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Pros and Cons of Dropship Retail E-commerce Business

by PaulintheSticks
15 replies
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I owned and ran a marginally successful health food store for a number of years and the thought of having a more automated business without a big overhead is very attractive.

So I'm considering this business model in another market and would love to hear your thoughts on the pros and cons vs other primarily internet marketed businesses.

Thanks.
#business #cons #dropship #ecommerce #pros #retail
  • Profile picture of the author 1209media
    Hi Paul,

    I currently sell on Amazon using their FBA (Fullfillment by Amazon) program and its the best thing I've ever done for my business.

    I source the inventory, list it on Amazon, then I ship everything to Amazon's warehouses. Then their team fulfills my orders, ships, handles returns and customer service. I just do the fun part - finding products!

    I'm leveraging Amazon's enormous customer base and my products get sold and shipped while I'm working on my other projects (like my online-based business) or sleeping.

    I've done drop shipping and sold on eBay and Amazon FBA has been so easy and completely transformed my business.

    I know I sound like a commercial for them right now...lol...but its truly a great service for sellers.

    Let me know if you have any questions or you can PM me.
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    • Profile picture of the author Ronda Robb
      Originally Posted by 1209media View Post

      Let me know if you have any questions or you can PM me.
      1209media - I have been researching FBA for a while now and would like to dive in. It is great to hear that you have had success. How long have you been doing it? I also wonder where you get your products. I am not asking for specifics but more generalities like: you buy from wholesalers or you import your products from the manufacturer or you sell random things you get a good deal on.
      I would pm you but not sure how.
      Thank you for any direction.
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  • Profile picture of the author PaulintheSticks
    Bump. Anyone?
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  • Profile picture of the author srselfdefense
    In terms of comparing ecommerce dropshipping to other types of internet marketing, I have no clue. I've never dipped into other areas, so I wouldn't know.

    I wouldn't rely on Amazon to be the core of your business, but it's a good start or good portion for generating revenue. The reason I say this is because Amazon is NOTORIOUS for kicking legitimate sellers off their marketplace. This can happen either because your seller scores (shipping time, customer service time, etc) are too low, a competitor tries buying your stuff and giving you bad reviews to get you kicked off, or if you're suspected of selling illegal or illegitimate products.

    I would use Amazon, but don't solely rely on it for income. I made that mistake and lost a lot of money in the process.

    Good luck.
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  • Profile picture of the author Kiboko
    I have wanted to use FBA but I dont live in the US. So I dont have a physical address. Is there a way round this?

    Does anyone know of dropshippers like this one that provides a catalogue that you can log into to get products for listing? http://dropshippers.com/ ?

    1209media - i look forward to your input here.

    chrs.
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  • Profile picture of the author Importexport
    Originally Posted by PaulintheSticks View Post

    I owned and ran a marginally successful health food store for a number of years and the thought of having a more automated business without a big overhead is very attractive.

    So I'm considering this business model in another market and would love to hear your thoughts on the pros and cons vs other primarily internet marketed businesses.

    Thanks.
    Hi Paul,

    In answer to your question about the pros and 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.
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    Use emotions and perceptions to build a great brand. Ask me about my book LabelsThatExploit. For safe sourcing and easy importing from 41 countries globally, see https://provenglobalsourcing.com
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    • Profile picture of the author GeorgeAnderson
      There will always be refunds. You will need a different credit card many returns are scams.
      It is a lot of work for your profit.
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  • Profile picture of the author ScooterDaMan
    Really, it comes down to two things:

    1) Finding search phrases that have enough people searching with relatively low competition for those keywords.

    2) Finding an actual manufacturer who will dropship to your customers for you (or at least a legitimate real distributor).

    The low margins that Importexport is talking about are the result of lazy or timid people who refuse to get on the phone and start calling manufactures directly. If they won't ship to customers for you, ask them who are their largest distributors and can they give you contact information for them.

    Don't do what 90% of the people getting into dropshipping do - paying for lame lists from places like Worldwide Brands or Salehoo. When it's that easy, you'll be competing with tons of people and very, very few of the places they list are really wholesalers.
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    • Profile picture of the author Importexport
      Originally Posted by ScooterDaMan View Post

      Really, it comes down to two things:

      1) Finding search phrases that have enough people searching with relatively low competition for those keywords.

      2) Finding an actual manufacturer who will dropship to your customers for you (or at least a legitimate real distributor).

      The low margins that Importexport is talking about are the result of lazy or timid people who refuse to get on the phone and start calling manufactures directly. If they won't ship to customers for you, ask them who are their largest distributors and can they give you contact information for them.

      Don't do what 90% of the people getting into dropshipping do - paying for lame lists from places like Worldwide Brands or Salehoo. When it's that easy, you'll be competing with tons of people and very, very few of the places they list are really wholesalers.
      I don't think everyone who accepts those low margins is just lazy or timid. A lot of people are unaware of what is possible, and that is where I and others like me come into the picture.

      Dropshipping margins higher than 20% may well be available if you do what ScooterDaMan suggests regarding calling local manufacturers direct, but they pale into insignificance compared to the margins available outside the dropshipping business model.

