Starting a dropshipping business is appealing for many reasons. You don’t have to worry about inventory management. You don’t have to worry about product fulfillment.
In fact, your only task is to sell products, take orders and make a decent profit. Sounds easy right?
Unfortunately, it’s not that simple and with any business model that sounds too good to be true, there are always gotchas.
In theory, a dropshipping business sounds like a great idea because it’s inherently scalable without requiring a large upfront investment. But when you dig down a bit further, there are many complications that you need to be aware of.
Most people try to open up a dropshipped shop expecting it to be easy, but in reality, there’s more to it than you think.
This article will provide you with a realistic and comprehensive view of how to make money dropshipping and the pros and cons.
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What Is Dropshipping?
Dropshipping is an ecommerce business model where an online store does not carry inventory for the products it sells. When an order is made, the online store purchases the products from the wholesale supplier who then ships the order directly to the end customer.
As a result, the online store owner does not have to store physical inventory or perform any shipping and handling.
There are no upfront inventory costs because all products are purchased on demand with no minimum order quantity.
As a result, you can start a dropshipping business for less than $3 with a free open source shopping cart like WooCommerce.
All you need is a website, free credit card processing and you can start taking orders immediately.
Recently, my 9 and 11 year old kids launched their own dropshipped ecommerce store selling entrepreneurship t-shirts for only $2.95. You can check out their shop over at KidInCharge.com
Editor’s Note: If you want to read the behind the scenes backstory on how my kids created their online store, check out my post on How To Start A TShirt Business For Under $3 With Your Kids
Overall, dropshipping is the least expensive way to get started in ecommerce.
Is Dropshipping Legal?
Dropshipping is 100% legal as long as you obtain all of the necessary sellers permits like a traditional ecommerce store.
After all, a dropshipping business is just like any other online store except a third party supplier handles the shipping and you handle the orders.
In fact, many large companies like Target, Wayfair and Create & Barrel drop ship other brands as an additional channel for generating sales.
However, certain forms of dropshipping are illegal on marketplaces like Amazon and Ebay. For example, you are not permitted to dropship goods from Amazon to Ebay and vice versa.
In addition, dropshipping from AliExpress and other online markets are expressly prohibited on both Amazon and Ebay.
According to the terms of service for both marketplaces, purchasing products from another online retailer and having that retailer ship directly to customers is illegal if the shipment does not identify you as the seller of record.
However, if you only plan on running a dropship store (without Amazon or Ebay), rest assured that dropshipping is 100% legal as long as you obtain a business license and sellers permit.
How Old Do You Need To Be To Dropship On Shopify
To open a Shopify store for dropshipping, you must be at least 18 years of age.
If you are not 18 years old, you must register your Shopify store under a parent or guardian’s name with their permission.
However once you turn 18, you can transfer the registration of your Shopify store under your own name.
How To Start A Dropshipping Business
Does running a dropshipping store sound attractive to you? Here’s what you need to get started.
First off, you must setup a website or a platform to take orders from.
Then, you have to partner up with a dropship wholesaler or distributor that is willing to ship products direct to end consumers.
As part of your partnership, you and the third party supplier will decide on a wholesale price for the products you want to sell online.
Once an agreement is in place with your supplier, here’s how dropshipping works and the entire fulfillment process.
- The customer places an order for a product on your website and you collect the money.
- You forward the order and shipping details directly to your dropship supplier and pay the agreed upon wholesale price for the product.
- Your dropship supplier packages and ships the order directly to the end customer as if it was shipped directly from your online store.
- You get to keep the difference between your selling price and the wholesale price.
Sound good to you? Here’s how to start a dropshipping business in 4 easy steps.
Step #1: Start Your Dropshipping Store Website
Setting up your website is actually the simplest part of the entire dropshipping process because there are so many “easy to use” options available today.
Overall, your ecommerce platform decision will be based on your budget, what features you need and how tech savvy you are.
To save you time, here are my top 3 ecommerce platforms for dropshipping.
Shopify is a fully hosted shopping cart platform that handles everything for you and is the easiest way to get started.
Upon signup, Shopify will provide you with a secure website and free built-in credit card processing so you can start taking orders right away.
