A report by Statista estimated that the global eCommerce market will generate $925.4 billion in revenue in 2023. That’s roughly $3,370 per online shopper. With a compound annual growth rate (CAGR) of 11.22%, this figure is expected to reach $1.42 trillion by 2027.
As eCommerce spending continues to grow, a dropshipping store is a great way to get in and claim your piece of the pie.
The keys to succeeding in this industry lie in finding the right audience and products for them, choosing reliable suppliers to work with and using competitive prices to attract buyers.
This guide will show you how dropshipping works, why it’s worth it and how to start your dropshipping business today.
Retailers in the dropshipping eCommerce business model sell products they don’t have in stock. Dropshippers — those running dropshipping businesses — focus on marketing and taking orders from customers (who pay upfront).
A dropshipper forwards customer orders to a third-party supplier, who packs and dispatches them to the clients directly. Dropshippers pay suppliers using the funds from customers.
Customers don’t know that a dropshipping supplier fulfilled their order. The important thing is that they get what they ordered.
To dropship, you first need a place to list your products, like a website. A website acts as an online store that lets your customers see what you’re selling and read your sales pitch in the form of a product description.
You profit by adding a markup to the supplier’s price. Your markup also covers your marketing expenses and other business overheads.
To hit the profitability sweet spot, ensure things like the dropshipping supplier you work with, target audience, marketing channels and other overheads are in sync. You can achieve a balance by consistently making small changes to each factor and observing the effects.
The history behind dropshipping’s rising popularity
Although the idea of dropshipping might feel new, it has existed since before the internet. We can trace its roots back to the mid-20th century when it took off as a form of mail orders.
Back in the day, customers would place orders with different companies over the telephone, and the companies would deliver via mail. Businesses didn’t have to have the products in stock, but they knew where to get them when customers ordered.
In the late ’90s and early 2000s, the dot-com bubble catalyzed the growth of dropshipping.
Despite the linear growth over the years, it wasn’t until the pandemic in 2020 that dropshipping proliferated. Many people were shopping online because they were stuck indoors.
It also became the go-to business model for many new entrepreneurs because it allows for a lean operation. You don’t need a team to start a profitable business.
In recent years, countless online influencers have positioned the dropshipping business model as a get-rich-quick scheme because it’s easy to start and scale. Their pitches make it easy to overlook its shortcomings.
But, like any other type of business, dropshipping has its strengths and weaknesses.
From low startup costs to easy scalability, dropshipping offers a lot of advantages.
Low startup costs
Even without a budget, you can launch a dropshipping business successfully. For example, if you talk to your suppliers, they can permit you to use their product images on your website. This way, you don’t have to spend anything on product photography.
Easy to manage
To successfully manage a dropshipping store, some things you need to monitor consistently are:
- Social media accounts: Around 78% of customers say they’re willing to buy from a business after a positive social media interaction, according to a report by Sprout Social.
- Your sales funnel: Analyzing your sales funnel helps you understand how customers are converting. You can identify where you’re losing potential customers and which part of your business needs more effort.
- Supplier relationships: You should always maintain communication with your suppliers. This way, you’re never caught selling products they no longer have in stock. It also lets you stay ahead of order fulfillment issues.
You can manage all these things from your couch without breaking a sweat, something you can’t do with traditional retail.
Scalability is one of dropshipping’s superpowers. Occasionally, you’ll stumble upon a winning product that customers will love. Dropshipping makes it easy to scale your operations if, say, you go from five to 100 orders daily.
First, you’ll need to find a way to forward those orders to your supplier efficiently. If they get overwhelmed, find another supplier with the same product to keep order fulfillment going.
With more orders, you’ll also experience more customer inquiries via direct messages (DMs) on social media and emails. Virtual assistants from Fiverr or Upwork can help resolve your customers’ concerns for a low fee.
Wide range of products to sell
In dropshipping, the ceiling for things you can sell is high. If you can think it, you can probably dropship it. You can sell large products, like furniture, or smaller products, like watches.
One of dropshipping’s main selling points is that it doesn’t require inventory management. Suppliers hold all the inventory while you focus on marketing and customer support.
No shipping or order fulfillment
A lack of inventory management means you’re not responsible for order fulfillment and shipping. Your only role in these steps is forwarding orders to your supplier.
Although dropshipping is worth it for many eCommerce businesses, it comes with its share of disadvantages.
Your suppliers own the products, and their work ethic directly affects your business.
Here’s a list of things that could go wrong with suppliers. They could:
- Fail to dispatch orders on time.
- Fail to ship altogether.
- Ship broken products.
- Ship the wrong products.
- Stop responding.
- Run out of stock and fail to inform you.
Remember, customers will rate your business negatively if they encounter these issues. This is a big problem because ratings define your online business, and you can’t pass the blame on to the supplier.
A market with high demand and low competition is desirable for any business. However, because of the low barrier to entry, competition is high in nearly all dropshipping markets.
To stand out, you must offer unique experiences, products or services. You can achieve this by collaborating with manufacturers to customize products. This way, customers can only get the custom product from your business.
Most manufacturers will customize your orders at a fee. But you can also charge more for custom products and increase your margins.
