Is Dropshipping Worth It for Your Business?
January 31, 2022
Dropshipping is a huge market—it reached 128.6 billion U.S dollars in 2020 and is forecast to reach 476.1 billion U.S. dollars by 2026, according to Statista. As a result, increasing numbers of aspiring entrepreneurs are turning to dropshipping as an affordable, low-cost way to start their own online business without taking big risks.
But for the businesses that make the products dropshippers are selling, dropshipping isn’t worth it—they lose control over the customer experience, have lower profit margins, and lose out on opportunities for branding and growth. Luckily, there are great alternatives—like self-delivery using OptimoRoute.
Jump to the section you’re interested in:
- What Is Dropshipping?
- Is Dropshipping Worth It?
- 5 Downsides of Dropshipping as a Business
- A Better Alternative for Businesses: Self-Delivery
- Self-Delivery Is Easy With OptimoRoute
- Is Dropshipping Worth It FAQs
What Is Dropshipping?
Dropshipping is a business model where ecommerce websites don’t handle the products they sell—instead, they advertise other companies’ products. When a customer makes a purchase, the store buys the item from the supplier, and the supplier ships the item directly to the buyer.
For sellers, dropshipping offers several benefits: it’s low risk because the upfront costs and overheads are lower. In addition, there’s a low barrier to entry compared to traditional business models: the dropshipping business model only requires a stable internet connection and a bit of tech-savvy, at least to get started.
Ecommerce platforms like Amazon and Shopify make it simple for dropshippers to sell all kinds of items online, and marketplaces like AliExpress and Alibaba make it easy to source inexpensive dropshipping products from China and other countries where the cost of producing goods is lower.
The effect of the rise of dropshipping on established companies that already make their own products is murkier. When these companies decide to let dropshippers sell their products, they no longer manage their own sales or marketing, but they’re still on the hook for all of those backend logistics, like inventory and shipping. The seller has basically outsourced those parts of the supply chain to them.
Is Dropshipping Worth It?
Because of the low startup costs and lower risk associated with dropshipping, yes, dropshipping can be worth it for businesses with the right mindset, patience, and resilience. In particular, dropshipping might be worth it for individuals who want to start an ecommerce business. But it’s not a viable model for existing businesses hoping to outsource their marketing and sales, especially for businesses that already have the infrastructure in place to interact with customers, like a retail store or existing customer support channels.
Becoming a dropshipping supplier means taking on a lot of the risk of running a business, without the reward. The profit margins are lower, and your products are used to build the dropshipper’s brand instead of yours. You also have no control over the customer experience. If the dropshipper decides to ignore their customers or offer a subpar experience, you can’t do anything about it—but your business will still feel the backlash.
So like any business venture, there are downsides involved.
5 Downsides of Dropshipping as a Business
Dropshipping is worth it for sellers who want to start a business without taking risks, even if they have no control over production, product quality, or shipping timelines.
But the same can’t be said for existing business owners looking for a new channel to sell their products. Outsourcing the sales process to dropshippers has several downsides:
Lower profit margins
Outsourcing your sales process to dropshippers can lower your profit margins since you’re adding an extra step to the sales process. Dropshippers act as a middleman. They have to create and pay for their dropshipping website, marketing, and the time spent on customer service, in addition to (hopefully) making a profit.
That’s part of why many dropshippers prefer sourcing from AliExpress and other low-cost wholesalers: they need to buy cheap products for them to resell at a markup. As a supplier, you’re competing for space in their ecommerce stores with products that might have a much lower cost of production than yours do. Even if your products are of higher quality, that isn’t always obvious with online shopping. Changing your pricing to be competitive will impact your profit margins.
At the same time, your prices still need to cover all of the logistics of packaging, handling, and shipping products directly to buyers. Sending individual products to end buyers is more complex and expensive than shipping in bulk to retailers—you need to prepare each individual package and organize last mile delivery, the most complex and expensive part of the delivery process.
Less control of the customer experience
When you work with dropshipping stores, you also have less control over the customer experience because customers only interact with the dropshipper and their online store, rather than your company. Customer experience has a great impact on customer loyalty: according to PwC, one in three consumers say they will walk away from a brand they love after just one bad experience.
So if you can’t guarantee a positive purchasing experience, you risk losing customers, especially if the seller is rude or unresponsive. If a customer has a bad experience and blasts the dropshipper on social media, your products will be associated with that negative attention. The only part of their experience that you maintain some control over is product quality.
Less control of branding
Dropshippers open an online store to build their own brand. That means they control everything, from the store name and logo to the types of products they sell and how they describe and market those products online. So when you outsource your sales to a dropshipping online store, your products are linked with their brand—but without having a say in how your products are marketed or what that branding looks like.
