Dropshipping – solid business model or dubious? Stefan Zangerle 11. January 2022

Dropshipping – solid business model or dubious?

Dropshipping - solid business model or dubious?
Dropshipping - solid business model or dubious?
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Set up an online shop, find a cheap China product on Aliexpress, sell the product at high prices in Europe and the USA and get rich quickly with little effort and capital. Many of the promises made by the self-proclaimed “dropshipping gurus” of the “get-rich-quick” communities on YouTube or Facebook sound like this or something similar. But what is really behind dropshipping? Is it possible to build a successful company with dropshipping in the long term or is the hype about dropshipping only lucrative for the gurus?

What is dropshipping?

Dropshipping means that the operator of the online shop does not buy the goods from the supplier until he has sold them to the end customer. The buyer receives the goods directly from the manufacturer and the online shop is usually not part of the supply chain.

As a dropshipper, this not only saves you having to finance the goods and storage costs in advance, but you can also outsource the entire logistics of shipping to the manufacturer.

Dropshipping model – Copyright: Zeitgeist

How does dropshipping work in practice?

In order to be able to generate profit in the long term with dropshipping, the products must of course be sold more expensive than they are bought. The profit margin has to be large in order to cover the costs for shop, marketing, tax consultants and the like. In times when identical products are sold online by many different providers and there is an enormous price war, this is no easy undertaking.

Therefore, in recent years the dropshippers have almost exclusively specialized in the import of cheap Chinese products from Aliexpress (Chinese counterpart to Amazon). The prices for the goods are usually well below the world market level and, as a trader, allow profit margins of 100% and more.

As soon as a suitable product for dropshipping has been found, an online shop must be set up. With Shopify , there is a provider that makes it possible to create a professional-looking store quickly and without any knowledge. Various apps and plug-ins that have been specially developed for dropshippers can automate the entire process and therefore provide the basic framework for dropshipping.

After a shop has been set up, the product is usually advertised on Facebook and Instagram in order to generate sales. As soon as you have found the right settings for the ads, all you have to do is increase the budget and the online shop will scale automatically from now on. If you do everything right, you will make a profit from day 1 – at least that’s the theory.

The function of the gurus

This is exactly where the “dropshipping gurus” come into play. In many YouTube tutorials and Facebook groups, they explain the dos and don’ts of dropshipping to starters, explain their strategies in detail and proudly present their sales figures. They want to give young people financial freedom and claim that dropshipping would generate profits of EUR 2,000 and more per week with a workload of 4 hours per week.

However, only very few offer really helpful support in their freely available videos. They only serve to consolidate your personal brand. They also have to be able to offer courses and seminars with the secrets of dropshipping for hundreds or thousands of euros. The offer of the gurus is rounded off with expensive e-books or 1-on-1 coaching at hourly rates, at which even McKinsey consultants rub their eyes.

At this point I would like to clearly question whether these courses offer added value that this price can justify. Suffice it to say that many of the dropshipping gurus earn more with their courses and coaching than with their own shop.

The downside of dropshipping

The “experts” like to conceal the fact that everything is not as simple as it seems at first glance. While dropshipping offers many advantages, it also has at least as many disadvantages and hurdles.

The main disadvantage is clearly the delivery time. Since the products are imported from China, an average delivery time of at least 3 weeks can be expected. Even with express deliveries, shipping times of less than a week are simply not possible. So the question arises of who will accept such delivery times in 2020 if you can buy the same product on Amazon from a wholesaler with a warehouse in Europe and receive delivery the next day. Some dropshippers therefore deliberately do not specify delivery times or cleverly hide them on their website. The rude awakening of the buyer then only takes place with the order confirmation.

Another disadvantage is the poor quality of the products and the quality of the shipping. As a dropshipper, you have no control over how the products are shipped by the manufacturer. Inexpensive or improper packaging does not speak of high quality. When customers are unboxed, this quickly leads to disappointment and the realization that they have paid too much for the product.

Handling returns is also a big problem for many dropshippers. Shipping back to China is usually uneconomical – so in most cases the customer is simply reimbursed the purchase price. High return rates then quickly eat up the actual profit.

In addition, as a dropshipper you don’t really have a unique selling point compared to retailers who offer the same product. Why should the customer buy from the dropshipping shop and not from other retailers with an established brand or greater awareness?

But there are more disadvantages. Very few dropshippers are really aware that as an importer you can be fully liable for imported products from third countries. In the case of defective electronic products or children’s toys with missing certifications, your own dropshipping store can quickly become a threat to your existence.

You should also keep the ecological component in mind when dropshipping. Society is becoming more and more aware of climate change, and for many buyers it is no longer morally justifiable to have a package sent around the world.

Dropshipping from China is not a business model

It may be that some trend-conscious dropshippers can also achieve high profits with constantly new products and shops. But that is almost always at the expense of the end consumer.

In the long term, for this reason alone, but also because of the many disadvantages associated with the dropshipping of cheap Chinese products, in my opinion you cannot build a sustainable or successful company.

How dropshipping can work anyway

However, that does not mean that every form of dropshipping must be denied in principle. The listed company Wayfair , for example, only sells dropshipping products and was able to generate sales of more than 9 billion dollars with just under 12,000 employees last year. But furniture giant IKEA also relies on dropshipping for parts of its range.

So how can a successful business be built with dropshipping? For me it is actually very clear: the entire business model depends on the product and the manufacturer. Anyone who finds a reliable manufacturer with a high quality product can justify an expensive price and can offer the end consumer an appealing buying experience. In addition, there are numerous business opportunities that can be proven to be successful in the long term.

Success models

A shop in which one exports domestic niche products to the international market or takes over the complete distribution of a producer could be particularly lucrative. This often creates a win-win situation for manufacturers and dropshippers. The manufacturer can focus on producing the goods and can outsource distribution to the dropshipper. The expertise of both partners can be used ideally and high-quality products can be made known all over the world. A current example of this is the Tyrolean lifestyle bike, which Marketing & Sales handed over to a South Tyrolean partner.

Another possibility would be to secure exclusive distribution rights for certain markets or countries. This means that new or established products can be made known in other countries without direct competition.

Private labeling could also be an interesting option for dropshipping. It is important to find a producer who also agrees to sell his product under the dropshipper’s brand. Dropshippers in particular with extensive marketing experience can establish their own brand on the market with the private label and thus become successful in the long term.

Of course, all of these options require that you find the right manufacturer. Normally you cannot find these manufacturers in a quick Google search, but have to deal intensively with a product, the market and the associated opportunities and risks.

You also need to have extensive marketing knowledge and choose the right strategy for selling the product. Not to be forgotten are smooth and fast customer support. This not only requires a lot of thought and concrete plans, but above all a lot of time.

Conclusion

And so it is clear: Successful dropshipping is not as easy as you think and as people like to tell you. You don’t get rich overnight, and it is not the quickest route to financial freedom. The business model per se has advantages and disadvantages, but it is definitely justified.

However, only a good entrepreneur who acts and thinks entrepreneurially, who can clearly differentiate himself from the competition with USPs and who spends a lot of time in perfect implementation, will be successful with dropshipping in the long term.

But this entrepreneur would also be successful with all other business models.