The main downside to running a Shopify store is that it is the most expensive solution of the bunch but you can get up and running immediately without knowing anything about technology.
Similar to Shopify, BigCommerce is also a robust, fully hosted platform that is very easy to use. While it’s less popular than Shopify, you get more bang for your buck and the support is excellent.
WooCommerce is the most popular shopping cart in the world because the software is 100% free. But the downside is that you have to set up everything yourself and you need to host your own website.
However, the $2.95 price tag is tough to beat!
If you are having problems deciding on a platform, then check out the comprehensive shopping cart reviews I wrote based on hands-on experience.
- BigCommerce Vs Shopify – Which Is Best And Key Differences
- WooCommerce Vs Shopify – Which Platform Is Better For You
Step #2: Research Profitable Product Ideas
Because the dropshipping process results in lower margins, the best products to sell are goods that carry a higher price tag.
If this is your first time selling online, here are some product guidelines that you should follow.
- The product’s inherent value should be ambiguous – It is much easier to command premium pricing on products that are not easily comparison shopped. As a result, try to stay away from electronics and focus on items that don’t have an intrinsic value.
- Choose a niche with lots of related products – The key to running a successful online business is to cross sell your goods. If a customer buys a BBQ grill, sell them cooking utensils and an outdoor thermometer. Repeat business is key.
- Sell goods where the average order size is at least $50 – Because margins are lower, you want to make sure that you can generate a decent profit per sale
- Sell products that are timeless – Avoid products that go obsolete within a short period of time. After all, the more often a product turns over, the more work it will be for you to update your product listings and maintain your website. This is yet another reason to avoid electronic related products like iPhone cases because they change so often.
In addition to the guidelines above, you should also consider the following.
- Is personalization an option? – People are always willing to pay more for personalized goods so it’s in your best interests to choose a product that lends itself to customization.
- Are your products consumable? – Selling consumable products like makeup, cleansers, food products etc… are desirable because they lead to repeat business. You can setup a subscription based service where your customers are automatically sent replenishments at the beginning of every month.
- Do you know where your target market hangs out? – If you can sell a product that has a dedicated blog or Facebook fan page, it’s much easier to find and market to your customers.
- Can you easily create content for your products? – For a dropshipped store, search engine optimization is crucial for generating free traffic online. In general, the more content you can produce, the more search visitors you’ll attract.
For a more in-depth analysis of how to quantitatively find profitable products to sell, check out my post on How To Find The Best Products To Sell Online – The Ultimate Step By Step Guide
Step #3: Find Dropship Suppliers
Because dropshipping is so popular and the internet is ripe with scammers, you first must learn how to spot a FAKE wholesaler.
First off, a REAL wholesaler will never charge a monthly fee for the privilege of accessing their catalog of goods.
Genuine dropship suppliers are merely distributors and their goal is to sell their product in bulk, not run a monthly membership site.
Second of all, a real dropship supplier will never sell their own products to the end consumer at wholesale prices.
Remember, a wholesaler’s primary customer is a retail shop and it would go against their best interests to compete with their own customers.
In any case, once you know what to look for, you can start looking for real wholesale suppliers using the strategies outlined below.
Contact The Manufacturer
The easiest way to find a legit dropship supplier is to simply call the manufacturer and ask for a list of wholesale distributors.
Then once you have this list, you can contact the distributor directly and ask them if they are willing to dropship.
What’s convenient is that most distributors carry a wide variety of products from a number of different manufacturers.
As a result, if you can land a big distributor, you’ll almost always gain instant access to a large catalog of items to carry in your shop!
But establishing a partnership with a distributor can be hit or miss and you need to be prepared.
Most legit suppliers only want to deal with legit retailers so make sure you have all of your ducks in a row before you reach out to them.
Sometimes it helps to have a mock website up and running to show them you are serious.
But bottom line, you need to prove to your suppliers that you are the real deal and that you can actually move product!
Note: If you want to learn more on how to negotiate with suppliers, then check out my post on How To Approach A New Supplier For Your Online Store
Order From Your Competitor
If you know that your competitor runs a dropshipped online store, then you can find out who their suppliers are by simply placing an order.
Once you receive your package, you can look at the shipping label for a return address.
