Drop Shipping has been one of the biggest buzzwords to dominate the ecommerce landscape in recent years. I mean what could be better, start a business overnight with a platform like Shopify or Magento, hold and prepay for no inventory, list as many products on your store as you like and just pay for them only as you sell them for much more than they cost. It’s a dream scenario for would be entrepreneurs.
The idea that that one could set their own hours, make money on their own time is one that many aspire to but never before was it so simple and cheap to start a business. Ignoring the fact that the biggest problem these would be entrepreneurs will face will be cost effectively buying traffic, this article is focused on the many problems with drop shipping, why it is in fact not a sustainable business model and of course what you can do about it. There’s actually companies in the marketplace right now like DCMT that are entirely focused on addressing the main issues that drop shipping creates.
To start with let’s talk about customer experience. That’s after all what any successful business comes down to, making your customers happy so they buy from you again. We live in an era dominated by Amazon where we buy a product and if it doesn’t show up in the next day or two, we’ll definitely see it within 3 days at the latest. That’s what we expect now. What happens when you drop ship a product from China because it’s cheap is an entirely different story. Customers sometimes don’t see products show up for 6 weeks and when they do they can often be not as advertised. This in turn creates a series of problems that can destroy your business.
Expect to see an enormous rise in customer service costs. As droves of angry customers flock in asking where their products are, you will inevitably have increased costs answering their requests
When products don’t arrive in a timely fashion, customers start calling their banks to say they bought something they never received. Businesses drop shipping products from China can see up to 10 times the amount of customer chargebacks.
Businesses like Facebook focused on customer experience are rolling out new tools asking their customers to rate the products they’re buying. Their intent is to have a better overall platform and make sure that the products and services advertised through them are meeting the needs of their users. Companies using drop shipping are now having their accounts shut down and banned.
Expect to see negative reviews popping up all over the internet from the comments on your ads to Google reviews to even complaints to the Better Business Bureau.
Credit Card Processing
Credit card processors hate drop shippers and they are routinely being blocked and having their processing turned off. Even when service like PayPal continue to process for them, they now take 30% of the money you process and hold it for 6 months as insurance against the chargebacks likely to come.
While these are not the only issues that are created by drop shipping, you get the point. Now what to do about it…
The first option is to actually purchase the products in advance, ship them to a domestic fulfilment facility to reduce shipping time. The cons being of course you now have to take financial inventory risk, have to manage your inventory by ordering in advance and making sure you don’t run out etc… The pros being you get a better a price by ordering in bulk and now your customers are happy because they are receiving their orders quickly. This is one area a company like DCMT can come in and help. They work with fulfilment partners who have specific logistic and product sourcing arms to help you get your products at the right price, on time and effectively manage your inventory.
The second option is to work with a domestic fulfilment company that has products on demand. Some of these companies also will label the product with your label as you sell it so you can have your own house brands without having to commit to any large inventory orders. This is another focus of DCMT, matching sellers to high quality domestic partners that have products on demand to meet their needs.
The only other option to run your business with the standard drop-shipping model is not a pretty one. Run traffic until you get too many bad reviews and then make a new store. You constantly have to rebrand and rebuild. You’ll get very little repeat orders and you’ll find it increasingly difficult to get credit card processing and ability to sell on platforms like Facebook.
If drop shipping is something you’ve been looking into or even have been running and experiencing the problems outlined above, there’s some pretty great solutions out there for those that don’t mind putting the work in. We recommend and mention DCMT in this article because the principles of this business ran incredibly successful ecommerce businesses and know what they’re talking about. They also have relationships with product suppliers and fulfilment centers around the globe. Whether it’s them or one of their competitors though, it’s definitely worth having the conversation to learn how you can structure a more sustainable business.