Ok, let’s talk a little about dropship pros and cons since I’ve mentioned this business model more than once here. My wife ran a drop-ship website for over 5 years, so let me add our experience with this model. It’s definitely worth considering; however, it’s got a learning curve (like everything else.
How Drop Shipping Works (in a nutshell)
The concept itself isn’t complicated. Here is the VERY basic info on how dropshipping works: You find a product that you want to sell and build either a website (e-commerce site) or an eBay and/or Amazon “store” where you list the products you want to sell. Unless the manufacturer or wholesaler has Minimum Advertised Price (MAP) requirements that you must adhere to, you determine what you will sell the item for (there’s a LOT more to this – again, I’m just giving you a very general idea). Of course, you want to price your item so that there’s some profit in it for you.
You advertise the product, and when a consumer decides to purchase through your storefront, you process the payment and make the arrangements for the manufacturer/wholesaler to ship the item to your customer. In my wife’s case, she had a very close relationship with the manufacturer, and had an email system set up where, when the order came through her website, it automatically sent the order to her account manager at the warehouse. He, in turn, set the wheels in motion to get the item out to the customer.
Then, depending on the arrangement you have with your supplier, you pay them your wholesale price and keep your profits.
In my wife’s case, each month the warehouse charged a credit card for the wholesale price of what she sold, and she paid her credit card (in full, each month, BEFORE TOUCHING ANY OF THE FUNDS). Whatever was left in her merchant account or PayPal after expenses (which included merchant account and PayPal fees, and toll-free phone number fees) was hers.
One thing I can tell you that was a real bonus coming out of that experience is that she has one heck of a phenomenal line of credit on that card, because the typical wholesale price of what she sold was in the hundreds of dollars. On a REALLY good month, she’d be paying her supplier anywhere from $30,000 to $40,000. (Don’t get too excited – her profit was rarely more than 9%.)
This was a business she started in 2007, and she ran the drop ship, e-commerce site for over 5 years before selling it so that she could concentrate on a different business model.
Anyway, that was how it worked for us.
Here are a few of the dropship pros and cons, based on our own experience.
BEST Pros we experienced:
- Work from home, and you make your own schedule. This helped enable us to live seasonally and go where we wanted (as long as we had a good internet connection). We couldn’t do this before.
- It could get exciting on a good month! Ours was a largely seasonal product, and once we sold a $20,000 unit – THAT was an exciting day!
- If you have a great product and good suppliers, the system can be seamless.
- We learned that lesser expensive items would result in fewer phone calls since people will be more willing to buy online without a phone consultation with less expensive items. So, by adding to the product base, we could make more sales with a little more profit margin.
- Spending an hour on the phone with a customer who is a “tire kicker” and then doesn’t buy. This could be deflating…
- Not always enough profit margin. Sure, on the $20,000 unit, we profited about $1,500 after all our merchant fees, etc. But, typically, in order to get the sale over our competitors, on a $600 or so item, the profit wound up being approximately $35 – $40. As you’d guess, you need to sell more than one per day in order to make a living.
- Having the phone ring at ridiculous hours of the night. And sometimes – if you DID answer the phone, it was someone who had been drinking and suddenly decided to look into this type of purchase. As you can imagine, virtually zero sales would result.
After 5+ years, my wife sold the site so that she could concentrate on selling items that didn’t require a middleman.
However, times have changed in the dropshipping world, and there are more opportunities and options available these days. “Way back then” we needed a separate merchant account to take credit cards, etc. Nowadays, with most platforms, you don’t need that.
Also, we learned that the larger, and more expensive the item, the more “customer interaction” was needed. People were leery about shelling out $1,000 for something without talking to a human being first. At least they were then. That was our experience. Again, times may have changed. We buy things online all the time, and even for items in the hundreds of dollars, we don’t have the need to speak with someone.
What About Drop-Shipping Today?
Although we haven’t jumped back into drop-shipping at this time, there is no saying that we won’t. We’ve had enough experience with both dropship pros AND cons to know what to expect.
Research is different now as well. I mentioned in an earlier post that there are entirely different tools than were available in the early 2000’s. Wow, all of a sudden, that sounds like a long time ago.
Back then, there weren’t as many companies on line yet either. It’s a different ball game.
If – and I say IF – we were to start again in the drop-shipping model, we’d probably get on board with something like Inventory Source or SaleHoo to source the products for starters. We’d still look at Alibaba – but even that has changed (that’s where we originally found our supplier).
My wife knows people who have traveled to China to source products. If we ever go to China, it’s going to be on a vacation, not to source products.
How Would We Go About Dropshipping Today?
We would get a refresher course on it for sure. We’d want to get a true, up-to-date take on drop ship pros and cons to see what has really changed. I know that Shopify has some good intel on drop-shipping (along with a good drop-ship-friendly website option), and Inventory Source is coming up strong as far as sourcing product and giving good tutorials.
One thing I would NOT do is spend thousands of dollars on some internet “guru” to teach me drop-shipping. A few hundred dollars, sure. But there is no shiny or silver bullet to make this happen.
In fact, because my wife is in the business of internet marketing, she has seen more than her (and my) share of high-priced internet marketing programs that promise the world.
If you remember one thing about this tip, remember this. You can take all the courses in the world, but if you don’t implement what you’ve learned, you will have wasted every penny.
Don’t be that person.