While the shipping label may not have the supplier’s name on it, you can easily Google the address and find the name of the distributor.
Attend Wholesale Trade Shows
Instead of contacting vendors via email or phone, it’s often much more efficient to find your suppliers at a tradeshow.
Not only does meeting face to face make it easier to develop a personal relationship, but you can also touch and handle the vendor’s entire product catalog.
Most tradeshows (at least in the US) are 100% free as long as you have a business license. As a result, you have nothing to lose for attending. Most major cities have wholesale tradeshows many times per year in a variety of niches.
Use Dropship Directories
A dropship directory is a database of suppliers that are organized by niche and it can be a convenient way to quickly find products to sell.
In addition, companies like Worldwide Brands pre-vet every company in their directory to make sure that they are legit.
The main downside to using a wholesale directory is that the distributors and products are easily accessible to other members who sign up for the directory as well. As a result, the products you find in a directory may be more competitive.
However that being said, wholesale directories are a great way to brainstorm and find vendors immediately.
Use A Print On Demand Company
A print on demand company is a service that allows you to print your own custom designs on generic merchandise like t-shirts and mugs.
What’s nice about using a print on demand company or POD is that there are no upfront costs to list a product online and there are no minimum order quantities.
When you receive an order, the print on demand company manufactures your product with your design on the fly and ships it to your customer.
You don’t have to spend any money up front and you don’t pay the print on demand company until after you’ve received your money.
To illustrate how inexpensive it is to start a POD business, my kids launched their own t-shirt business for less than $3.
Here’s a list of my favorite print on demand companies.
- Printful – Printful is one of my favorite print on demand companies and they let you choose from hundreds of different products including t-shirts, hats, bags, and pillows.
- Printify – Printify is Printful’s main competitor. Instead of physically printing their own goods, Printify partners with different print providers to offer a wide range of customizable products.
- Custom Cat – CustomCat also offers a wide range of products like shirts, jackets, hats, and bags. Their selection isn’t quite as large but their prices are lower.
I also wrote a review of Printful vs Printify if you are deciding between the two.
What To Look For In A Dropship Supplier
Because your business hinges on the quality of your dropshipper, here are a few attributes that you should look for when evaluating your suppliers.
Remember, a successful dropshipping operation requires a partnership between you and your distributor and trust is essential.
As a result, before you rely on any dropship vendor, you should always place a test order to see how the order is handled.
Specifically, you should look for…
- How Fast The Order Ships – Shipping time is extremely important for an online store and it’s essential that orders are shipped within 1-2 business days
- How The Order Is Packed – Is the product shoved in a crappy box with packing peanuts? Is the box unmarked without the suppliers business name? Will the product arrive safely and undamaged?
- The Quality Of Customer Service – Do they respond in a timely manner? Do they provide tracking information and an invoice? Do they give refunds for defective merchandise and returns?
Before you start selling, you should pick up the phone and ask the customer support rep in depth questions about the product to see if they know their stuff.
Specifically, here are some sample questions to ask.
- Can you do customization? – You can often command premium pricing for personalized goods so customization is a huge plus.
- What are your pricing terms and are there quantity discounts? – You’ll want to negotiate quantity discounts upfront so you know what pricing to expect as your store grows.
- What is your dropship fee? – Most dropshippers charge a per order dropship fee.
- What is your return policy? – Even though dropshippers ship on your behalf, all returns will be sent back to you. As a result, you need to understand the return policy to get your money back.
- Can you purchase wholesale at lower prices? – You may want to carry inventory for your most popular items to make a higher profit margin. The price for buying wholesale inventory should be less than your dropship price
- How often does pricing change? – Dropshippers may change their prices from time to time. And when the cost does change, you need to know how the information will be communicated.
- What is the warranty period and what does it cover? – How long are the products being sold covered under warranty and how can a customer redeem it?
- Do you use EDI? – EDI stands for Electronic Data Interchange and is an automated way for a dropship supplier to transmit their inventory stock to your website in real time. EDI keeps your store and your supplier in sync which makes customer support much easier.
In addition to the above questions, it’s also important to ask for a single point of contact at your distributor to deal with customer support and product issues that may arise when you start selling their product.
