We can’t think of a business model that has been hyped up as much as dropshipping has over the last few years. It is a great model, make no mistakes about it, but it is far from perfect. Too many people push dropshipping as the easiest way to make money through eCommerce when this isn’t quite true. You may not have to handle inventory, but the minute you deal with physical products, you’re going to have issues. People also don’t like to think about things like shrinking margins, competition, or issues with suppliers. Let’s take a look at a few things you need to prepare for before you get started with dropshipping.
Competition is Ferocious
One of the common ways to start a dropshipping business is to identify a trending product and push the heck out of it on platforms like Shopify or Amazon. This can be a good strategy in the short term, but if you’re using a tool to identify hot trending products, you can expect other people who use the same tool to find them as well and become your competition.
Some of these people will be able to get the product for less or will be willing to drop the price incredibly low. They might be losing money on the product, but it doesn’t matter since they’re advertising to the same people you are and taking away some of your business. Someone searching for your product might see the exact same one for cheaper right next to it and you can expect them to buy the cheapest of the two.
So, you might have to do a bit more digging when looking for products and even consider having your product branded and modified to allow it to stand out in the market.
Nothing is Forcing You to Go with Shopify
A lot of people assume that Shopify is the best and only way to go when it comes to setting up a dropshipping site, but that’s not the case. While it’s true that Shopify can be a great tool for people who are inexperienced with eCommerce and web design, it still has plenty of limitations that should be noted.
First of all, Shopify doesn’t offer the same level of flexibility or freedom that a platform like WordPress will. Your site will have to remain on Shopify’s servers too, so the fate of your site will forever be tied with Shopify’s. So, we suggest you look at other solutions and see if you could host your site independently.
Payment Processing Fees Can Eat into Your Margins
Another thing a lot of people overlook when they start a dropshipping business is how much money they end up spending on transactions. If you use Shopify’s service to accept payments, you can expect to pay anywhere from 1.5% to 2.5% on each transaction. Things become even worse when you use services like PayPal.
This is why it is extremely important that you do your research on online payment processing and how you can keep your expenses low. If you want to learn more, check NadaPayments’ guide on online credit card processing for small businesses. They list a large number of different options that you can use for your business and the benefits and drawbacks of each. They also show a way that you could have your customers pay for credit card transactions so that they don’t end up affecting your margins.
Payment Processing Issues Could Ruin Your Business
One of the things these gurus will never tell you about dropshipping is when a payment processor decides to limit your account. This might seem like a normal or benign thing to you, but you probably don’t realize how disastrous this could be for your business.
If you have a high volume of transactions and your payment processor decides to limit your account overnight, this could mean that you won’t be able to access your funds so you can pass the order to your supplier. Not only that, but you will usually not be able to issue refunds either. This means that you could have hundreds of people complaining about not receiving their items and you might have to fulfill orders out of your pocket to avoid issues.
This might seem like a nightmarish scenario, but it’s something that happens much more often than you think. This is an issue that is more common with PayPal than other top payment processors, so if that is what you want to use to process transactions, make sure that you understand their rules and see what could cause account limitations so you can avoid mistakes.
These are all things that you should know before you start a dropshipping business. Don’t expect things to be a bed of roses and always have a plan B in cases things take a turn for the worse.
