It may sound surprising, but dropshipping has been a profitable form of business model for fulfillment since the 1960s, even before the internet was around. Mail order catalog companies like CompuCard partnered with larger retailers like JCPenney and Sears to sell their products at a markup, so a brand like Sears would store, package, and ship items to the CompuCard customers, but only when a purchase came through (just like on-demand dropshipping). So when we look at the question, “Is dropshipping worth it?” it becomes very clear that it has been worth it for quite some time, and it continues to offer valuable cashflow options for a wide range of retailers. The bigger question is how to actually make dropshipping worth it when factoring in changing trends, oversaturated markets, and the fact that much of the product comes from places like China.
In this article, we take an in-depth look at the potential for dropshipping in today's world, while also exploring the pros and cons of dropshipping, allowing you to understand if it's a viable fulfillment model for your online store.
Furthermore, we'll explain the types of businesses that actually make money with dropshipping. In short, you can't think of dropshipping as a get-rich-quick scheme or even one that you'll set up from your bedroom (or anywhere with an internet connection) and only check in on every once in a while. Successful dropshippers work hard, establish promising relationships, and spend a significant amount of money on advertising and product research. We've also found that thriving dropshipping businesses stand out with their customers by offering fast shipping, hassle-free returns, or a unique value proposition such as sustainable, eco-friendly products.
With all that said, keep reading to check out our complete guide on the state of dropshipping, and to answer the question, “Is dropshipping worth it?”
Is Dropshipping Worth It?
Besides our example of CompuCard partnering with the likes of Sears and JCPenney, dropshipping was also prevalent during the beginning of the internet and into the Dot Com bubble era. It's only more recent where we started to see an actual name for this type of fulfillment: dropshipping. In the 1990s, those mail order companies shifted their focus to the internet, turning into the first-ever online businesses. Throughout the 90s and 2000s, dropshippers partnered with larger retailers and suppliers to offer middle-man services, sell products at a markup, then have the larger brands package and ship items. Eventually, marketplaces like Amazon and eBay made it much easier for dropshippers to market their products at a reasonable cost. So, is dropshipping worth it from that perspective? Definitely.
However, dropshipping was more difficult back then, since you had to spend thousands on a website, call around to find suppliers who offered dropshipping, and create and manage your own system for sending orders to your dropshipping partner, either over the phone or through email.
Today, dropshippers have conveniences like inexpensive ecommerce platforms (such as Shopify), marketplaces for partnering with dropshippers (like Oberlo), and integrations to automate the process of sending orders to the supplier for fulfillment (through apps and extensions on the ecommerce platforms).
So, is dropshipping worth it?
It has been since the 1960s all the way through the 2000s. And now we have more technology to make it more efficient. So, is it a profitable fulfillment method in 2021? Absolutely, as long as you're able to stand out.
Online commerce isn't saturated, but barriers to entry have fallen like dominoes since the rise of ecommerce. That's particularly true for dropshipping. College kids with nothing but a brain and a dorm room have the resources to start making money and turning into market players, all with dropshipping.
That's great, but it also means more competition. Dropshipping is still worth it, but you're battling for attention with far more companies than any of those mail-order catalogs in the 1960s or the early ecommerce stores.
And there are plenty of other reasons we're seeing slower growth in the dropshipping space:
- The costs of goods are getting more expensive.
- It's often tough to offer quality customer support.
- Customer support is lacking from many dropshipping suppliers.
- It's tricky finding quality products.
- Refunds take way too much time.
- Sometimes your customers can't return items to the supplier.
- The shipping times are unbearable, unless you do something about that.
- The shipping costs are often too high.
But that's where you're able to shine. Essentially, the dropshipping world is plagued by merchants willing to neglect their customers in exchange for quick profits. They create a simple Shopify store, then go right into selling products, regardless of the shipping times, item quality, and potential for return issues. Then, online customers have to wait 2-4 weeks (sometimes longer) to receive an item, it comes in a weird package with Chinese lettering all over it, and the product quality may not reflect what was specified on the website. In addition, those customers have trouble getting in touch with anyone for customer support, and they may end up hearing lines like “we don't accept returns,” or “we can send out a replacement instead of offering a refund,” which is essentially a dropshipper trying to avoid returns and chargeback fees at all costs. If you go that route, then the answer to “is dropshipping worth it? is a no. Don't dropship if you see it as a quick money grab.
The Moral of the Story
Dropshipping is far from dead. Dropshipping is worth it; it's simply seeing a surge of new players who have muddied the waters and, quite frankly, given dropshipping a bad name.