For example, what happens when a product is out of stock? What happens if you sell a product that has been discontinued? What happens if shipping is late or misses a deadline?
All of these factors matter and you should take some time to vet your vendor for quality.
Step #4: Drive Traffic To Your Dropshipping Store
Social media is the best and cheapest way to build traffic to a dropshipping store.
And the right social media platform for your business will depend on the products you sell.
- Instagram – Any product with a high visual component tends to work well on Instagram. For example, if you are in the fashion or wedding industry, Instagram is a must
- Pinterest – Home and interior design products work extremely well on Pinterest. Similar to Instagram, products with a high visual component are perfect for Pinterest.
- Facebook – Products that target an older demographic tend to work well on Facebook.
- TikTok – Tiktok allows your brand to have tremendous reach even for brand new accounts. What’s great about TikTok is that you don’t need a lot of subscribers to drive customers to your store and the traffic is free!
- Twitter – Business to business brands tend to do well on Twitter. Most brands have a Twitter presence for customer service and loyalty.
The secret to succeeding on social media is to research where your target audience hangs out and build a brand on that platform.
In addition to social media, you can also build traffic through search engine optimization. By targeting keywords that people are actively searching for, you can attract organic Google traffic for your products.
No matter which marketing platform you choose, make sure you focus all of your efforts on one traffic source before moving onto the next. And as you generate sales and leads for your store, make sure you collect both emails and SMS phone numbers.
By attracting new customers through social media and retaining your existing customers through email and SMS, you can easily grow a sustainable ecommerce business.
Running Your Dropshipped Store And Issues That May Arise
While running a dropshipped ecommerce store is more hands off than a traditional online store, you need to be aware of these pitfalls as you run your business.
Handling Returns And Refunds
Even though you are not in charge of order fulfillment, you are still responsible for accepting returns and providing customer support for defective merchandise.
After all, you are the face of your business and the customer is not aware of the arrangement you have with your drop shipper.
As a result, you have to deal with returns yourself and you can’t depend on your supplier for customer support.
Here’s how returns are handled for a typical dropshipped store.
- The customer asks for a refund by contacting your customer support phone or email.
- You contact your supplier for an RMA number
- Your customer sends the product back to your supplier with the RMA number clearly indicated on the packaging
- Your supplier refunds the wholesale cost back to your account when the package is received.
- You provide the refund to your customer
In addition to the above process, your supplier may charge a restocking fee which you can either pass along to your customer or you can choose to eat the cost. Either way, it’s all a part of doing business.
Dealing With Out Of Stock Products
When a customer orders a product that is out of stock, it is your responsibility to communicate this to the customer. Typically, you should give your customer 3 options.
- Wait for the product to come back in stock and provide an ETA
- Exchange the product for a similar item
- Refund their money
Dealing With Multiple Dropshippers And Shipments
If you work with multiple dropshippers, your customer may purchase multiple products that span multiple suppliers.
When this occurs, the customer will receive their order broken apart into multiple shipments. In addition, you will be charged separate shipping costs from each dropship supplier.
When situations like this arise, you must inform the customer so that they are not confused.
Because it also costs you more money to ship across different dropshippers, you can either charge an additional shipping fee or eat the cost.
What Are The Average Dropshipping Margins?
The average dropshipping margins are between 10% and 30%. This means that if someone spends $100 on your online store, you will make between $10-$30 in profit.
However, this number can vary greatly depending on the type of products you sell online.
For example, I have friends who achieve 50%-60% margins dropshipping perfume, jewelry and large oversized items like stoves and outdoor grills.
I also know a colleague who dropships personalized funeral urns and caskets that command high margins because his niche is not price sensitive.
Overall, your margins will depend on how crowded your market is and the level of competition. But for a typical dropshipped store, you should assume a 10-30% margin on average.
It’s also important to note that this number does not include expenses such as credit card processing, advertising and other fixed expenses. By the time you account for overhead and marketing, most dropshipping stores have net margins in the single digit range.
How Much Money Can You Make Dropshipping?
Every business is different but you can make between $1000-$10000 per month dropshipping in your first year if you leverage at least one marketing platform to its full potential.
For example, if you can rank in the search engines for your target keywords, you can hit 6 figures per year on search engine optimization alone.
