Having a thorough understanding of the pros and cons of drop shipping is really important before you jump into this ‘Wild West’ of eCommerce.
The main pros of dropshipping is that you need no capital investment in inventory and you have no need to deal with suppliers, logistics or packaging. You can also start selling very quickly and you have an endless choice of products to sell.
The main cons of dropshipping is that you have no control over the quality of products you sell since you never handle the products yourself.
Drop shipping from China also leads to slow shipping times which has been the main killer of drop shipping stores over the years.
Drop shipping certainly does sound like the perfect ecommerce business. Just selling products and not having to worry about inventory and logistics removes a lot of the financial risk and daily grind work involved in running an online store.
The fact of the matter is that any business has risk involved. With drop shipping you only move the risk to other parts of the business.
Ultimately drop shipping is not a business model. If you treat it as a business model then you will not be in business in five years from now.
Drop shipping is a fulfillment model. It is simply a method of fulfilling orders through a third party. I believe that it is a fulfillment model that will continue to grow as it is more cost effective for everyone in the supply chain.
The Pros Of Drop Shipping
The pros and cons of drop shipping has experts divided and most drop shipping businesses quickly move away from dropshipping once the business becomes really well established.
The pros of drop shipping however makes it the best way to start an online store and to get a foothold in eCommerce.
Dropshipping allows you to start with very little capital, very little risk and an endless supply of products and ideas to choose from.
Here are the 8 biggest advantages of drop shipping.
Time is money is a saying that many like to use but you only realize the impact of this statement when you start a business in your free time.
There is only that much you have time for and there is a limited amount of tasks you can focus on yourself.
A more traditional online business model (without dropshipping) will suck up enormous amounts of time as you try and source products, deal with suppliers, organize warehousing etc.
Dropshipping makes you nimble. With a Shopify store you could (in theory at least) start selling within hours. Sourcing products from Aliexpress requires no effort other than finding a product and listing it.
This makes it incredibly fast to get started. You can test ideas incredibly quickly and most importantly move on when it does not work.
One of the big mistakes that many traditional online stores make is that they spend months and thousands in getting set up.
If it does not work then they are very deep in a hole and most never recover to start something new.
With dropshipping you can have 10 ideas (10 stores) and quickly pivot when your initial idea does not work. This saves you the mental and emotional trauma from ‘wasting’ months of your life and your precious savings.
Dropshipping fits perfectly with the entrepreneurial mindset since it allows you to quickly go through the motions to find a business that works. It’s not so much about finding what works as it is about eliminating what does not work.
Most people don’t want to hear it but if you are inexperienced it may take you 10 to 20 attempts before your store makes money and you hit on the right products.
2. No Upfront Capital Needed for Inventory
Buying inventory upfront is very risky. It is especially risky if you start a new store with no proof of concept. To make matters worse, you usually have to do bulk orders to satisfy wholesalers’ requirements.
You may buy a few thousand dollars worth of stock before you even sold one product. The problem is if you have no idea if the product will sell or not.
A lot can happen as well. Your plan could be to advertise on Google or Facebook and two days in your ad account gets shut down. Stripe or Paypal can have an issue with your business model and shut you down.
These are all problems that could be overcome but the pressure of having to sell large amounts of stock can cause even the most resilient person to buckle.
With dropshipping you have none of these worries. In fact, you only really have to buy stock AFTER you get paid. Not only is this great for cash flow but it eliminates one of the biggest financial risks there is in eCommerce.
Dropshipping allows you to start your own online store with a few hundred dollars instead of a few thousand PLUS you have almost no risk to that few hundred you start with.
3. No Need To Pay For Warehousing
Warehousing can be a pain to deal with. There certainly are really good companies like ShipBob that can make this much easier but it still sucks up a lot of time and resources.
Warehousing costs money and although a few dollars per item may not sound like much it can quickly eat into your profit margins.
With warehousing you also need to manage inventory. You need to constantly make sure you have enough stock – especially if you buy in bulk from China.
It takes a lot of careful planning.
With dropshipping you almost never have to worry about warehousing and inventory. If your supplier runs out of stock on Aliexpress you can usually find another fairly quickly.
4. No Involvement in Picking and Packing
Picking and packing stock is not only a tedious job but can be very time consuming. If your store sells a variety of sizes and variants then it may even require staff to do the picking and packing.
If you pay a warehousing solution like ShipBob then they do the picking and packing for you.
If you have your own warehouse then you will quickly run out of time and or man hours if you have to do it in-house.
