Dropshipping: Is it worth it?

If there was an ad for dropshipping, I think it would sound a little something like this:

“Are you prepared to embark on a journey that will turn your entrepreneurial aspirations into a flourishing and profitable reality? Picture running a successful online store without the stress of handling inventory, packaging, or shipping. With drop shipping, you can achieve this effortlessly!”

And I bet a lot of people would listen to it too. According to Straits Research, the dropshipping market (which was valued at USD 222.46 billion in 2022) is projected to expand at a compound annual growth rate (CAGR) of 28.4% between 2023 and 2031, and it’s going to keep growing. But with this newfound competition, is it still a worthy business to enter? Let us present the facts to you and see for yourself. But before we dive into the pros and cons, let’s take a second to actually break down what dropshipping is.

Basically, it’s a way to run an online store without ever touching what you sell. Instead of keeping things in stock, you team up with a supplier who ships the product directly to your customer when someone places an order. That means no worrying about storing boxes in your garage or running to your post office every day. You focus on the fun stuff—like building your brand and connecting with customers—while the behind-the-scenes work gets handled for you.

The pros and cons of dropshipping

Flexibility
Dropshipping is incredibly flexible, with your only requirements being some decent WiFi and a digital device. Entrepreneurs can sell whatever they want, as long as a wholesaler is willing to provide it. The world is your playground in this manner. :)

Low starting cost
You don’t need to invest much into your business to start. In fact, some don’t put in anything at all. Since you don’t have to buy anything in bulk or require something akin to a warehouse to store your things, major costs are out of the picture.

Scalability
With this business model, it’s easy to start small and grow. As you get better at managing your business, you can add more products or wholesalers when you think you’re ready. If you’d like, even taking your business to a different country or continent is an option.

No inventory management
In dropshipping you let someone else handle the background of the business while you take care of the marketing and customer service. This means that you don’t have to deal with the product you’re selling at all if you don’t feel like it; it can simply be handled for you.

Automation
Since dropshipping is an almost completely online business, it has the potential to be completely automated as well, leaving you with only the profits to collect.

While all of this is nice, it also has its drawbacks:

Highly Competitive
Because it is so easy to start and get into, many people do so, leaving your business looking small unless you can stand out from the crowd. Starting with niches that aren’t as common can increase your chances of success.

Limited Quality Control
Dropshipping is done mainly online so you don’t physically handle your product, which is good as you don’t have many overhead costs, but that also means you can’t verify the quality of what you send. If it isn’t very good, bad reviews can discourage new customers from giving it a shot.

Inventory Issues
In this business, you don’t have to worry about manufacturing, keeping, or shipping your product. But that also means you are completely dependent on a larger chain of providers to do it for you. If there are any delays, damages, or issues with the stock, you are the one affected.

Legal Liability
This problem isn’t that common, but it is still worth noting. Legal liability is when you are legally responsible for a financial loss of another. Some suppliers lie about their authenticity and you could be the one to get in trouble. A dropshipping agreement contract can fix this though if you know what you’re doing.

Low profit margins
While it doesn’t take much to get started, that also means that the return isn’t the highest. Most of your money goes back to your supplier, and if you’re paying people to work for you you’ll have to pay them too. Unless you’re very good at what you do, it usually can’t be more than a side hustle to keep you going.

Of course, this isn’t all. Make sure you do your own research before you get into the business. It can be a great place to start if you know what you’re doing. What do you think, is drop shipping right for you?

Sources:

Research, Straits. “Dropshipping Market Outlook, Share to 2031.” Straitsresearch.com, straitsresearch.com/report/dropshipping-market#:~:text=The%20Dropshipping%20Market%20size%20was. Accessed 16 July 2024.

Landes, Austin. “Legal Liability: What It Means & How It Works | LandesBlosch.” Www.landesblosch.com, 9 Aug. 2022, www.landesblosch.com/blog/legal-liability-what-it-means-and-how-it-works. Accessed 16 July 2024.