Limited control over customer experience
You have no control over some crucial touchpoints, like fulfillment.
If you promise to deliver a product in two days, you can only hope that your supplier will dispatch the order on time. If not, you’ll have to deal with frustrated customers.
Difficulty processing refunds and returns
In 2022, up to 16.5% of online sales in the U.S. ended up as returns, according to Statista. This means you’ll have to deal with returns at some point.
Returning products to destinations like China is costlier than shipping to the U.S.
It might not be economically feasible to process returns and refunds even when suppliers are willing, especially for cheap products where shipping costs can exceed product costs.
Building a dropshipping brand is difficult
A key aspect of branding is owning the product. A product with your label or tag assures the customer that they’re getting an authentic version and that it’s worth the money they paid.
Credit will always go to the manufacturer of the product you dropship. To own your products, you have to connect with manufacturers, create custom designs and probably spend a considerable amount to have them make your new products.
Is dropshipping worth it? Build a profitable dropshipping business
Yes, dropshipping is worth it.
As an entrepreneur, your main goal is to keep your expenses low and profits high. Dropshipping makes it possible to achieve this with lower overheads than other retail models. You don’t need to pay rent or hire shop attendants from the onset.
Additionally, dropshipping businesses are low risk. You can test whether something will sell without ever buying a single unit. If it does well, sell as much of it as you can. If it doesn’t, move on to the next product.
Now that you know dropshipping is worth it, here are some tips for building a profitable business:
Although you don’t need much to start, your goals and experience contribute to your budget size.
So, if you know less, you’ll need a bigger budget to account for learning.
The same is true if you have big revenue goals. You’ll need to reach a wider audience, translating to a bigger marketing budget.
If your budget is the determining factor for other business activities, small and scale slowly as you become more profitable.
Alternatively, you can use ad-spying tools to discover what your competitors are selling. Knowing what your competition is doing and how they’re doing it can inspire you and help you find more profitable products.
A supplier is the cornerstone of your dropshipping business, and finding a good one can be daunting. Supplier directories are online databases with contacts of thousands of suppliers in different industries.
Provide excellent customer service
Better customer service equals better conversions — this is a fact. Everyone likes to be promptly served when there are issues with service providers. Similarly, you must provide prompt, helpful support when your customers need you.
According to a report by Salesforce, 88% of customers say they’re more likely to make another purchase from a business after a great customer service interaction.
Marketing your business requires you to set clear-cut goals. So, it’s essential to develop a marketing plan to guide you. This helps you determine how to reach and engage your target audience.
There are many techniques to reach your audience, from content and affiliate marketing to advertising.
Branding helps you create a distinguishable identity for your business. A brand is comparable to a business’s personality. It influences how people feel about or perceive its goods and services.
To develop a strong brand, you must research your target market and consider what will resonate with your audience. Once you implement your findings, you’ll refine your strategy as needed. Then, you’ll repeat this process to continue improving your brand identity.
It’s OK to make mistakes as a beginner. But some mistakes are common and can be avoided.
Getting inspired by influencers on YouTube to take action is great. But when you start your business, it’s important to stay grounded. Expecting to make millions of dollars on your first try will lead to frustrations, which could cause you to give up quickly.
Remember how we said customers are more likely to buy again from a business with great customer service? Taking feedback from your customers and acting on it is part of providing exceptional customer support.
In a broad niche, like fashion, it’s hard to pinpoint your target audience. You’re likely to have trouble creating ad campaigns, and when you do, there’s a chance they won’t give you the desired results.
Narrow niches are the best. They allow you to serve the needs of a highly specialized group of people most effectively.
Using a single source for your products
Using one product source creates a single point of failure. If, for any reason, the supplier declines to take your orders, your entire business comes to a halt. It’s a better idea to have several sources for each product you sell.
The financial health of your business must be a priority. Always track your expenses and file your tax returns on time to avoid complications down the road.
Because this can be repetitive and creates room for mistakes, you can hire someone to help you.
There is no doubt that dropshipping is a worthy investment. But before you can begin, there are two things you need to do: buy a domain and a hosting plan from a reliable web hosting provider and configure an eCommerce store using a platform like WooCommerce.
What’s more, we offer a full-service package. Our experts can build a complete dropshipping website and handle your digital marketing needs so you can focus on building your business. Get in touch today to learn more.
Is dropshipping worth it: FAQs
Yes, dropshipping is legal in the U.S. and many other countries worldwide. But you may want to check whether it’s legal in your target country before you invest in your business.
Yes, dropshipping is profitable in 2023. However, due to the low entry barrier, competition is high. To succeed, you must choose a great niche and have a strong brand with excellent products and customer service.
Yes, you can. However, if you plan to sell products on your website, you’ll need to set money aside to purchase a domain and hosting plan.
Succeeding as a dropshipper requires time and a little hard work. With continuous improvement in your offerings, marketing and customer service, it can take a year or more for a dropshipping business to replace your full-time income.
There isn’t a definitive amount you can make dropshipping. However, you must balance demand and the prices you charge to stay profitable.
Generally, high-quality products tend to have higher profit margins. So paying attention to product quality can help you make more.