Similarly, if you leverage influencer marketing, Facebook ads or Google ads effectively, you can make over $100k in revenue as well.
In general, it takes 1 good traffic source to hit 6 figures but 3 or more to make over a million dollars.
However, these numbers are expressed in revenue and not profit. Once you take into account the 10-30% margins, you can make between $1000-$3000 per month running a dropshipped store after one year.
Is Dropshipping Profitable?
Dropshipping can be a profitable business if you find reliable suppliers to work with. However, your profit margins will be much lower than a traditional ecommerce store that carries inventory.
The main advantage with dropshipping is that your ecommerce business is infinitely scalable once you gain traction.
Without the need to carry inventory or physically ship orders out, you can focus your efforts on marketing and sales.
How Quickly Can You Make Money Dropshipping?
You can potentially make $100K in revenue in your first year of business if you master at least 1 traffic source. However, making money with dropshipping is much slower than selling wholesale or private label.
Because dropshipping margins are so low, it’s much more challenging to run profitable advertising campaigns. Furthermore, because you are selling someone else’s products, you will be competing directly with other vendors carrying the exact same goods.
The best way to make money with dropshipping is to dropship a variety of products to see what sells. Then, you can carry inventory for your best sellers and increase your margins.
Can You Lose Money With Dropshipping?
It is extremely difficult to lose money with dropshipping because there are little or no upfront costs. Your only real expense is the cost of your website which can cost as little as $3/month to maintain.
However, there are several ways that you can lose money with a dropshipping business.
- You run unprofitable advertising campaigns.
- You have a high rate of returned merchandise.
- You sell products that have a high rate of fraud.
As long as you are careful, dropshipping is a very safe business model.
What Percent Of Dropshipping Stores Are Profitable?
While there are no published statistics regarding the percentage of profitable dropshipping stores, the dropship business model has grown tremendously in the past several years.
According to Statista, Shopify dropshipped almost 1.9 million products in 2021.
Meanwhile, according to Grandview Research, the market size value for dropshipping businesses was 149.4 billion in 2020 and is forecasted to grow to 557.9 billion by 2025.
The fact that more businesses are moving towards dropshipping is a reflection of its viability.
What Is The Best Price Range for Drop Shipping
Because the margins for dropshipping are so low, the best price range or average order value for a dropshipping business is over $100.
By selling higher ticket products, you’ll make a higher profit per sale which will give you more margin for advertising and customer service.
For example, in order to run profitable Facebook ad campaigns, you need to generate a minimum profit per sale of $30 to make the numbers work.
A higher profit per sale will also help offset the costs of customer service, shipping and give you a better chance at finding a winning product.
The Benefits Of Dropshipping
If you are able to find quality suppliers, then dropshipping is extremely attractive because you can run your business from anywhere. All you need is a computer and an internet connection and you are good to go.
As a result if you are brand new to ecommerce with a small budget, you can run a dropshipping business as a stepping stone to get started and then transition to more lucrative business models when you are ready.
In addition to convenience, here are some other benefits of dropshipping.
Benefit #1: The Setup Costs Are Practically Zero
Here’s the bare minimum investment required to start a dropshipped online store if you use a free open source shopping cart platform.
- Sign up for a webhost – $2.95/month
- Install an open source shopping cart like WooCommerce – Free
- Install an SSL certificate – Most webhosts will give you an SSL certificate for free to secure your website
- Sign up for a free credit card processor – $0/month, 2-3% fee per transaction
- (Optional One Time Cost)Purchase a template for your website – $20-$50
If you tally everything up above, that comes out to between $2.95 and $52.95.
There is no upfront inventory cost.
There are no warehouse costs.
There is almost zero overhead.
I can’t think of any business model that is less expensive to start
Benefit #2: It’s Simple To Setup
Back when I started my online store, my options were limited. But today there are literally hundreds of services out there that will help you setup an ecommerce store in less than a day.
The right option for you depends on your budget, what features you need and how extensible you need your ecommerce platform to be.
Watch the video below to learn how you can install WooCommerce in just 1 click.
Editor’s Note: I’ve negotiated a 63% discount off the regular price of BlueHost For MyWifeQuitHerJob.com readers.