Using dropshippers to sell products also means giving up the opportunity to build your own brand. The dropshipper is the one building the website and selling the product, so you lose a lot of name recognition when you sell your products that way.
More complex fulfillment process
In order to ship the products that customers order from the dropshippers you work with, you’ll need a solid order fulfillment strategy. For the sellers, dropshipping is the simplest option for ecommerce fulfillment: they don’t have to worry about production, warehouse space, or shipping costs.
But that’s only because they’ve outsourced all of those concerns to you, the supplier. You still manage all of the fulfillment logistics, with the added complexity of not having control over the front end, customer-facing part of the transaction. Ideally, you would need to integrate your systems with the dropshipper’s systems, so there are no gaps in the fulfillment process (with marketplaces like Shopify’s Oberlo).
Less control of inventory
Partnering with dropshippers also gives you less control over sales and inventory. You’re relying on a third-party seller (or several) to market and sell your products. This can cause rapid fluctuations in your inventory, especially if your products are listed on multiple ecommerce dropshipping sites—you have no visibility or control over marketing, and you can’t track things like website visits or advertising.
You also take on more of the risk than dropship sellers do: in a traditional retail model, stores buy stock and are responsible for selling it. Here, your business is stuck manufacturing products without a guaranteed sales pipeline.
A Better Alternative for Businesses: Self-Delivery
So, what’s the alternative to outsourcing your sales to dropshippers? Self-delivery. Self-delivery is a better option for businesses that want to keep control of their brand, monitor order fulfillment from start to finish, and guarantee a positive customer experience.
Control every aspect of the fulfillment process
Self-delivery puts the fulfillment process back under your control: from receiving orders to packaging, and all the way to final delivery, without dealing with third parties. That means you can monitor your inventory, and you have more control over shipping costs. It’s easier to ensure products are in stock, ship on time, and are delivered in a timely manner.
Control your brand
Since you’re not selling through a dropshipper, you can make all of the decisions for marketing, design, and customer support. You can offer deals and special offers to build brand loyalty, such as free delivery for premium customers. Everything that you create helps build your business, rather than a dropshipper’s. There’s no middleman there to take the credit.
Guarantee a positive customer experience
Self-delivery allows you to train your drivers and guarantee a positive delivery experience, and a positive delivery experience is a big contributor to an overall positive customer experience.
Having a great delivery system in place helps build brand loyalty—98% of shoppers say that shipping impacts their loyalty to a brand. If you work with dropshippers, they get the credit for the fast, convenient deliveries your company provides. But when you’re building your own brand, creating a positive delivery experience reflects well on you and on your brand.
Self-Delivery Is Easy With OptimoRoute
We admit that we’re biased, but hopefully, by now, we’ve made our point: self-delivery is the way to go. In addition to having a host of benefits, self-delivery is simple when you optimize your routing with OptimoRoute. Using OptimoRoute for in-house delivery allows you to avoid costly third-party delivery costs and grow your business:
- Use automated route planning to automatically map routes with multiple stops for faster shipping times
- Balance routes and workloads between drivers to maximize workforce efficiency
- Offer Realtime Order Tracking information to your customers and make sure each delivery time is completed with Proof of Delivery
- Provide your dispatchers with the tools to adapt for real-life situations through Live Tracking and ETA
- Create schedules in advance with weekly planning for schedules and routes
Is Dropshipping Worth It FAQs
Here are a few quick answers to some of the most commonly asked questions about dropshipping:
Does dropshipping still work in 2021?
Dropshipping works for dropshippers if they have the time and business savvy to build up their online store with SEO, social media, and advertising.
But for the businesses making products, dropshipping isn’t the way to go. The profit margins as a dropshipping supplier are lower. You lose the opportunity to build your own brand, and you have no say in your customers’ experience. Plus, you’re still on the hook for all of the logistics involved with making and selling products, including packaging and delivering the products.
How much do dropshippers make?
This can vary widely depending on how much time dropshippers spend marketing their store, how much work they put into it, the type of products they sell, and the suppliers they partner with.
There’s a pretty wide range of income with dropshipping. A few dropshippers make a lot of money, but many only make a few hundred dollars each month. For example, AliDropship—a company that helps entrepreneurs start dropshipping businesses by selling AliExpress products—lists case studies ranging from $223.79/month to $13,087 in one month.
What are the risks of dropshipping?
With dropshipping, suppliers take on all of the risks: they have to manage inventory without a guaranteed sales pipeline. They need to manage warehouse space, order fulfillment, and shipping, but they don’t have any control over the purchasing process or the customer experience.
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