      Buying direct from the factories in China (and other places) can produce profit margins that would blow most E-commerce retailers away.
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      Use emotions and perceptions to build a great brand. Ask me about my book LabelsThatExploit. For safe sourcing and easy importing from 41 countries globally, see https://provenglobalsourcing.com
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      • Profile picture of the author popfrocks
        Would you kindly recommend where I can find access to a list of reliable manufacturers in China to find something to sell. I'm not quite sure what to sell yet. But is there a legitimate site to go to get good information.
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        • Profile picture of the author Importexport
          Originally Posted by popfrocks View Post

          Would you kindly recommend where I can find access to a list of reliable manufacturers in China to find something to sell. I'm not quite sure what to sell yet. But is there a legitimate site to go to get good information.
          Sorry popfrocks, I don't supply lists.

          What I do is to recommend a couple of safe sites where you can find genuine manufacturers, so that people can buy even small quantities direct from the factories. You won't ever find these sites mentioned on WF.

          I have been asked why I can't just name them. As I posted on another thread, the reason is because there is a lot more that I want people to know before they start sourcing, such as what not to say when you make your first contact with suppliers, how to negotiate, how to avoid ripoffs when ordering samples, how to ensure that you get the best price, how to get manufacturers to supply small orders regardless of the big MOQs they quote, how to get the supplier to do the hard yards for you when it comes to shipping, etc., etc. This all adds up to make the importing process easy for people who have never done it before.

          Also one of the sites is part of a trade organization and is rarely known to anyone except the "big boys" in importing. If I identified that site on WF it would probably get hundreds or thousands of newbies contacting them and my senior management contacts there would not be happy.

          There is a lot more to the sourcing and importing process than just searching a site for suppliers. I see too many people on forums like this who jump in at the deep end without doing adequate research.

          If you buy direct from genuine manufacturers you can maximize your profits, but on some of the popular B2B sites you will find lots of suppliers who claim to be manufacturers, but they are not.
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          Use emotions and perceptions to build a great brand. Ask me about my book LabelsThatExploit. For safe sourcing and easy importing from 41 countries globally, see https://provenglobalsourcing.com
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        • Profile picture of the author Silverton
          You might take a look at Aliexpress com, they have many companies that sell all kinds of products and the payments are handled through Aliexpress so it protects the buyer in case of any problems with the products.
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          • Profile picture of the author Importexport
            Originally Posted by Silverton View Post

            You might take a look at Aliexpress com, they have many companies that sell all kinds of products and the payments are handled through Aliexpress so it protects the buyer in case of any problems with the products.
            Ever been unhappy with the supplier and tried to stop Aliexpress making the payment under their escrow system?

            Read the fine print and you will see that you only have a very short time in which to lodge a claim. many people have already complained on forums that the time is too short.
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            Use emotions and perceptions to build a great brand. Ask me about my book LabelsThatExploit. For safe sourcing and easy importing from 41 countries globally, see https://provenglobalsourcing.com
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  • Profile picture of the author malia
    I started out selling on eBay, then moved to my own ecommerce site. Manging inventory for the market I was in, was complex so I built 2 drop ship sites and ran those until I got back into owning my own inventory.

    Drop shipping gives you the opportunity to learn how to run an ecommerce store without having to deal with investment in inventory or risk. It's different testing marketing strategies when you're not looking at physical inventory every day and getting nervous.

    Having said that it is difficult to explore some marketing strategies w drop ship because of profit margins and also because what you offer is not unique.

    There is a pro and a con to everything. You just have to figure out which one you want to start with and go from there.
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    • Profile picture of the author Importexport
      Originally Posted by malia View Post

      I started out selling on eBay, then moved to my own ecommerce site. Manging inventory for the market I was in, was complex so I built 2 drop ship sites and ran those until I got back into owning my own inventory.

      Drop shipping gives you the opportunity to learn how to run an ecommerce store without having to deal with investment in inventory or risk. It's different testing marketing strategies when you're not looking at physical inventory every day and getting nervous.

      Having said that it is difficult to explore some marketing strategies w drop ship because of profit margins and also because what you offer is not unique.

      There is a pro and a con to everything. You just have to figure out which one you want to start with and go from there.
      Hi malia,

      You can reduce the risks by buying better to start with. If you are trying to sell a product with a selling price of $100 and your profit after all selling costs is only $20, as I know many dropship retailers experience, I can certainly understand you being nervous.

      But if your profit after all selling costs is $70 it puts a different complexion on the case. If the product does not sell, you could slash the price by $50 and still make your $20. If you could not sell it for $50 when your research had convinced you that it would sell for $100, there is a serious flaw in your market research methods.

      Margins as high I have suggested are easily available if you buy direct from the factories in China. It is very common for resellers to make much higher margins that that.
      Signature
      Use emotions and perceptions to build a great brand. Ask me about my book LabelsThatExploit. For safe sourcing and easy importing from 41 countries globally, see https://provenglobalsourcing.com
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