Why Do Dropshipping Businesses Fail?
3 Factors to Pay Attention To
Make tons of money without investing any effort or finances! Live a life of leisure while your website is working for you! Travel the world and forget about your business!
These statements (and others of similar nature) often show up on platforms that want to sell a “unique and safe dropshipping business model that will set you up for life.” In reality, nothing worth having or experiencing in life comes easily.
Dropshipping, as a business, lets owners avoid the hassle of inventory and delivery, but it has other challenges. Even though you are just intermediating between customer and supplier, you still have to consider costs, make investments, and pay attention to trends (among others).
In fact, this idea that dropshipping is some sort of shortcut to a life of luxury and fun is one of the main pitfalls beginners take straight on. But there are many more to be aware of. Today we’ll only discuss the top three, but it’s easy to understand just how the business works from that.
#1: No Investment in Advanced Technology
Dropshipping is indeed a business that doesn’t require much upfront investment. Sure, there is the website and all the associated costs, but you can always start on a platform like Shopify or Amazon and see where the trend takes you.
However, one mistake that usually leads to failure is resistance when it comes to further investments. To maximize their profits, business owners would rather continue to use a platform rather than invest in their own site.
On the same note, they would rather continue to keep track of sales, inventory, suppliers, orders, and more using a spreadsheet than invest in software designed to make things easier and faster. This resistance leads to mistakes which usually destabilize customers’ trust in the brand.
How To Avoid This
As the business grows, make the necessary investments to keep up with the demand. Have a look at tech suppliers (like Spark Shipping dropship automation) that create tools designed to increase efficiency and promote growth.
#2: Bad [or Lack of] Budgeting & Planning
Many beginners don’t seem to understand that the profit margins from dropshipping average at 15%–20% of each item’s selling price. Plus, the average conversion rate is around 2%. When you run the numbers, your profits don’t seem as dreamy as promised.
Plus, you also have to think about the competition. If your market niche is crowded (and most are), you can’t hold onto that 20% margin and keep having customers.
Not to mention there are other business costs you have to include in the equation. At the end of the day, you may end up having to supply your business out of your own pocket.
How To Avoid This
Before you buy into the dream, draw a business plan, and put together a budget that includes an estimation of your profits and expenses for at least the first six months. This way, you will have an idea of how your business will go.
#3: No Online Marketing Skills
Dropshipping puts you in the position of the promoter. In short, your job is to attract people’s attention online and convince them to buy the products you’re selling. In this business model, the more relevant traffic you have, the better your conversion rate.
However, this is not an easy feat. In today’s crowded e-commerce world it’s difficult to carve a path for a new brand.
That’s why you need to know how online marketing works, what attracts traffic, what drives engagement, and so on. Otherwise, you will be stuck at under 100 visitors per month and zero conversions.
How To Avoid This
Check your online marketing skills. Have you ever built an online community or successfully managed to convince strangers online to do something (subscribe, buy, like your posts)?
If so, then you may have a chance at figuring dropshipping out. However, you won’t go very far without a proper social media strategy and content management.
The main reason dropshipping businesses fail is unpreparedness. People want to believe this is a shortcut towards a better life and dive right into it.
However, if you take the time to analyze, plan, and prepare, you should at least know what you’re getting yourself into. At the end of the day, dropshipping is just a business, like any other.