Is Dropshipping Worth it?

You’re an aspiring investor or entrepreneur, and you’re looking around to see what assets you have to propel your startup. You may only have minimal funds and not enough space for potential inventory. This is when you can ask the question, “Is dropshipping worth it?”

Dropshipping has pros and cons, and it requires finesse and knowledge to keep an online business afloat. Let’s analyze each side to determine the answer.

Dropshipping for Beginners

Dropshipping is a way to move products outside of regular distribution channels. The product may never be in your possession, but the manufacturer takes care of getting it to the customer for you. 

It requires research to discover the products you want to sell. Some opt by researching platforms like TikTok to see what ads are trending. Some choose a more classic route by researching products on Amazon and analyzing each against how much profit they would make per sale. Once you know what you want to sell, you can set your dream price on your site and wait for your first customer.

Once someone makes the purchase, probably from targeted ads on social media, it’s time to purchase from a wholesaler. Websites like Shopify and Amazon are the conduit between you and the customer. They are best known for providing dropshippers with the ideal venue for making money. Have you ever ordered something from Amazon that came in a Walmart box? This is when you can tell the product was dropshipped because the seller created listings from cheaper sites and put them on Amazon.

However, this isn’t always allowed. Specifically for Amazon, there are strict policies for how and what you can dropship. Purchasing from Walmart is against the policy, and if you don’t read the rules thoroughly enough, Amazon can withhold your funds — putting you at a market loss. Every storefront is different, so ensure you’re familiar with each site’s regulations.

In short, customers purchase a product from your site, the retailer purchases the product from a wholesale seller, and then they have that shipped to the customer while banking on the profit — usually around a 20% margin.

Benefits of Dropshipping

The accessibility of dropshipping is the trend’s more enticing benefit. Anyone with a stable internet connection and time can open a shop — you don’t even need to have upfront costs to get started. You could post a product, wait for your first sale, and not spend a dime. This accessibility has given young merchants agency. Millennials and younger can create a valuable side hustle or even a full-fledged business with little effort combined with their intuitive social media know-how.

You also avoid spending money on obtaining and storing inventory — just know what products work well and don’t for dropshipping and the seller is on their way to success.

Hiring an agent and sourcing companies could also avoid some of the negatives of dropshipping, such as long shipping times or complex return policies. However, this requires additional funds. But, it could separate you from the rest of the competition by having an excellent reputation. 

As previously mentioned, no upfront costs are necessary when there are options for online storefronts to host your store. You also don’t have to spend money on advertising. Organic social media ads are possible so that you can see an even greater return on your investment. This doesn’t work for everyone, but the benefit of dropshipping here is that it is possible to spend no money on advertising and pocket as much profit as possible.

Lastly, dropshipping could be the gateway to a more successful enterprise. It gives sellers plenty of time to test a bunch of products to see what sells well over the long term. Once dropshippers perform this research, they could decide to private label the top contenders for larger profit margins because they could eliminate the need to dropship altogether.

Drawbacks of Dropshipping

However, dropshipping has plenty of drawbacks that could cause some roadblocks to success — ethical and practical. Legitimate dropshipping actors and nefarious ones attempt to take advantage of new professionals and impulsive shoppers.

Shoppers should be aware of these signs of inadequate or fraudulent dropshipping shops:

• Low seller reputation
• Poor ratings and reviews
• Poor customer service, like the absence of a phone number
• Difficulty performing transactions
• Questionable or low-quality websites resembling scam sites

It can sometimes be challenging to navigate lengthy terms and conditions for each website that hosts dropshipping. For instance, some sites may ban a seller if they have long shipping times — which isn’t unheard of since many dropship products come from China. Often, the packaging is questionable, the product quality isn’t as high and customers who strive to return the products are met with complicated return policies and procedures.

There are many outlets for dropshippers. If they get banned on a platform, they can move to another, like eBay. However, because this is a trending side hustle, competition is high no matter where you go.

This brings about the dropshipping scare of false advertising. Because many of these shops could be fakes from China, posing as small businesses from other countries, dropshippers risk disappointing customers by selling counterfeit or poor-quality products.

FakeSpot, an e-commerce authentication business, studied Shopify dropship sellers and found that 21% of 120,000 sites caused customer risk. These risks include copyright infringement, privacy information leaks and nonexistent customer support with no return policies.

Ethical Concerns of Dropshipping

There are also a few ethical concerns regarding dropshippers and their tactics, including:

• Is it okay to take advantage of people’s impulsive behaviors to make a profit?
• Is it okay to take customers away from small businesses?
• Is it okay to support products that may be created in less than adequate working conditions?
• Is paying for fake reviews and ratings okay to get higher sales?
• Is it okay to dropship potentially fraudulent items from copycat makers, forcing legitimate businesses to spend excess money on legal battles for intellectual property?

Dropshipping is becoming more mainstream, yet it still has little regulation outside individual websites. Though dropshipping is a legal endeavor, there are plenty of red flags to stay constantly aware of.

Is Dropshipping Worth It?

To clarify an answer to this question, it’s critical to have realistic expectations. If you understand that dropshipping is not a get-rich-quick scheme, you may have a sustainable side hustle or a business model. 

Most success stories revolve around successful advertising, so there is more in the background than gurus inform. Suppose you’re prepared to make the time investment. In that case, it’s possible the ROI could be significant — be sure to familiarize yourself with the risks and regulations for individual retailers and federal tax laws.