Yet, legitimate dropshippers (those who run high-quality ecommerce businesses by avoiding most dropshipping downsides) have been around for decades, and they continue to make money through the fulfillment technique since it's far less costly to have someone else store and ship your products than to do it yourself.
And the numbers don't lie when answering that question of “is dropshipping worth it?”:
- 23% of all online sales in the world are completed through a dropshipping model. That adds up to around $85 billion per year.
- About 27% of all online retailers have transitioned to some form of dropshipping as their primary fulfillment technique.
- 34% of sales completed on Amazon are fulfilled by dropshippers.
- Side hustle dropshippers on eBay make an average of $1,000 profit per month.
- Top 10% sellers on eBay report making an average of $7,731 per month of profit.
- Suppliers like dropshipping since they make an average of 18.33% more in profit when selling to dropshippers than selling the same products on their own online shops.
- Compared to those who hold their own inventory, research shows that dropshippers make 50% more in profit due to the eliminated costs of storage, packaging, warehouse labor, and more.
There you have it. Dropshipping is worth it. If anything, our world of online commerce is gradually making the shift towards more dropshipping than less. The big hurdle is avoiding any non-sense that comes along with the get-rich-quick schemes or creating passive income without any hard work. Stray away from online “experts” that make it sound like some sort of instantaneous thing you can configure and turn into your own personal ATM. That's only going to tick off customers, make a bad name for all dropshippers, and probably stick you with a hefty backcharge bill.
Instead, realize that dropshipping is worth it, it's thriving, as long as you're willing to put in some hard work, spend time partnering with wonderful suppliers, and offer fast shipping, hassle-free returns, and a quality customer experience.
The Pros and Cons of Dropshipping
It's essential to analyze the pros and cons when asking “is dropshipping worth it?” That allows you to gain a deeper understanding of the fulfillment method and minimize the problems right from the start. For example, one downside of dropshipping (as we'll outline below) is slower shipping times. Many products ship from Chinese, Vietnamese, or Indian suppliers, so a customer in a place like Canada, the US, or Europe may have to wait close to a month to receive a product. With that knowledge at hand, wise dropshippers stray away from suppliers that don't offer some sort of expedited shipping in the form of local storage warehouses or rapid transit FedEx boxes. Many dropshippers still purchase from places like China, but there are ways around it, as long as you take that into consideration.
There are plenty of other pros and cons to dropshipping, so take a look at our list below for more information on figuring out if dropshipping is worth it to your organization.
The Pros of Dropshipping
Dropshipping has a myriad of advantages over other fulfillment methods. If you're curious about other types of fulfillment, the main ones include 3PL (3rd party logistics) and another called self-fulfillment. In general, 3PL works by owning your own warehouses, purchasing in bulk, and handling all storage, packaging, and shipping within the organization. It's a fulfillment method that results in more quality control and higher margins, but the expenses are much higher and the logistics more complicated. 3PL makes things easier since you still buy in bulk (allowing for higher margins), but you opt to partner with a fulfillment company that stores, packages, and ships the products, cutting down on costs for all of that.
Now that you understand the types of fulfillment methods, explore the pros of dropshipping below. And use these to learn why dropshipping is worth it.
You Can Run Your Business from Anywhere
With no need for warehousing, warehouse workers, and inventory, you're left to spend your time on building a website, researching new items, marketing products, and replying to customer concerns. Holding no inventory opens up all sorts of potential for the location of your business, seeing as how you don't have to worry about leasing costs, finding real estate, or being near a warehouse. You could run a business out of your basement, garage, or a smaller office you rent.
Regardless of the situation, dropshipping makes for a more remote working environment, even if you expand upon the brand and grow into a larger entity.
A setup like this bodes well for startups, or larger brands interested in testing out certain products since you're not tied to a specific location. Furthermore, dropshipping minimizes costs for office space, warehouses, and all of the labor, materials, and utilities.
We talked about how dropshipping is even possible for a college kid to run a business in a dorm room. Would we recommend that if that college kid is only trying to make a quick buck without providing things like fast shipping, customer support, and quality products? Absolutely not. Yet, it's not unlikely for students to make legitimate businesses while in school, so as long as you're diligent and respectful to customers (as opposed to a shadow organization that's only in it for quick cash) there's nothing at all wrong with launching a dropshipping business from your bedroom.
It's One of the Easiest Ways to Launch a Business
The “passive income” phrase has its own demons due to an influx of online “experts” touting business schemes to basically sit on a beach, run your business for a few hours each day, and become wealthy. However, passive income really means a side-hustle where you spend a significant amount of time on the business while also working another job or handling another business. So, in that respect, dropshipping is one of the easiest ways to run a passive income business. But it's not a viable way to sit and do nothing and still retire early.
