So you’ve decided you want to set up an eCommerce dropshipping store. Now what? Well, you’re not alone on this matter. Dropshipping has grown tremendously over the last couple of years and is now estimated to be the chosen fulfillment model for over 33% of online stores. The prospect of being able to easily sell products online without having to worry about shipping, inventory management or up-front costs is understandably desirable. But, like with most things in life, there’s a catch as around 90% of dropshipping stores fail within their first year of operation. In this blog, we’ll be exploring the top 5 reasons why dropshipping stores are still failing in 2019, plus how you can learn from others’ mistakes.
What is Dropshipping?
In simple terms dropshipping is a business model in which goods are shipped directly from suppliers to customers, without an intermediary. Dropshipping roughly involves 6 stages. Firstly, you need to find a supplier and create an online store. Once a customer buys from your online store, you place an order with your supplier. The supplier then ships the products directly to the customer, and you get to keep the profit from this transaction. In this sense, dropshippers act as third parties, whose primary job is to advertise products and acquire sales.
Dropshipping is popular because it is cost-effective. Unlike other fulfillment models, there are no (if not, limited) set-up costs. You don’t have to buy a bunch of stock, you don’t have to buy shipping supplies, you don’t have to pay for a warehouse to keep your stock. In fact, you don’t have to pay anything until a customer has bought an item from you! This means that shop owners can constantly add new products to their stores without any possible repercussions. If there is no interest in these new products it doesn’t matter, because shop owners haven’t committed to a stock purchase. Dropshipping is based on demand, which means orders are placed with suppliers once a customer has already paid. If no orders are received, no supply orders are placed.
Mistake #1 Not Picking a Niche
The first mistake that dropshippers usually make is failing to pick a niche. As we’ve already established, choosing which products to sell is relatively risk-free since the overhead costs of dropshipping are minimal. This leads merchants to believe that creating a store selling a wide variety of products will give them the best chance of success. In reality, having your finger in too many pies will bring limited results. Why? Because lots of dropshippers are already doing the same thing. A good demonstration of this is the phone case category. An eBay search for ‘phone case’ returns 20,720,676 results and whilst not all of these are fulfilled via dropshipping, most of them are. By clicking through a few pages of search results you’ll notice some cases keep reappearing. Each one is sold by a different seller but uses the same photography. This is because phone case dropshipping suppliers are easy to find through well-known websites such as AliExpress. Generic categories like this are highly saturated, which means there’s lots of competition between dropshippers. This creates a race to the bottom, as merchants are continually competing for custom by lowering their profit margins as much as possible. It’s a no-brainer that picking a niche with less competition is therefore a lot more profitable. The key is to find a gap in the market and find a niche where you can really add value. This isn’t going to happen overnight though, it will require lots of trial and error!
Mistake #2 Picking the Wrong Supplier
Following on from this, the second mistake we’ve seen is dropshippers who don’t spend long enough researching their supplier. Choosing a bad supplier can have devastating effects on your store since they impact everything from product quality to shipping. You need a supplier that is dependable. The best way of guaranteeing this is to meet suppliers in person, but we appreciate that this isn’t always possible. Alternatively, you should focus on building an open communication dialogue with them. Ask questions about how they process orders, their experience being a supplier and how many other dropshipping clients they have. Before you start selling products it’s also a good idea to ask for samples to ensure you’re happy with the way they look and feel rather than learning the hard way. When conducting your supplier research, you should pay particular attention to their experience and reviews. This is tricky as you want a supplier who knows what they’re doing, but if you choose a supplier with lots of reviews there is likely to be more competition when selling their products.
Mistake #3 Relying on One Vendor
Whilst it’s important to only work with suppliers that you can trust, it is equally important not to put all of your eggs into one basket. If you source all your products from one supplier and this supplier suddenly ceases trading… you’re stuffed! In this situation you’re left with two options; cancel the orders or scramble to find a new supplier and risk delays or a decline in quality. There are several reasons why relying on a single vendor is a bad idea. As well as the risk that they may suddenly cease trading, vendors could also run out of stock, become overwhelmed with orders and incur severe delays or they could drastically increase their prices. Each of these has the potential to put your store in jeopardy. The solution to this is simple. Firstly, your store should sell products from several vendors. If your supply chain involves several vendors it’s no big deal if one of them goes bust, as you’re not dependent on them. This additional stability means your store will be able to withstand volatility. Secondly, for popular products you should always be in touch with a secondary supplier. This ensures you always have a backup plan. On this note, however, be sure to pay attention to the contract between you and your supplier as some may include a clause that says you can only liaise with them.
Mistake #4 Lack of Communication
As a dropshipper your role is essentially to act as a middleman between customers and vendors. However, lots of dropshippers fall into the habit of assuming that once an order is achieved their work is done. This causes customer frustration as they are left in the dark about their orders. Constant communication is necessary, especially when you’re sourcing your products from another country and the shipping time can be lengthy. One way to resolve this is to choose a supplier that provides parcel tracking. In the age of online shopping tracking has become a norm – customers want to know where their products are and when they can expect to receive their orders. Doing this will add transparency to your store and give customers peace of mind.
Mistake #5 Lack of Returns Policy
The final mistake we see is sellers who don’t establish a solid returns policy. According to Ready Cloud, 66% of customers check a stores return policy before making a purchase and 80% of shoppers are deterred by inconvenient policies. As well as being a legal requirement, returns policies therefore have a major influence on purchase decisions. Nobody wants to lose money, but it’s your job to liaise with suppliers to determine who is responsible for returns. Find out what their returns policies are – do they only accept returns for broken or faulty items? How long do you have to return items? Do they charge an additional restocking fee? Once you have the answers to these questions you can create your own streamlined returns policy. This should set out when, where and how customers can return items. The main area of contention will be whether customers should return items to you or directly to the supplier. On the one hand, you’ve never handled items and didn’t ship them to the customer, but if you use several suppliers then providing customers with the right returns address can get confusing.
Are you interested in starting an eCommerce dropshipping store? Let’s have a chat!