Recently drop shipping has become very popular among budding entrepreneurs. It is a business model where inventory is held by the supplier and sent directly to the customers as directed by drop shipper. Drop shipper plays a role of a middle man who takes orders from customers and passes them on to the supplier.
It is a legitimate business model although some big industry players look at it little differently. If you study business practices of Amazon, you will realize that they are the biggest drop shipper in the World. Drop shippers really help manufactures to increase their reach to global consumers. They also help consumers to access good products from all over the World. They are a very important player in the global supply chain.
Drop Shippers Fail a Lot but Why?
Failure rate among new drop shippers is extremely high, almost in the ball park of 90-95%. I was shocked when I heard about this first time. I took a closer look and realized that the figures might even be higher. I wanted to know the answer. I searched the web and found all sorts of reasons.
Sharjeel Ashraf has mentioned eight convincing reason behind the failure of drop shippers/shipping in his blog as given below.
- Selecting the Wrong Niche
- Lack of Patience and Persistence
- Lack of Investment/Resources
- Selection of Wrong Platform
- Bad Customer Support
- Delayed Shipping
- Inconsistency in Managing Business
- Unattractive Website Design
On the surface he is absolutely spot on but there is more to the story. We all know drop shippers are new entrepreneurs and are inexperienced. They also have very small amount of funds available to them. They also make mistakes, same as every other successful entrepreneur do. Failure happens in every field but 90-95% is mind boggling.
I do not have access to exact quantitative data but from social media platforms and my interactions with ex-drop shippers, I have found out that almost 80% leave before getting their first sale. It means lot of above reasons do not even apply to their situation.
I have also found out from experienced and successful drop shippers that attractive store design only plays a minor role in the success of their business.
I agree with the point that the lack of funds is one of the reason behind failure. Majority of drop shippers start with low funds. I think it is not lack of funds which fails them but it is lack of funds management which destroys their ambitions.
It is not their fault but in fact drop shipping platform providers have become a scam group.
There is something wrong at the core. Before going into further details let us check who really are drop shippers?
Who are Drop Shippers?
To find the answer I joined few drop shipping communities on the social media where aspirant drop shipper would go for information and guidance. I was surprised to know that new drop shippers were people having financial issues looking to start some kind of quick business. Mainly drop shipping aspirants belonged to the following groups.
- Stay home mothers and/or fathers.
- Unfortunate friends who have lost their jobs.
- Part timers looking to boost their income.
- Fresh graduates waiting for their new job.
Lot of them had no previous experience of business. I was surprised to know that lot of them had good experience in technology although mainly at a basic level. Still I was not sure why failure rate is so high. To understand it better I jumped right into it and decided to start my own store.
Seeing is Believing
There is an enormous amount of material available on the internet about drop shipping. There are blogs, and loads of YouTube videos which will teach you every single step you need to take to become a successful drop shipper. You just need to perform a simple google search for “drop shipping”. You need 1-2 weeks to get basic understanding of drop shipping and another 1-2 weeks to become a medium level expert on the topic. In one month time you will have very good idea of drop shipping overall.
Basically there are three main areas which you need to understand to become master of drop shipping.
- Drop shipping (processes, niche, vendors etc)
- Drop shipping technology.
- Drop shipping marketing.
I also learned that drop shippers are giving up their business because they cannot afford to run it any more. This was a NEWS as I was under the impression that running a drop shipping store is free. You do not need to have inventory. Beside this you need hosting and may be little upfront investment to create your online shore if you cannot do it yourself.
Above step 1 is totally free and step 2 is going to cost you upfront, at the most (100 – 200 dollars). There are lot of free software available so creating store should not cost a lot. Hosting also costs couple of dollars a month. Step 3 is expensive but this is the step which generates money as well.
Yes, failing at marketing i.e. step 3, makes sense as if marketing is not done correctly it is going to hurt your business. Lot of new drop shippers are not from marketing background so they find this step very difficult. New drop shippers need lot of time to learn marketing as learning curve for marketing is quite steep. You need quite bit of time and few failures before you start understanding it. Successful drop shippers say that it took them 3 to 6 months to understand marketing tricks.
Here came the startling revelation. Majority of drop shippers give up within first 3 months of their business. It means they don’t see the fruits of their marketing learnings at all. Giving up means they have not utilized investment of their time and money up to their potential. They have left it little too early.
It is like starting a University degree and finishing before completing the degree. It is complete waste of time and money. They should have given it a little more time at least 6 months to a year in my view. Still confused and I wanted to know the real reason for giving up so early and then came the moment of reckoning. They say that they cannot afford to run it any more. It mean that even keeping the plugs on is costing them quite bit of money.