Dropshipping is also one of the easiest ways to launch a complete business, where you spend all of your resources, including time and money, on this one entity.
Regardless of how you're looking to run your dropshipping company, the facts are clear:
- It only takes a Shopify website, dropshipping partner company/app, and a domain name to dropship products.
- You don't need any web design experience to build a beautiful site with Shopify.
- Dropshipping has low upfront costs, seeing as how you don't pay for the products until you make sales.
- The initial costs include a domain name, ecommerce platform subscription, and whatever you want to spend on marketing (advertising is absolutely necessary for a successful dropshipping store).
- There's no need for a warehouse; you can stick to the facilities you have–even your home or small office.
- It's not necessary to hire a bunch of people at the beginning of your dropshipping business.
- You eliminate purchasing from wholesalers with dropshipping, removing that upfront cost, as well as the risk of buying thousands of units and never selling them.
Overall, one of the primary benefits of dropshipping is its simplicity. All of the pieces are available for you to launch an online dropshipping store within a matter of hours or days. Some technical knowledge is required, but you can skip the web designers in favor of a Shopify template. And, most importantly, all those lingering roadblocks of wholesale purchasing and storage are completely removed from the equation.
Dropshipping Allows Companies to Market Test Products Without Many Risks
Established businesses turn to dropshipping as well, mainly due to its low upfront costs. Testing a new product line takes an incredible amount of money, all while risking it all on an untested product. Sure, you can run product trials, surveys, and focus groups, but you'll never know if a new fashion, technology, or gardening tool has true potential until it hits the market.
What if sales struggle? You could adjust the pricing or spend more money on marketing. But you've already invested quite a bit into the initial product launch, and you can't go back and adjust the items you previously purchased for wholesale pricing.
That's where dropshipping comes into play.
A brand is able to develop their product, list it on their website, and only send them out on-demand, from a dropshipping supplier. This could mean the manufacturer creates everything on-demand (creating slower delivery times) or that you purchase a smaller batch of products to dropship. It's also possible to find a previously created item that's similar to what you're developing. Sell that for a while, then when you realize its potential, consider going for a more customized design and purchasing in bulk.
You Improve Your Cashflow
There's no waiting around to recoup initial business costs with dropshipping. Cashflow is a significant problem for retailers, considering they pay for the wholesale supply then let it sit in a warehouse, waiting to send out products as sales come in from customers.
That's a cost you're unable to pay off until you've successfully sold a certain number of units. It usually means you need upfront cash to fund the original batch of items.
Dropshipping cuts out that mess, and it brings in a steady stream of cash flow for you to build your business. No longer is there that uncomfortable in-between period where you're hoping, praying that you eventually sell the 10,000 units of t-shirts you just bought and stored.
You Don't Need to Run a Storefront, Warehouse, or Manufacturing Facility
We've mentioned this a few times already, but it's worth explaining in detail.
Those who opt for dropshipping fulfillment remove massive infrastructure hurdles like those that come along with warehouses, storefronts, and manufacturing facilities.
Third-party logistics helps with some of this (like removing the need for a warehouse), but dropshipping takes it to the next level by moving all of the storage, shipping, and packaging logistics to your partner supplier.
Dropshipping Eliminates the Need to Manage Inventory
Inventory management requires additional software, scanning tools, barcodes, and even real people to count the in-stock inventory.
It's a logistical dance that many businesses aren't well equipped to handle.
Luckily, dropshipping alleviates that pain point by leaving all inventory with the supplier or manufacturer. And that actually makes quite a bit of sense. Why ship a product to another business when the supplier already has the infrastructure to store, package, and ship the products. The supplier should definitely receive more of a profit for these services, but the entire process of sending from one supplier to a retailer, just to make one sale to a customer, defies logic in some respects. It used to be that retailers were the storefronts that were closer to customers, so that middle man shipment made sense. It still has its place in this world, but there are many situations where shipping from one online supplier to an online retailer just adds to the cost of the product.
There's a Low Barrier to Entry
What are the requirements to launch a dropshipping business?
- You must have some sort of technical and business knowledge, but a degree isn't required.
- You need to have a good credit score and proof that you can pay the payment processor. A processor like Stripe makes it seem like you're approved within seconds, but they're actually going to hold your money until you can produce enough sales to make it worthwhile for them.
- It's wise to have some upfront capital for an ecommerce platform, domain name, advertising budget, and potential design fees. Having said that, those are pretty low costs compared to leasing a warehouse and buying in bulk.