Benefit #3: The Risks Are Much Lower
The beauty of dropshipping is that there is practically no risk. Because you are investing so little money upfront, there is very little to lose.
Because your business is inventory-less, there’s no pressure to make sales because you don’t have to bear the overhead of storage or shipping.
In addition, you can carry a huge variety of items in your store because you don’t have to store any of it!
If you browse dropship directories like Worldwide Brands, you’ll find dropship suppliers for practically any niche you can think of.
You can choose to carry 1 product or 1000 products online. It doesn’t matter! Once you figure out what you want to sell, you can usually find a dropship supplier to supply it.
Benefit #4: Location Independence
Dropshipping is an online business that can be run from anywhere. You don’t need an office or a warehouse or any employees at all.
As a result of this freedom, you can focus your efforts on growing your business instead of taking care of inventory and overhead.
Overall, dropshipping is one of the most scalable ways to run an online business because your overhead does not grow linearly with sales.
In fact, I have several colleagues who run good sized dropship businesses with just a handful of people.
The Cons Of Dropshipping
If your gut is telling you that dropshipping sounds too good to be true, then your instincts are correct. As with everything in life, there are always downsides to every business model.
Most people stumble into dropshipping with the expectation of quick riches only to realize that making money with a dropshipped store is actually much harder than they anticipated.
Below are all of the cons of dropshipping that you must consider.
Editor’s Note: If you want to learn more about all of the ecommerce business models, then check out my post where I compare dropshipping vs selling on Amazon vs running a traditional ecommerce store
Con #1: You Won’t Be Getting The Lowest Price
Most people open up a dropshipped online store with the misconception that they will be receiving the same wholesale pricing as everyone else for their products.
In reality however, dropship distributors often charge extra fees and/or tack these fees onto the quoted wholesale price.
Put yourself in your distributor’s shoes for a moment.
Would you prefer to sell a large bulk quantity of products all at once to a store or would you rather sell onesy, twosy amounts to individual customers and be forced to individually ship and pack each item?
The distributor is doing all of the work here and this will be certainly be reflected in your wholesale price.
To throw out some numbers, most dropshipping stores get between 10-30% gross margins whereas most traditional shops that carry inventory have 50% gross margins. It’s a huge difference!
Because your wholesale prices are higher than a traditional store, you will not be able to compete as effectively on price unless you take a good sized profit hit.
In addition, lower margins will inhibit your ability to advertise on sites like Facebook and Google. Not only that, but less profit per sale also makes customer service problematic.
For example with our online store, our margins are between 70-90%. As a result whenever we get an angry customer, we simply give them a refund AND let them keep the product.
Because our margins are so high, we can afford to take the hit. With dropshipping, the convenience of not having to fulfill orders comes at a cost.
Con #2: You Will Need To Charge Higher Shipping Costs
Often times, you will require the use of several dropship distributors to fully flesh out the product selection for your store.
Using 2 or more different dropshippers means that 2 or more companies will be making separate shipments to your customers, which means that 2 or more companies will be charging you their own separate shipping costs.
If I’m a customer and I buy products from your store across 3 different distributors, you will have to charge me a much higher shipping cost just so you can break even.
The only way around this is to only use one dropship distributor which may not carry the breadth of products that you need. The result is that you will have to pass these extra costs onto the consumer which reduces your price competitiveness.
Con #3: Dropshipping Can Be A Logistical Nightmare
You might think that since the dropship distributor is doing all the work that you can sit back and relax. Unfortunately, you have to deal with your customer base.
You have to be the one that answers all of the questions. You have to be the one to apologize when an order doesn’t arrive on time.
The main problem is that when you use several different dropship distributors, getting the entire order to the end customer can be a logistical nightmare and there are many shipping complexities.
All distributors will have different shipping times and will be shipping from completely different locations.
If a customer orders products across 3 different distributors, they will end up receiving 3 different packages at varying times.
If an order is particularly time sensitive and needs to be rushed, you will have to make sure that all of your distributors can deliver the product on time.
In effect, you are staking the reputation of your online store and linking yourself to all of your dropship distributors in a single chain. If your suppliers fail to deliver, then it will reflect negatively on your online store.
