The dropshipping market is expected to reach $557.9 billion before 2025. That is a huge number that can’t be ignore. I’ve had a lot of inquiries and questions about dropshipping compared to your typical E-Commerce operation. For those who don’t know, dropshipping is when you outsource all your products to the original manufacturer or supplier. But in this case, you don’t carry any inventory. You send it out to a third-party company whenever you get an order. They pack that order, brand it, label it, and ship it out. So you never have inventory. Now, I am not a huge fan of dropshipping; however, there are certain situations where it can become a useful tool, such as if it’s just a little addition to a non-E-Commerce company like a gym. You have an online membership, and you want to sell a few clothing pieces, which should be easy enough. But in most scenarios, dropshipping in 2022 long-term isn’t a good idea. Here’s why.
Cons of Dropshipping in 2022
#1 Low Profit Margins
It will help if you remember that you’re outsourcing a large portion of the work when dropshipping. That includes packaging, holding inventory, and shipping merchandise; everything you typically would do on your own is done by somebody else. Because of this, there are pretty low-profit margins involved, which can be a barrier to entering the E-Commerce field. If you don’t have money to invest in SEO or advertising or other standard services you would need to run a successful eCommerce business, it can become a problem. This is why I would typically recommend dropshipping in 2022 only as an addition to some more primary income source.
#2 Easier to have competitors
In what we would generally consider the usual route of E-commerce, you buy your inventory and hold it, sometimes brand it, and then ship it out yourself. You have little more exclusivity in this situation because you have to invest the money to get going. With dropshipping, you don’t have to have any inventory to get it from your supplier, which means nobody else does either. So hundreds, if not 1000s, of people can carry that same product that you are. Yes, everybody carries similar products because everyone uses the same suppliers, even when not dropshipping. However, if someone doesn’t have to invest any money into carrying products, they may not be as serious but can be carrying the same things as you, which could dilute your brand. So that’s something to keep in mind: although there’s lower overhead getting those products, 1000s of other people can be doing the same thing.
#3 Very little control
One of my biggest pet peeves with dropshipping is part of the model. You can change nothing because of your inability to control someone else’s process of doing everything. You don’t have control of how quickly it gets out on the shipping end. Even though make promises, it’s not guaranteed. You can’t see product quality, there could be supply chain issues, and you can’t necessarily brand your package as much as you want. But to truly build that brand, I’ll get to in a minute. You want to have complete control over how you ship things out. When dealing with all the issues that might come from shipping everything out, you’re still getting customer complaints even if someone else messes up on your supplier’s side.
#4 You can be kept in the dark
Most start-ups don’t think about the legal liability issue that might arise when they do dropship. You can have companies that could promise one thing and do something different. You wouldn’t know because you don’t have control of that supply chain; they can say, hey, it’s the particular type of quality, or it meets these specifications and could be shipping out a lesser quality version of what they promised you. If you had it yourself, you would know. There are ways to get around that with dropshipping agreements with your suppliers that can feel more complicated. However, it’s almost worth taking care of it yourself.
#5 You have a company, not a brand
I alluded to it before, but one of the other significant issues is it’s hard to build a brand when you’re dropshipping. And this kind of hits on multiple points from before thousands of people carrying your product, no control over how you ship stuff out or how you package it or checking the quality, all that is part of building a brand image. That’s what matters more than anything anymore because you will have competitors out there. So if you can’t control the brand, how will you be successful?
Pros of Dropshipping in 2022
Now I’m not going to sit here and say everything about dropshipping is terrible. There are a few good things that could arise from dropshipping.
#1 Not very risky
When you take the dropshipping route, it minimizes your start-up costs. Besides building the website, which you can do yourself if you want to start with something basic using Shopify, or a similar platform, your only considerable cost is having inventory. There’s not much investment if you go to the dropshipping route because you only have the website side. Even then, if you do it for free on your own, you could potentially start an E-commerce business for $100. To get a good inventory and carry a decent amount of stock to start, we could be talking about a few $1,000.
#2 Lower product cost without big investment
This next point will sound a little contradictory to something I mentioned before. However, dropshipping can lower your product costs, which doesn’t understand your profit margins because of all the complicated things. But your product costs themselves can be reduced. Because you again are buying a product that 1000s of people might be buying also to sell. So it’s kind of like placing a bulk order that you only need to pay a fraction of the total order.
#3 Less of a Headache
This method could be a good thing, depending on how you look at it. But when you dropship, it lowers your storage and logistics, costs, headaches, anything like that; you’re not storing anything, you don’t forget logistics of shipping, that’s all taken care of for you. So if you want to dabble a little bit, or again, as an addition to something you’re already doing, it’s a potentially good option.
#4 Bigger Selection
Going more off inventory is you have the opportunity to have a pretty broad product offering. I always go with less is more. But if you want to have a large variety of items you sell on your eCommerce website, dropshipping allows you to do that; you don’t need to worry about carrying them. So at that point, your opportunities to have products are endless. Now there can be a point where it becomes too much. But there is no limit on how many products you can carry. If you’re dropshipping, it costs you no money to put them on your website.
#5 Easy to test products
Now one of my favorite benefits of dropshipping in 2022, probably the only one that I think matters is the flexibility it offers. When you start with dropshipping, you can test products without spending money on them. So if you want to see if a t-shirt is going to work, or maybe a mug that you want to carry that some fancy mug that heats your coffee cup, I need one of those; I love them. You can test it out without spending money on all this inventory and potentially be stuck with stuff that will not sell. So if you dropshipping, you put products up, see how it sells. If it sells well, you could potentially carry those products on your own, have higher profit margins, and do better in the long run, but use it as a testing opportunity.
What’s the verdict?
So yes, dropshipping can be profitable; it can work. There are opportunities out there. But if you want to become a robust e-commerce company, I would only use it as a temporary means to an end and eventually plan to carry your inventory and execute your shipping. It’s more work, but it will be worth it in the future.
Questions about implementing dropshipping in 2022? Or switching away from it? Reach out to us here