With dropshipping, your agent and/or supplier will take care of all that for you which again frees up your time.
5. No Need To Deal Directly With Logistics Companies
Dealing with logistics companies can be a real pain in the ass. The only way to really get cheap shipping rates is if you do large volume and this is almost never available to individuals with smaller businesses.
With dropshipping the very business model offloads this burden from your business. Since most drop shippers do large volume they get great rates but the whole issue with dropshipping is still shipping times.
With all the nuances of shipping times and logistics with dropshipping, the advantage is still that you do not have to deal with logistics companies.
6. Quick & Easy To Move On From Products That Don’t Sell
A dropshipping business is a very noble business. When you first start you need to build your store around some core products.
These core products are often the result of a lot of research that you need to put in up front. Despite your best efforts to present your product as well as possible and with all your market research behind the products, it still can fail.
In fact, most products will not be hot sellers. I would say that 1 in 100 products sell like hotcakes.
About 50% of products will not sell much.
Because you have no inventory and no capital commitment to your products or suppliers you can simply move on.
That is the beauty of dropshipping. If it doesn’t work, change.
You could spend months trying to “make a product work” but the honest truth is that if you did your market research, built a great store and had your pricing right then your assumptions were wrong and your products and your product angles are not appealing to your audience.
Cut your losses. Learn from the experience and move on to the next product and/or store.
Never fall in love with your own products and your own store.
It is the ultimate deathtrap.
You are dropshipping after all. You have no commitments! Make full use of it and simply move on. There are thousands of products and niches to test.
7. Easy To Change Your Business’ Focus
I love the idea of pivoting in business. The concept of pivoting is all about changing direction with real world feedback.
Successful businesses are almost never what they started as. When you start, you make certain assumptions. Only with real data can you see if your assumptions were right or wrong.
With one foot firm;y planted in where you started, you can use the data you have and shift direction.
Flickr started as an online game and part of the game had a photo sharing feature. The game itself was fairly unsuccessful but the photo sharing part took off. With this data Flicker became the biggest only photo sharing site.
Your dropshipping store might start as one thing with all your assumptions in place but once you see what’s working you may need to shift focus. Most of the time it is a shift in the focus of your core products.
With dropshipping this is easy because you can easily change your product catalog and even switch suppliers in a very short time frame.
Shopify itself is a great example. It started as an online snowboard shop and the owners built their own eCommerce platform for the shop.
The shop was a failure but the platform was not. They started selling the Shopify platform to other online businesses which is one of the most successful eCommerce platforms today.
Never fall in love with your original concept or idea.
With dropshipping you can quickly change direction. Do it if the data guides you away from your original idea.
8. Easy To Find Alternative Suppliers/Drop Shippers
Online stores that rely only on one merchant or supplier will always be at their mercy. If the relationship is great then all goes well but in the long run you will always be at their mercy.
They can increase the prices on you, change their terms of service or discontinue your best selling products.
You can be out of business overnight if you rely on only one supplier.
With dropshipping this is rarely the case. If you source products from Aliexpress you can almost always find a number of suppliers who will dropship the same product(s) for you.
In fact, you can almost always shop around for better prices and/or a better deal.
The Cons Of Drop Shipping
If you read through the advantages of dropshipping you may think it is the perfectbusiness. The pros and cons of drop shipping tends to even out though as there certainly are a lot of issues that come with it.
When you sacrifice risk, it tends to open up the market to a lot more competition. If you need $100k to start a business then you will obviously have a lot less competition than you would have if it took $100 to start a business.
The cons of dropshipping however revolves a lot around logistics and quality control. We will mostly be discussing dropshipping from China but I will highlight some issues that creep in even when you dropship locally with more established companies.
1. Quality Control
When you dropship you do not handle the products you sell. In fact, I’ve sold thousands of products that I have never even held in my hands.
I had no idea what they looked like, felt like or if they even worked well. I have since smartened up and now never sell anything without having a sample first.
This is good for business but definitely not needed. Your customers will quickly let you know if the product(s) are crap.
That is the real issue with drop shipping – especially if you dropship from Aliexpress. The quality tends to be okay at best.
Very often the quality is really poor but occasionally it is way higher than expected.
I’ve had numerous instances where Aliexpress sellers actually switched out their suppliers and ended up shipping inferior products to my customers. There was no way of knowing until the refund requests started rolling in.
Finding reliable Aliexpress drop shippers you can trust is tough. CJ Drpshipping and Udroppy on the other hand has a level of quality control and the vast majority of their products is of a decent quality.