Con #4: Your Customer Service Will Be Out Of Your Hands
Customer service and your online reputation can make or break your business. With the world wide web, social media and Twitter, news of a botched transaction can spread extremely fast so it is absolutely crucial that you maintain a great image for your online store.
Whenever I receive a call for our online wedding linens store, I always take the time to ask how they found us. And the majority of the time, the people who find us do so because they were referred to us by one of their friends.
Word travels fast.
Our customer service is one of the main reasons why we have grown over 3x in the past 3 years.
With dropshipping, you unfortunately have very little control over your customer service. Since you are not in charge of product fulfillment, you can’t control when a customer will receive their product.
If a customer wants to make a return, it’s a major pain because you have to make sure that you get your money back before you can provide a refund.
Sure, there are always ways to mitigate these problems but the solution inevitably involves either raising prices or taking a profit hit at the expense of customer satisfaction.
Con #5: Amazon Makes Dropshipping Even Less Attractive
Prior to Amazon, it was much harder for companies to sell their goods to the masses. As a result, distributors had to rely on traditional retailers and dropshippers to help them move product.
Today, Amazon controls such a large piece of the ecommerce pie that most companies can get by with just selling on Amazon as a 3rd party seller.
Amazon handles your sales, your product fulfillment, your customer service…basically everything that a traditional retailer would typically take care of. But the difference is that the distributor gets to keep all of the extra profit!
If you are a dropshipped store selling the exact same products that can be found on Amazon, it will be impossible to compete on price. As a result, you will have very little leverage.
After all, would you rather buy from Amazon at a lower price or pay more to buy from an unknown shop?
Editor’s Note: If you are interested in selling on Amazon, check out my article on How To Sell Private Label Products On Amazon – The Definitive Guide
Other Dropshipping Methods
All of the methods mentioned thus far involve taking orders on your own website and relying on legit dropship suppliers to fulfill your orders.
However, there are other forms of dropshipping that you should be aware of but they are NOT recommended.
All of the methods described below should be avoided altogether.
Dropshipping From Amazon To Ebay
Dropshipping from Amazon to Ebay became popular because it literally requires zero upfront cost. You don’t need a website and all of your sales come from Ebay.
Here’s how it works
- You put up a listing on Ebay for a product that you want to sell at a higher price than Amazon
- When a customer places their order, you make an indentical purchase on Amazon and have it shipped to the Ebay customer
- You pocket the difference in price
First off, this form of Ebay dropshipping is no longer allowed and Ebay reserves the right to ban your account if you are ever caught.
While dropshipping is technically legal on Ebay, they only allow dropshipping when orders are fulfilled directly from a wholesale supplier.
You are NOT allowed to fulfill your goods from Amazon, Walmart or any marketplace.
Dropshipping To Amazon From AliExpress
Dropshipping is technically allowed on Amazon as well but the order must be fulfilled from a legit wholesale supplier.
And like Ebay, Amazon reserves the right to ban your account if you try to fulfill your order from a 3rd party marketplace.
For the past few years, “get rich quick” business owners started dropshipping cheap junk from AliExpress on Amazon and pocketing the difference in cost.
This process is called AliExpress Dropshipping and here’s how it works.
- You put up a listing on Amazon for an AliExpress product that you want to sell
- When a customer places their order, you make a purchase on AliExpress for the identical product and have it shipped to the Amazon customer
- You pocket the difference in price
Please do not try this business model as it relies on a shipping loophole called ePacket that will soon be obsolete. In addition, the product quality on AliExpress is difficult to maintain.
When Dropshipping Makes Sense
While I would never start a pure dropshipping store today, there are many ways to use dropshipping to your advantage.
Because you don’t have to carry inventory, you can instantly throw up an online store with hundreds of products in a short period of time.
Then, you can use this shop to conduct market research. Based on which products sell well, you can pick and choose the most successful products to buy inventory for and enjoy higher margins.
The dropshipping model is best used as a vehicle for product validation or for fleshing out an online store that is sparse in certain categories.
Overall, it’s best to use dropshipping when…
- You need product validation – Dropshipping is a great way to test new products with zero upfront risk. By running ads and quickly testing the market, you can decide whether you want to go all in on a product niche.
