Is Dropshipping Worth it in 2020?

Is Dropshipping Worth it in 2020?

“How to make money online”. This is probably one of the most searched terms of all time. I mean, who doesn’t want to make a ton of money sitting at home doing minimal work?

When you Google it, there are some options/ methods that’ll pop up all the time. Such as starting a YouTube channel or a podcast or selling stock photography or freelancing. Finally, you see a method called Dropshipping.

It is shown as a glamorous career path filled with opportunities. You don’t need money to start it and sky is the limit. You can finally make money while you travel the world and buy a new Lambo, but, the only downside is that This is a dying business.

Check out my YouTube video on Dropshipping. It’s a more detailed version of this blog.

thumbnail-01

Click Here

What is Dropshipping?

Dropshipping is a business model that allows entrepreneurs to start an online business and sell products to their customers without ever actually stocking the items themselves.

An example- Let’s say that you want to buy a shampoo. What do you do? You go to the store and grab a bottle. Now, if you think about the business model, the shopkeeper buys a ton of bottles in advance from the suppliers to get a discount and stores them until someone buys them.

The first problem with this method is that you need capital to actually buy bulk material. And the second problem is what if it doesn’t sell? If your product (bread) expires soon, you’ll have to sell everything before it expires or else you’ll lose money.

There are other problems and costs too, such as rent. You need to construct/ buy a shop and spend a fortune organizing it.

It isn’t the simplest business model.

But,

In dropshipping you don’t have a shop. You have an online store. It’s much easier and cheaper to build. That’ll save you a ton of money on rent.

Next up, you don’t buy any inventory. You buy it only when someone places an order. So you don’t have to worry if the product gets sold or not. Your risk is minimal but the profit opportunity is unlimited. You buy cheap items from China (through Ali Express).

Sounds wonderful, right?

It isn’t.

Before I crush your dream of starting a dropshipping business, let me quickly jot down the pros or the advantages of a dropshipping store.

The 3 Steps.

  1. Select a product and set up and online store.
  2. Drive traffic through ads.

Advantages.

  1. No capital required. You can literally start this business today.
  2. No inventory or employees needed.
  3. The problem of overstocking isn’t faced by dropshippers.
  4. You can run the company from anywhere in the world.
  5. Low entry barrier.

So, what’s the problem?

#1. Low Entry Barrier.

if anyone can start a business, everyone will. You don’t need anything. If you build a company like SpaceX or Tesla, you have little to fear about the competition.

Not everyone can start such a company. You need millions, if not billions of dollars to buy a piece of land, build a factory, hire employees, spend money in R&D, advertise, legal issues, etc.

But, to start a dropshipping business you need nothing.

#2. Over Saturated Market.

There’s a thing called the First Movers Advantage. The company that enters a new market gets significant edge over others.

But the dropshipping market is already over saturated. If you’d started it 5 years ago, you would have had significantly higher chances of succeeding. But today, there are millions of people trying to rank for the same keywords.

#3. The Product & Shipping.

Chinese products have extremely bad quality. They break easily and things aren’t what they look like in pictures.

There are only limited options to what you can sell. You need a cheaply priced product, such as a  yoga mat or something.

Delivery often takes weeks. If you’re like most people, you can’t wait for over a day. In some cases, delivery can take a few months. It happens.

#4. Profit Margins.

 If you look at the screenshots of any dropshipping “GURU”, you’ll only see the revenue part. They’ll show you that they’ve sold $100,000 worth of yoga mats or custom mugs in a month.

But that doesn’t give you the entire picture.

How much did they actually make? The margins in this business are very thin. Plus, you’ll have to pay a lot for ads. The competition is severe and keywords are expensive. After all that, you can’t forget taxes.

At the end of the day, even with revenues worth $100,000, they might still be at a loss or make only 5-10k dollars.

As an investor, when I look at companies, I look at the P&L statement. The top line matters, but what matters even more is the bottom line.

#5. Return Policy.

Shipping a product often takes 2-4 weeks. But what if the customer is unsatisfied with the poor quality and wants to return it?

That’s a big problem. Returning the product is a gigantic pain in the neck. It can often take months to return a product and till that time your name will be dragged through dirt.

7 words you need to Hear.

                                    AMAZON WILL DRIVE YOU OUT OF BUSINESS.

 

As a customer what do you really want when you buy something online? I thought about the things I look for and here are 5 of the most common ones.

#1. Cheap Price.

As a dropshipper you will always order stuff from the manufacturer. So your production cost will never be the lowest. Also, you won’t have the complete control over the supplier.

Amazon on the other hand can literally sell its products for a loss (it has done it before) just to stick it to the competitor and drive it out of business.

Amazon has low priced items and control over suppliers/ manufacturers. Amazon is so big that it can (and has) bullied suppliers. You can’t do that.

#2. Fast Shipping.

Nobody likes to wait 6-8 weeks to get a product even if the price is slightly lower. Amazon, on the other hand can ship your product in 1 day (sometimes on the same day) through Amazon Prime. And even if the delivery is late, it won’t exceed 5 days.

Do you really think that you can compete with that speed?

#3. Wide Selection of Products.

Amazon has millions, if not billions of products for sale under each category. The choices are limited. And what are the choices available for the yoga mat you sell?

Blue colour or red colour. That’s it.

The customer will always appreciate more options at a cheaper rate.

#4. Branded Products.

Amazon sells all kinds of stuff from all kinds of companies. Even high end companies sell their products through Amazon.

Quality matters.

Amazon sells watches made by Rado or Titan, and what do you sell? Cheap yoga mats made by some Chinese company you cant even pronounce.

#5. Hassle Free Return & Trust.

People trust Amazon. if they buy the wrong product. They know that they can easily return it and get their money back within a week or 10 days.

But on your store, people may not trust you with online payments, and even if they do, the return procedure is going to be a pain in the neck and it’ll be months before they get their money back.

The Solution.

Will all dropshipping businesses fail? No, of course not. But majority of them will fail. It is not a long term sustainable business model. And it is also not a get rich quick scheme.

So how can you build a successful dropshipping business?

Look at Dwayne “The Rock” Johnson or George Clooney or Ryan Renolds or Gary Vaynerchuk. What do these people have in common?

They all have a personal brand and they sell stuff through it.

The Rock, Ryan Renolds, Clooney and Gary Vee sell wine online. Are their wine bottles the cheapest? No. Are the bottles made of the best quality? Nope.

But still their businesses are worth millions.

Why?

People buy their products because of the brand name. Gucci is a rip off. It sells ridiculous items at ridiculously high prices due to the brand name.

Your goal must be to create content and build a personal brand and monetize through that method. It’ll be more time consuming or more difficult but it’ll be sustainable for long term.

People wont mind paying more for your products if you have a strong personal brand.

-Vikrant C.

 

 

close
close