Aliexpress is cheap and easy but it is the bottom of the barrel as far as quality is concerned.
2. Slow Shipping Times
Another major problem with drop shipping from China is shipping times. Even pre-COVID-19 the shipping times was an issue as ePacket started having issues.
ePacket used to be a reliable and fairly fast shipping option for dropshipping from China. It provided you with tracking details and has roughly 10 to 15 day delivery windows from China.
This is slow and most customers are not happy with that. Even if you spell it out on your store, customers get impatient and file disputes and request refunds if they feel they are waiting too long.
Does this mean dropshipping from China is dead? Absolutely not! With dedicated drop shippers like CJ Dropshipping, Udroppy and Eprolo there are faster shipping options as they use different logistics solutions.
You can get parcels from China to the USA in 7 to 10 days which is quite acceptable.
The secret is also in getting your orders shipped out quickly which is rarely the case with Aliexpress.
Overcoming the slow shipping times from China will always be an issue just because of the distance and the fact that parcels cross different customs checks.
Dropshipping from the USA (to the USA) might seem like the ideal solution and in some ways it is. The problem is in finding good drop shippers with a decent inventory of products you can sell.
It tends to be fairly limited and the prices tend to be very restrictive.
3. Poor Suppliers/Drop Shippers
Once you’ve been working with Aliexpress suppliers for a while you see all sorts of shinenegance. Most of them are drop shipping themselves from other suppliers which compounds all the issues I have already mentioned.
Poor suppliers tend to lie about their stock, their shipping times and the quality of their products. They also tend to be very poor with communication and apart from the language barrier they are often unresponsive.
My biggest gripe with poor suppliers on Aliexpress was the fact that some of them will take up to 7 days before they ship your orders.
They often do that to bulk up on their own orders to save money and the result is that your customers wait even longer to get their parcels.
With you effectively being the middleman you will find just how hard it is to run a business with your supplier not being on the ball.
You will need to do a lot of due diligence on Aliexpress to really find good suppliers. Unless a supplier has been around for at least 2 years I don’t even consider them.
You also want to make sure they have good ratings and you want to message them BEFORE you start selling their products to make sure they are responsive and easy to work with.
The difference with these companies is usually in the agent you get. They vary from brilliant to useless. They are more expensive to work with and it is harder to source products through them but you can overcome some major issues.
4. Branding and Packaging (Customer Experience)
Your customer experience is a big part of your business. When they receive their $50 product in a plastic poly mailer with a Chinese label on it it usually spoils the surprise even before they open the parcel.
The customer experience when they receive the parcel and open it is important as that is their first experience with you and your business.
Packaging is important and shipping products from Aliexpress will always have a very cheap and non-personal look and feel.
CJ Dropshipping allows you to create custom packaging which is a huge advantage.
Putting your products in a nice box with your logo on it is not cheap but can make a massive difference in how your customers perceive you and your products.
Your shipping labels will however always show that the parcel is coming from China although some companies can make it more inconspicuous.
5. Dealing With Returns and Refunds
The combination of slow shipping times and poor quality products contribute to dealing with a lot of customer support issues on your dropshipping store.
Customers get impatient when they have to wait for their parcels. Customers get pissed off when the product does not meet their expectations.
You need to deal with these issues promptly and professionally otherwise it can quickly start chipping away at your business.
Apart from chargebacks your reputation will suffer and it will eventually start affecting your sales.
The main problem with returns is that you can not really deal with them like any other business who have a warehouse that can accept returns. You can not send return items back to China as that does not make any sense financially.
Returns and refunds become an “expense” that you need to factor into your bottom line. Be especially careful with clothing products as sizing is a huge problem that can result in a lot of returns/exchanges.
6. Multiple Products In The Same Order
If your online store sells products from multiple Aliexpress sellers then you will have yet another problem with deliveries.
If one customer buys 2 different products from your store that are supplied by two different Aliexpress suppliers then your customer will receive two different parcels.
These parcels rarely arrive at the same time which usually results in customer support tickets with customers wondering where the rest of their order is.
This is mostly an Aliexpress problem and if you use CJ Dropshipping, Udroppy or Eprolo then your products will all be shipped in the same parcel – which also helps reduce shipping costs.
7. Copycats and Unique Selling Position
Dropshipping has become incredibly popular with countless Youtube gurus promoting it as a type of ‘get rich quick’ scheme.
So many people jump into drop shipping and ‘give it a go’ in an attempt to make money online. This has spawned a monster with all sorts of shortcuts cropping up.
