In 2012 I started my online business. Back then I had no idea if my little venture would survive, let alone provide me with enough to make a decent living in the years to come. At the time that I was choosing my products, I came across a number of different sales models including dropshipping, and even seriously considered it as my main weapon to sell products. To me it seemed like an easy way to get sales without having to physically handle or ship the goods. But the more I thought about the potential pitfalls, the more I began to loathe the idea in spite of the many positives with regards to dropshipping.
Here are some of the reasons that I didn’t go with a dropshipping model:
Profit Margins were too low.
In any business, margin maketh man. I knew that competing for gross profit margins of 10-20% per product wasn’t going to cut it to keep my business alive in years to come. If I owned the inventory, my margins could be substantially more.
Competition was everywhere.
After looking around online and when walking through malls I realised that my supplier was also supplying to a number of other competitors and that meant that my market had become much smaller than initially expected, so it would become much harder for me to acquire and retain a customer.
Fulfillment was my nightmare.
While I was confident that I could provide a great customer experience through the sales process, I was incredibly concerned that the experience would not extend to delivery of the order or even returns. What’s worse was that I would have absolutely no control over those aspects whatsoever.
The MSP killer.
In addition to all of the above, the supplier had imposed MSPs on the products. An MSP is a Minimum Selling Price, which means that I could not sell my products for less than what the supplier said I could. This meant that bigger sellers who were buying products from my supplier outright and negotiating lower prices, could sell the product far cheaper than I could.
The clincher came when I thought of stock issues and how those would be handled. What if I sold something, and then couldn’t fulfil because my supplier had run out of stock?
I realised that as a dropshipper, the potential for my business to fail was far bigger than if I controlled all of the business processes myself. So I passed on dropshipping as my main sales model and opted for a more traditional approach, where I bought products outright and fulfilled orders myself.
The traditional method also let me do something many business owners don’t think of to protect their business – Brand. The brand of my business is the single most important thing that my business owns and it would have been much much more difficult to achieve with dropshipped products.
After 4 years of trading there are subsequently one or two of my products that are dropshipped, but they are products which I know I can easily get my hands on if something goes wrong with stock or fulfilment and ones where I am a big enough client to warrant price and MSP negotiations with the supplier. Generally too, I use dropshipping as a trial for products I am thinking of stocking, but am unsure if those products are going to sell. If the product works, I will go in and order a bunch to keep in stock.
Dropshipping does have its place, but to ensure that you have a profitable, long lasting business, use it to understand what products work and then stock them yourself.
I hope this article has inspired you to get going on your business. Let us know your thoughts in the comments below.