- You are on a major budget – Dropshipping is by far the cheapest way to get started in ecommerce because you don’t need to pay for or carry any inventory.
- You are new to ecommerce – If you are an ecommerce newbie, then dropshipping is a good way to dip your toes in the ecommerce waters with very little risk.
- You want to carry a large variety of products – If you want to create a store with lots of products, then dropshipping is the easiest way to go. With just a few third party suppliers, you can quickly start selling hundreds of goods overnight.
Editor’s Note: If you are interested in learning how to start your own online store, click here to take my FREE 6 day mini course on ecommerce.
When To Avoid Dropshipping
Unless you are a brand new entrepreneur on a budget or an online store owner who is exploring new products, dropshipping is generally not a good choice for seasoned shop owners.
Because you are selling other people’s products, it’s difficult to build your own brand. After all, there so many aspects of your supply chain and your customer service that are beyond your control.
For example, you have no control over the customer unboxing experience because more often than not, your product will arrive in an unmarked brown box with zero branding.
If an order is shipped late or never arrives, the blame is on you.
You also have no control over inventory. If you have a hot selling product but the supplier is out of stock, then you won’t make any money.
In a nutshell, your dropshipping business lives and dies with your suppliers. If they are not reliable, then you won’t succeed.
Therefore, if your goal is to build a brand, then avoid this online business model.
Overall, if any of the below describes your situation, then avoid dropshipping.
- You are trying to build a brand – With dropshipping, you are fundamentally selling someone else’s products which means that you are not building a brand. In addition, because fulfillment is not under your control, you have very little sway when it comes to managing the customer experience.
- You want high margins – Margins are always going to be a problem with dropshipped stores. With only 10-30% margins, your advertising options are limited and you’ll often have to rely on SEO or social media to promote your business.
- You want exclusivity – When you sell dropshipped goods, there are likely hundreds of other vendors selling the exact same product which always limits your pricing power. You may also end up competing head to head with Amazon and larger stores as well.
Is Dropshipping Worth It?
Dropshipping is worth it if you want to create an online store for as little money as possible or if you want to test certain products for sale without a large monetary commitment.
However, if you have at least $2000-$3000 to invest in your business, dropshipping may not be the best business model to pursue.
After all, the time that you save in not having to deal with inventory and fulfillment will be spent dealing with customers unless you have a reliable core of dropship distributors.
One thing that I forgot to mention is that many drop shippers don’t use automated supply chain technology with a real time API. What this means is that you may not be alerted in real time whether a particular product is available for sale or not.
Therefore if an item is out of stock, you will have to interface with the customer to let them know when they can have their items. Unless your shopping cart is closely tied with your dropshipper’s database, it will be difficult to maintain an accurate inventory count.
With dropshipping, you are trading off not having to deal with fulfillment logistics with having to deal with more customer headaches. And depending on your personality, this may or may not be a wise tradeoff.
While the tone of this article has been anti-dropshipping in general, don’t get me wrong. Many people have run a successful business with dropshipping as it works very well with small niche stores but my personal opinion is to avoid it if you can.
Editor’s Note: If you are interested in learning how to start your own online store, click here to take my FREE 6 day mini course on ecommerce.
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Steve Chou is a highly recognized influencer in the ecommerce space and has taught thousands of students how to effectively sell physical products online over at ProfitableOnlineStore.com.
His blog, MyWifeQuitHerJob.com, has been featured in Forbes, Inc, The New York Times, Entrepreneur and MSNBC.
He's also a contributing author for BigCommerce, Klaviyo, ManyChat, Printful, Privy, CXL, Ecommerce Fuel, GlockApps, Privy, Social Media Examiner, Web Designer Depot, Sumo and other leading business publications.
In addition, he runs a popular ecommerce podcast, My Wife Quit Her Job, which is a top 25 marketing show on all of Apple Podcasts.
To stay up to date with all of the latest ecommerce trends, Steve runs a 7 figure ecommerce store, BumblebeeLinens.com, with his wife and puts on an annual ecommerce conference called The Sellers Summit.
Steve carries both a bachelors and a masters degree in electrical engineering from Stanford University. Despite majoring in electrical engineering, he spent a good portion of his graduate education studying entrepreneurship and the mechanics of running small businesses.