Yes, there is always a running cost but how much is the running cost in the case of a drop shipping business. Is it within the reach of majority of drop shippers? If you look at candidate drop shippers group above you will see that they do not have access to lot of funds. Lot of them are cutting their daily allowances to run it. Without any reasonable return they cannot continue beyond few months.
I searched for drop shipping on google and Shopify came along as the first drop shipping store provider. In fact it was repeated on the first page more than 3 times. I signed up and started learning by watching videos and reading blogs about drop shipping. Two weeks passed in a blink and I received an email from Shopify asking me to pay or my account will be disabled. I was not ready to pay so my store was closed.
Literally I was not ready to make any reasonable investments till there was some chance of returns. If you do cost benefit analysis it will always disappoint you. Shopify is expensive for beginner drop shipping groups.
Starting drop shipping business by buying Shopify store or any similar store is the recipe to failure.
Alternatives to Paid Platforms
I am technically good and love open source movement so I searched for an open source store solution and WooCommerce came up as a natural option. I evaluated few themes, added few extra plugins which were required to move things along. It was quite bit of effort as I was learning about ecommerce as well as technology. I have to create my own business processes around different steps of the business. There was lot of learning.
Free Add Ons
Most important step was importing products from Aliexpress to my store. In the beginning I started it doing manually but required effort was too high. I tried to look for automatic tools. The first tool I tried was dropshipme and found out that it can do everything for me. There was a caveat though as it was creating lot of content for my products i.e. title, short descriptions, long descriptions, images etc. It was also doing the same for other users of the plugin.
I said to myself, it means there will be lot of duplicate content on many websites. Google will hate it and my SEO will go through the drain. As I was planning my marketing strategy around organic traffic so I have to give up this plugin. Also this was not a free plugin. I went for another plug Ali2Woo which does import of products from Aliexpress as well. After first import I have to go in and rewrite all content for my target customers by myself. In this way my content was unique. This plugin was free too.
Similarly, I got many other free plugins for different purposes and basically I was able to create an ecommerce store at a zero cost. I had already paid my hosting for a year at a cost of few dollars a month. I had no pressure what so ever to be profitable as I do not have to make any monthly payments.
Marketing is a Beast
Marketing is the next most crucial hurdle to overcome. It needs time and effort but if you are under pressure to be profitable from day one than it will become even more difficult. As under pressure you will spend your savings on marketing without much planning. If you plan marketing well then you have a decent chance of success. But reaching the marketing stage giving it a reasonable time i.e. at least 6 months to a year when you are spending hefty amount of funds just on subscriptions will be difficult. You are very likely to give up after few tries.
This is exactly what is happening to 80% of failed drop shippers
Good thing is that if your operational cost is almost zero, you will have more funds for marketing. You have to make lot of marketing effort before you are successful. Part of marketing strategy will be choosing the correct niche, selecting products, creating SEO friendly content, choosing advertisement platform, creating ads etc.
Good thing with marketing is that you can do it all yourself or you can outsource it which will cost funds. If you are tight on funds you can work on SEO strategy and let it work its course slowly. Either way you can keep your store running and work slowly towards making it profitable.
Cutting Platform Cost is Real
But with Shopify store this is not the case. No doubt Shopify is a great website and very helpful for established businesses. If I had used Shopify it would have cost me fortune. Literally you are looking at 100-200 dollars at least for just keeping the plugs on. You also want to become profitable quickly so you spend quickly with not much thought. You are under pressure to get your first sale and make profit.
Majority of people who jump into drop shipping are financially limited. It is very likely that they will give up if they do not see profit within few months. I am sure that they will become successful if given little more time.
Paid Platforms are too Expensive for Low Budget Beginners
Shopify is too costly for new drop shippers. It is a platform for big businesses and offers lot of powerful tools for them. It offers lot of very powerful themes and applications. Lot of them are free but there are many which drop shippers buy and lose their all-important funds for no real gain.
Shopify and its applications are marketed very aggressively. They add little or no value for new drop shippers. In fact these applications take away learning opportunity from new drop shippers. I was using WooCommerce and creating my own product descriptions. It was hard but very important part of learning drop shipping.
In my view Shopify and similar paid platforms are the main reason behind the huge failure rate of drop shippers.
Yes, this is true. Shopify opens thousands of stores every day and closes similar number of stores every day. They get their monthly income statements rolling but at the cost of huge number of disappointments.
Drop shippers need to understand that they have to invest their time to learn every aspect of drop shipping. Buying beautiful store from Shopify or similar store is not going to make them successful overnight. Yes, those platforms are helpful once you are able to establish your brand.
I have joined hands with few of my friends and we want to start free drop shipping platforms movement. It is possible with open source platforms specially WooCommerce. For new drop shippers it will help to bring down failure rate from 90-95% to well around 50%. Let us work together to make it possible.
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