Two of these in particular I find very problematic. The first is with so-called ‘spy tools’ which essentially scrapes Shopify stores, dropshipping ads and Aliexpress sales stats to find the most popular ‘winning products’.
The problem is that the other 1000 people also see this data and the result is a lot of dropshipping stores that all sell the same products and many even look similar.
The second is with so-called ‘turn key’ dropshipping stores that you can buy. These stores are prefilled with top selling products and you simply turn the key to start running the store.
This results in way too many copycats and wannabees which dilutes the market and makes it worse for everyone.
Copycat stores almost never work.
You need a unique selling position for your product and that can often be hard to stand out when hundreds of other drop shippers sell the same products.
8. Copyright and Trademarks
One thing to be very careful of with products from China is copyright and trademark infringements. Most US companies simply can not go after Chinese rip offs but as soon as you start selling it they can go after you.
Most of the time you will not even be aware of the fact that the Chinese product is a knockoff.
I’ve been told by Blendjet that they actually own the trademark on their blender and that all the Aliexpress products are in fact infringing.
I’ve also seen Aliexpress sellers freely steal images from Etsy sellers which dropshippers in turn use as images on their Shopify stores.
9. The Repeat Customers Problem
With rising ad costs and increased competition, repeat customers have become more important than ever before. It is much harder and much more expensive to get a customer than to keep a customer.
In eCommerce, the lifetime value of a customer must go well beyond that initial purchase if you want to be successful. You need customers to really love what they buy from you to the point where they keep coming back for more.
Once someone has bought from you it becomes much easier to market to them through email and in theory they should buy from you again – unless they had a bad shopping experience with you.
This is a huge problem that culminates from everything already mentioned. A customer that received a poor quality product or who had to wait three weeks to get it will think twice before buying from you again.
If your eCommerce business can’t accumulate loyal customers over time then it simply can not grow.
10. Account Risks and Bans
Like everything online, a few bad actors can really damage an entire industry or idea. As drop shipping became more popular, it also attracted some bad actors.
These are mostly online stores that sell products but never fulfill the orders. There are also a lot of stores who never honour refund requests and who simply do not operate within the unwritten rules of running an honourable business.
This has led to a lot of crackdown and drop shipping has gotten a bad name because of this. Payment gateways like Paypal and Stripe were forced to step in. Even Shopify has started being more vigilant.
While none of them deliberately disallow drop shipping, they certainly have drop shippers in their sights.
This is mostly because of the high percentage of chargebacks and refunds that come through drop shipping stores.
If you are dropshipping and your store gets a lot of chargebacks (or Paypal Disputes) and refund requests then your business is always at risk.
Both Stripe and Paypal can withhold your funds without warning and in many cases they can ban you for life. Without a payment gateway you have no business.
Lately Facebook Ads and even Google Merchant Center started targeting drop shipping stores. Facebook Ads and Google Shopping Ads are both popular platforms to advertise dropshipping products as it works incredibly well.
Both Facebook and Google want to protect their users and both have been banning accounts – especially if you sell popular dropshipping products that they can easily identify.
Of all the pros and cons of drop shipping this is the one you need to take most seriously.
Once you loose merchant accounts and advertising accounts, it can make it incredibly hard to get new accounts and that can kill your business overnight.
Dealing With The Pros And Cons Of Drop Shipping
The pros and cons of drop shipping is quite far reaching and in an ideal world you want to keep the pros and eliminate the cons.
Using dedicated drop shippers like CJ Dropshipping, Eprolo and Udroppy does solve some of the issues but the slow shipping times and the fact that the products are coming from China simply can not be overcome.
Finding USA based drop shippers like Spocket may seem like the perfect solution but this greatly limits the variety of products and really eats into your profit margins – often to the point where it’s not profitable at all.
Aliexpress simply is not a long term option anymore. The ideal should be to test with Aliexpress but move on as quickly as possible. Aliexpress is fast, cheap and easy to get set up.
The next step up from Aliexpress should be a dedicated drop shipper or private agent. This can get you faster fulfillment times, faster shipping and better quality control. You can even get custom packaging.
At this stage you should start building a brand as that will set you apart from all the competition. Ultimately you want to order in bulk and ship from the USA but you have to go through the motions to make sure that you have proof of concept.
Once you know your products are selling, your store is working and you have a solid brand in place then it is much safer to skip the dropshipping part.
It may sound ironic but the ultimate goal of dropshipping is not to drop ship. This is how you build a brand and a long term business.