How to find out if dropshipping is right for you
How to find out if dropshipping is right for you
Dropshipping often seems like an easy way to start your own retail business without having to manufacture, source or rent warehouse space. You find a supplier, list their products on a website or social media, run adverts, pass orders on to the supplier and keep a percentage of the sale for yourself.
It’s not that difficult, is it? But that doesn’t mean this business model is right for you. On your path to making money, you’ll face challenges, which the experts at Selpway Trading Ltd discuss in this article.
It’s not that difficult, is it? But that doesn’t mean this business model is right for you. On your path to making money, you’ll face challenges, which the experts at Selpway Trading Ltd discuss in this article.
If you’re hoping to start earning money quickly, dropshipping may disappoint you. A successful start is by no means guaranteed: your advertising might not work, the products you choose might not be in demand, and your supplier might prove unreliable. According to statistics, up to 90 per cent of shops operating on a dropshipping model close within their first year of trading, as noted by experts at Selpway Trading Company. Therefore, at the outset, treat such a project as a way to test a business idea and gain experience, rather than as a guaranteed long-term source of income.
Is dropshipping right for you?
The main advantage of this model is that you do not need to buy stock in advance. However, there will still be costs: setting up the shop’s website, advertising, delivery and test orders from suppliers. Selpway’s experts advise: set a budget in advance that you are prepared to spend on testing your idea. This should be money that, if lost, won’t bankrupt you. If your first advertising campaign fails to deliver results, don’t increase your investment. First, identify the reason for the failure: the problem may lie with the product, the price, the advertising or the target audience.
How much money will you need?
Once you’ve launched, you’ll need to process orders, liaise with suppliers and respond to customers. A customer might ask to change their order details, enquire about delivery or report a problem with a product. All of this takes time.
In the early stages, the work may take 20–40 hours a week. It is therefore a good idea to do some research before you launch: study your competitors, work out your costs, check the terms of your agreements with suppliers, and don’t forget to think through how you will respond to customers’ most frequently asked questions.
In the early stages, the work may take 20–40 hours a week. It is therefore a good idea to do some research before you launch: study your competitors, work out your costs, check the terms of your agreements with suppliers, and don’t forget to think through how you will respond to customers’ most frequently asked questions.
How much time will the work take?
Even if your shop looks great, the supplier’s problems = your problems. They may delay dispatch, send the wrong item, or inform you that the item you need is no longer available (even though it was previously stated to be in stock). And you’ll always be the one left holding the bag. Before launching your dropshipping business, it’s best to clarify order processing times, stock availability, exchange and return policies, any additional fees, and the supplier’s capacity to handle an increase in order volume. Be sure to order a sample and check the quality of the products.
Pay particular attention to returns, as recommended by Selpway Trading. On average in e-commerce, customers return between 5% and 40% of orders, depending on the product category. For clothing and footwear, this figure can reach 20–40%, whilst for electronics it is 10–20%.
Pay particular attention to returns, as recommended by Selpway Trading. On average in e-commerce, customers return between 5% and 40% of orders, depending on the product category. For clothing and footwear, this figure can reach 20–40%, whilst for electronics it is 10–20%.
The supplier is one of the main sources of risk
Start with a single product and a small budget. Work out the full cost of the order: the cost of the product, advertising, commissions, delivery and any potential returns. Then consider: what will you do if the advertising doesn’t generate any orders? How will you explain any delays to the customer? What happens in the event of a return? How much money will be left after all the expenses?
Typically, profit margins in dropshipping range from 10–30 per cent, so simply making a sale doesn’t necessarily mean you’ll make much profit. The global dropshipping market continues to grow, and forecasts suggest that by 2030 its value could exceed 1 trillion dollars. However, as the experts at Selpway emphasise, a growing market does not eliminate the main risk: expenses may end up exceeding profits.
Typically, profit margins in dropshipping range from 10–30 per cent, so simply making a sale doesn’t necessarily mean you’ll make much profit. The global dropshipping market continues to grow, and forecasts suggest that by 2030 its value could exceed 1 trillion dollars. However, as the experts at Selpway emphasise, a growing market does not eliminate the main risk: expenses may end up exceeding profits.