- You must partner with a reliable supplier, one that has quality dropshipping products, delivers quickly, and actually communicates with you.
Most Costs Go Straight Towards Marketing, Web Design, and Customer Service
This is an advantage of dropshipping, but also an area where many dropshippers fail. You can't look at the low costs of dropshipping and assume you don't have to spend anything on your business. Cheap business owners result in poor customer service, junk websites, and marketing that's spammy instead of welcoming.
However, it should be seen as an extreme advantage that you can reallocate all costs that would've gone to things like warehousing, inventory, and packing slips–reallocated to the foundations of dropshipping: marketing, web design, customer service, product research, and social media.
The Cons of Dropshipping
Dropshipping has its downsides, but they usually only arise if you're not careful with how you approach suppliers, or if you're willing to run a haphazard company without any quality control.
Having said that, you should keep an eye out for the cons of dropshipping in order to avoid them altogether.
It Often Ends Up Being a Race to the Lowest Price
Everyone can see everything now with the internet. Google Shopping displays the best current prices for specific products, while Amazon boosts those listings that go lower in price. After all, the customer is more willing to sacrifice if the overall price goes down.
Dropshipping has many competitive players, many of which are willing to decrease prices, or at least play games with variable pricing strategies that beat you out at the most important times.
Your goal is to offer something other than low-cost leadership. You can't compete with the big dogs, so the main way to get around this downside is to find an excellent niche, seek out keywords that have potential but aren't too expensive to advertise, and offer value-added things like faster shipping, eco-friendly products, or quality customer service. Don't even think about being the WalMart of dropshipping.
Your Orders May Come from Different Suppliers
In order to have a well-rounded product selection, some merchants dropship from multiple suppliers.
But what happens when a customer buys two items in one order?: one from Supplier A in China, and the other from Supplier B in Mexico. Well, they'll receive two packages, different branding on those packages, and one item will inevitably show up later than the other.
That's a recipe for a disgruntled customer. They may think you forgot to include the other item, leading to refund requests, customer support emails, or worse, chargebacks.
This has been a longstanding downside of dropshipping, but we have a few solutions:
- Blatantly tell your customers during checkout that some orders may ship in different boxes, at different times.
- Stick to one supplier that carries the vast majority of products you plan on selling.
- Consider a third-party logistics company instead of dropshipping.
- Stick to dropshipping, but make sure the shipping times are almost exactly the same from both suppliers.
Packaging May Not Have Your Company's Branding
In fact, most dropshipping suppliers won't have your branding on the packaging. That's bad news for both you and the customer. First of all, you're unable to build brand recognition; the customer never sees your logo, or thank you slip, or any other package inserts.
For the customer, they may end up confused. They never purchased an item from Supplier ABC, so why are they getting a package from them? Also, some consumers get disappointed when they realize they had bought through a middleman like a dropshipper (dropshippers aren't bad, but there are some perceptions of shady business dealings from dropshippers, as covered in our introduction).
The solution? Form a relationship with your dropshipping supplier. Ask if they can slap a branded logo on boxes and put your own packaging slip inside. Some dropshipping marketplaces like Oberlo, Printful, AliExpress or Alibaba actually let you pay a little extra for this added benefit.
Dropshipping is Highly Competitive
Everyone wants to make a quick buck. Many YouTubers and bloggers have turned dropshipping into a get-rich-quick scheme, flooding the market with wannabe business people. It's definitely not a get-rich-quick scheme, but you still have to compete with all of those types of people who think it is. In addition, large corporations spend millions in marketing dollars to dominate advertising space and marketplaces like Amazon.
That's why it's essential to spend a significant amount of time on product research, while also figuring out the niches that have promising, yet affordable advertising keywords. Focus on a niche. Focus on a niche. Remember that and you won't need to battle it out with the heavy hitters.
You Give Up A Significant Amount of Quality Control
Dropshippers never see, touch, smell, or hear the products they sell; at least they don't have to. Quality control is decreased with dropshipping because you're not manufacturing, storing, or shipping the product.
However, you can maintain quality by ordering product samples for all items you plan on selling. Complete this process every quarter to ensure nothing has changed in the production process or materials. You can't do much about the manufacturing, so spend more time locating reputable suppliers with high-quality products. And always send test packages to your own door first to check out the packaging, unboxing experience, and the product itself.
You're Missing Out on Wholesale, Bulk Discounts
This is probably the main con of dropshipping that you can't resolve.
Dropshipping is more expensive (per unit) than buying in bulk. Therefore, you won't see as great of profit margins.
