Why drop shipping business might be a bad business idea
While dropshipping might seem like a no-brainer business opportunity, there are several drawbacks and potential issues you should be aware of first. These include:
Running a drop shipping business means that you never see or handle the goods that you retail, yet your customers won’t necessarily know or care about this. If they buy an item from you they will expect the item to be delivered on time, as advertised etc., from you – and not the supplier.
If there is an issue with an order and your drop shipping supplier(s) makes a mistake, for instance there is a problem with the item delivery, there are missing items, or perhaps low-quality packing has damaged the item, you will be held at fault by the customer and will have to accept responsibility.
You may be able to avoid these errors by only working with reputable and high-quality drop shopping suppliers, but this will come at a cost.
Most businesses that use drop shipping will source their goods through a variety drop shipping suppliers.
This can create complexities with shipping charges. For example, you are likely to incur several different shipping charges if a customer buys four products that all come from different suppliers and all have separate shipping charges.
You will need to swallow these charges – at a cost to your business – as you could easily deter customers if you were to pass on the shipping charges to them.
Low profit margins
Drop shipping is competitive and, with many retailers operating in this industry, you will need to set your prices at a level that will attract customers to shop with your business and not a competitor.
As it requires such little time and money to start a drop shipping business, it’s easy to operate on low profit margins but this does leave you with limited options if you really want to create a long-term, sustainable retail company.
However, you can generate larger profit margins by operating your drop shipping business in a niche market and selling goods that you know will capitalise on customer demand:
- For ideas on what products or goods your drop shipping business should stock, research before deciding what to sell and this could offer great returns.
- To ensure your products are what customers are looking for, you will need to carry out market research.