Profit margins are extremely low.
The overhead is low because you don’t have to manage or store your own inventory, and the returns are also low — but not by much.
You put in less money, but you get out with less money as well. That means you’ll have to do a lot of business just to stay afloat, let alone make a profit on top of that.
There will always be overly optimistic entrepreneurs who concentrate solely on the “low overhead” part of the equation, completely ignoring the abundant evidence presented above.
Because very little capital is required to start a dropshipping business, the low barrier to entry results in a high level of competition, with the most popular markets bearing the brunt of the burden more than others.
The bottom line is that the larger a company is, the more it can reduce its markups in order to offer the lowest prices.
The fact that you may not have an exclusive agreement with your suppliers only serves to aggravate the situation.
This means that any number of competitors could be selling products that are identical to yours. And if you’re just getting started, your competitors with years of experience will have the resources you don’t have to compete on price with you.
Therefore, if customers can get the exact same thing for less money from someone else, why would they choose to do business with your company?
There is no control over the supply chain.
In traditional ecommerce, if customers express dissatisfaction with product quality, fulfilment speed, or return policies, you can respond to them directly.
Dropshipping places you more or less at the mercy of your supplier — but you are the one who must still communicate with your customers on a one-to-one basis.
Dropshippers are essentially trapped, able to do little more than hope that the supplier will resolve the issues while also assuring customers about something that is completely out of their control.
Additional to this, communication is delayed as the dropshipper switches back and forth between the customer and the supplier, resulting in confusion and frustration for both parties. If one responds slowly, all communication comes to a grinding halt, and the problems take longer to resolve as a result.
And if they’re vocal about it, those negative reviews early on could spell the end of your company before it even gets off the ground.
Concerns about legal liability.
Despite the fact that this is not a common problem for dropshippers, it is worth mentioning nonetheless. Some suppliers are not as legitimate as they claim to be, and you may not always be able to determine where the merchandise originates.
What’s even more deceptive is when suppliers illegally use a trademarked logo or intellectual property belonging to another company, which happens far more frequently than the industry average.
This potential problem can be avoided with a well-written Dropshipping Agreement Contract, but not every dropshipping newcomer is aware of the importance of doing so.
It is difficult to establish a brand.
Dropshippers, like ghostwriters or behind-the-scenes songwriters, must accept the fact that the credit for their work is given to someone else rather than themselves.
You can bet that if the product you’re selling is truly amazing, your customers will be so taken with the product that they will forget about the entire shopping experience. After all, it isn’t your logo that is printed on the box.
Dropshipping: The Proper Approaches to Take
Dropshipping is a better sideshow than it is as the main attraction. Despite the fact that it has flaws that make it difficult to run a business on its own, it still provides enough benefits to help ecommerce businesses significantly improve their operations.