Many of us order items online with the click of a button and may not think about the 52,234 things (exaggerating only slightly) that happen behind-the-scenes to ensure it arrives at your doorstep. However, that awareness and the general push for transparency has increased over the years because consumers these days want to know *exactly* where their hard-earned moolah is going.
Here, we’re diving into just one of the ways an item ends up in your hands, which is drop shipping. It’s a retail strategy that has definitely been around for a while, but only seems to be growing rapidly with the rise of online marketplaces through social media. Below, everything you need to know about drop shipping, including the benefits as well as the not-so-great stuff, so you can decide for yourself whether it’s something you want to pursue.
What is drop shipping?
Drop shipping is when customers place an order through an online store, but rather than the store holding physical inventory and shipping it to them, a warehouse or supplier does that instead. Essentially, if you start a drop shipping business, you act as a storefront for customers to purchase specific items. When you receive an order through your site, you then place the order through your supplier, and they’ll handle the logistics and delivery.
A drop shipper makes money on the margin—i.e., when they place an order with the supplier, they’re paying the wholesale cost, which is a lower price than what they’ll charge on their website. They then pocket the difference in price to bring in that cash money. Many people use sites like AliExpress (a problematic retailer in itself that we can explore another time) to source items that they think will sell, or they’ll look at what products are going viral on Facebook, Instagram, and TikTok to determine what they should drop ship.
There’s also a print-on-demand aspect of it, says Mark Kapczynski, CMO of Gooten, a company that specializes in this business. Instead of finding items that are already manufactured, you’re allowing customers to order, say, a graphic T-shirt though your storefront, says Kapczynski. That graphic T-shirt is then printed on-demand and shipped to the customer. This is a less wasteful form of drop shipping because “you can literally create an infinite aisle of options, and then whatever you sell are the only things that actually get produced.”
What are the pros of drop shipping?
It’s accessible to everyone.
If you’re trying to start your own drop shipping business, there is tons of free information already out there. The wonders of the internet, huzzah! You can learn with YouTube videos or guides about how to create your own website, design a storefront and any branding (Shopify is a main player in this space), and then ultimately launch it for actual customers to shop. Prior business experience isn’t required, and you’ll be your own boss, which is definitely a big draw.
“Drop shipping was the first thing that allowed me to move out of my parents house, get my own apartment, and it got to the point where I was able to drop out of school from it as well,” says 23-year-old entrepreneur Jordan Welch, who shares his insights and process on his YouTube channel.
The cost to start is relatively low.
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Buying a website domain is pretty low cost. If you’re learning on your own and designing everything, that means saving money, however you can always outsource some work if needed. Once you have your store set up, it’s a matter of how much money you want to spend pushing your chosen products with paid advertising via social media. Or you can create your own imagery and videos at no cost and try your hand at organic sales, like demonstrating how a tiny vacuum or a purifying shower head works on TikTok, and let the clicks roll in if it hits that #FYP.
You don’t have to handle inventory.
Inventory is always one of the biggest headaches for businesses because you don’t want too many items on hand in case they don’t sell. Conversely, you can also quickly run out of items if you order too little and the demand is high. By having a third-party supplier handle the merchandise and ship it, all you need to do is focus on the design aspect of your store, sourcing items, keeping track of sales, and making sure your customers are happy with what they receive. Basically, you don’t have to be a manufacturing expert to start your own business, says Kapczynski. Whew!
What are the cons of drop shipping?
Like any business, it can be time consuming.
When you get into the weeds and research how to start on your own, there are lots of people or “financial gurus” peddling it as a get-rich-quick scheme. (Both Welch and Kapczynski advise beginners to stay away from those selling “courses” about drop shipping, because all the information and tools are already out there for free.)
Yes, you can be successful and actually make a lot of money, but it’s not quite as easy as you might be led to believe. When Welch first launched his business, he recalled handling customer service requests while sitting in the back of his college classroom. “You have to learn as you go,” he says. “You’ll never be fully prepared for the challenges that come up.” It requires a lot of time, planning, digging into data, and trial-and-error approaches to really get it off the ground, especially if you’re completely new to the space.
Lots of trial and error is involved.
More on the latter point. Just because you make a quick video demonstrating the product you’re trying to sell, doesn’t mean it’ll instantly go viral. You might have to test out different ways—often by spending money—to get the item in front of potential customers (known as your customer acquisition cost, FYI) and then let the data dictate your strategy. In short, success is in no way guaranteed and you could even lose money if you’re going through the paid advertising route, but it’s not translating to sales.
It can involve longer shipping times.
Drop-shipped items often come from China or other countries. This means customers could wait a while before the product ends up in their hands. Most drop shippers recognize this issue and do their best to have fast turnarounds, but just be mindful that when you order, it’s not the one- or two-day shipping window you might be used to. And because of the distance these items have to travel, returning something can be a hassle since customers usually have to pay for the shipping themselves if they’re unsatisfied.
There can be many risks that consumers should look out for.
With online shopping, especially on a website you’re not familiar with, it’s always best to be cautious. Kapczynski suggests you do your due diligence and read reviews of the store on Trust Pilot or G2. Welch’s recommendation is to make sure there’s a customer service number and to check that its social media channels are established and look legit. Other controversies and issues include:
- Stores can advertise the products to make it seem like they’re the ones making it—even though they’re actually ordering it from somewhere else. Sneaky…. This can lead to items arriving in different packaging than you were anticipating. For example, ordering something under what you thought was a boutique, local brand and it arrives with a Shein label on it. Yikes.
- You might be paying more than you needed. A simple reverse image search can lead you to find the item directly from the supplier, usually at a significantly cheaper price.
- The website can be misleading about the overall quality. Just think of those hilarious viral videos of customers excitedly opening up packages, only to find out that the thing they ordered is far from what they thought. Yep, that’s what you want to avoid. However, more reputable stores will vet and perform quality checks firsthand to make sure their customers don’t run into any surprises.
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