The good news is that many studies show increased overall margins since dropshippers aren't spending a lot of money on things like warehousing, packaging materials, and storage.
Just remember, that decrease in the per-unit profit margin is like the fee you're paying to the supplier for handling all that extra dropshipping work. It's not necessarily a bad thing.
Some Customers Have No Interest in Buying from Dropshippers
Many people see dropshipping as a nuisance. As explained before, that's a result of dropshippers who see this order fulfillment method as a quick side gig that doesn't require any extra work. Therefore, online consumers have experienced slow shipping speeds, poor return options, lackluster customer service, and low-quality products.
Luckily, you're not one of those dropshippers.
The bad news is that you may have to deal with some complaining customers if they discover your method of fulfillment.
Returns Can Get Complicated, and Expensive
The item shipped from a distribution center in China. Your office is in Cleveland, Ohio. The customer gets the product at their home in Tulsa, Oklahoma.
But now, the customer contacts you and wants to return the item.
Where does it go? To the supplier? Back to your home or office?
It's all very confusing to complete a return with dropshipping.
To make matters worse, the customer doesn't want any hassles. They're not interested in paying for returns; they want a quick drop off at the post office or UPS; and they don't care at all about where they're sending it. Just get it out of their hands and refund payment.
Dropshipping suppliers often decline all returns, passing that responsibility to you. Unfortunately, that means you've paid for the product, and also refunded the customer.
Here are some solutions to avoid these problems and make dropshipping worth it:
- Accept all returns to your location and send them to new customers (if there's nothing wrong with the products). It requires some packaging and shipping on your end, but it's doable.
- Find a dropshipping supplier who's willing to accept returns and offer refunds.
- Tell your customers that returns aren't possible. You'll have a better response if your products are custom-made or not “return-worthy” like underwear or other items that may be seen as gross if returned.
How to Make Dropshipping Worthwhile
The overall goal in launching a successful dropshipping company is to embrace the pros and figure out ways around the cons. Those cons aren't inevitable downsides, but rather opportunities to stand out from the competition. Don't expect slow shipping times to pan out well for you. The same can be said about poor customer service and troublesome returns.
So to answer the big question of “is dropshipping worth it?” Yes, as long as you avoid those cons.
Here are some other ways to make dropshipping worthwhile for you:
- Have a Unique Value Proposition: Everyone has access to the same dropshippable products, so what makes your brand different? Is it the customer service? Eco-friendliness? Maybe you have custom printed products from Printful that people can't find anywhere else? Figure out a value proposition and share it in your marketing.
- Partner with Reputable Dropshipping Companies: From Oberlo to Printful, and Printify to Modalyst, these dropshipping marketplaces, printers, and suppliers offer instant integrations with Shopify, wonderful product selections, and solid customer support.
- Spend a Significant Amount of Time and Resources on Marketing and Branding: No one will find your dropshipped products unless you have money to spend on advertising. These are items that thousands of other dropshippers have access to, so the idea is to get your brand in front of theirs with advertising. How else would people stumble upon your website?
- Stand Out by Offering Exceptional Customer Service: From an email form to live chat boxes, customer support takes time but gives your customers confidence in their purchases. Not to mention, you get to stand out from the competition.
- Only Partner with the Right Supplier That Provides Rapid Shipping: It takes more time, but customers are far more likely to purchase from you if they can get their items in a reasonable 2-5 days.
- Test Out All Products Before Shipping Them to Customers: This should be rule #1 for upholding a high level of quality control. You wouldn't order a product where the company hasn't even tested its quality, so don't expect others to do the same. Also, product samples minimize returns for your small business.
- Follow Trends to Beat Out Other Dropshippers: Dropshipping isn't always about following trends, but many brands have done well by looking at Twitter, Google Trends, and news sources to figure out what people are starting to get excited about online. It takes more pivoting when you have to construct a totally new website for trending products, but that serves as one way to find success as a dropshipper.
- Offer No-Hassle Sales and Returns: Provide a return portal for printing out return slips. During the checkout, make sure everyone knows about any stipulations you have on certain products. Also, try to offer things like free and fast shipping, multiple payment methods, and immediate access to customer support (think live chat boxes).
- Construct a Beautiful Website: This is a tried-and-true way to avoid looking like the many scammy dropshipping websites online. Spend time and money on your design. Take pride in your work, and consider hiring someone if you don't have any experience with design in the first place.
That's all we have for you! Let us know in the comments below if you have any thoughts about dropshipping. Is dropshipping worth it? We think so, so we also like hearing about your experiences.