over $12K for three 5 minute phone calls and emails to organise the drop.

Another time I supplied a warship that was docked in port and was desperate for a particular product. The big supplier would not process a foreign government credit card over the phone so I processed the payment and organised the couriers to take the product to the ship before it left port on the next high tide.

5 minutes work and a transfer of funds....another healthy profit.

These might seem extreme to some people but the world is getting smaller and it is the people who you have a reputation with or can build a relationship with that can change your life.

if you are thinking of drop shipping small items with minimal profit then DON'T.

Not to exclude Walter Hay whose book I have and who I look up to for solid info on importing but you can do both.

Build a real business.

It is all about running a profitable business.

If that business requires you to sell a product at a lower profit than what could be got by sourcing then they must sell the drop shipped product but more importantly they must be professional in business and develop their businesses accordingly.

At the earliest opportunity take the next step.

It is about moving up the chain.

When you find your comfort zone.

Don't stop there!

Take it up a level and then another.

Best regards,

Ozi

Pros outweigh cons if done correctly...learn with Amazon /eBay arbitrage ..then step up to bigger profit sources....I haver used some that provided profits of $100-$350+ per sale

Step at a time...you can do it !

- Since you don’t own the inventory, you usually can’t control packaging and can’t include coupons or offers to boost return business.
- There are different fees from different companies for drop shipping, so do your research. You don’t want shipping costs to be so high that it turns away customers.
- You won’t get as good a deal on products because you’re ordering one at a time as opposed to buying in bulk.
- Selling multiple products from multiple suppliers can result in a significant drop-ship fee for the customer.

I run an E-commerce store on Ebay.

Yes profit margins are tight, hence why I've developed a business model around selling high volume of products (100's of sales a day)

Not only does this model get around the issue of low profit, but high volume also boosts your credibility; buyers will trust you more, and so will Ebay. You'll get tons of positive feedbacks, which will lead to Top rated status.

Top rated Status has a nock on effect and produces more sales.

As your reputation increases, you can then start upping your prices.

You say you are "making quite a bit drop shipping" but you obviously know that you can make a lot more if you buy inventory.

You say one of your goals is: "Save the money and buy my best selling products at wholesale."

If you have even a few hundred dollars you can do that now. But you can do better than buying "Wholesale". You can make a killing by buying direct from genuine manufacturers in China and other countries. The margins that wholesalers add when they buy from the manufacturer and resell to you can be yours.

I have taught hundreds how to do that safely and to import the easy way.

Direct importing with high margins is a low cost viable alternative to the low margin business model of dropshipping.

Walter Hay