Dropshipping. Everyone does it. Everyone talks about it. But what is dropshipping really? Let’s take a journey into this business model. I’ll also give you my insights on why dropshipping really sucks.
Definition: What is Dropshipping
Dropshipping is a business model. Basically, you outsource 100% of your product, and sell it for more expensive that you purchased it. That’s pretty much it!
The whole point of dropshipping is to find a product that will sell in the US, while finding a cheap supplier overseas (usually China).
Have you ever seen these ads from some “rich guy” on Youtube, with a rented Ferrari in the background, trying to sell you how easy it is to make money? Yes, that is dropshipping.
See below these two screenshots. One for a Neon sign on Amazon at $32, and the other is the exact same product on AliExpress for $15. This is dropshipping.
You might have understood by now, I am not very fond of this business model. I will share with you 5 reasons why dropshipping is not for me, and probably not for you.
Hard to find new dropshipping products
The first thing to note is that it is very difficult to find new dropshipping products that haven't been exploited yet. Of course, there are always ways to find new stuff to sell. But the major pots of gold were already taken by either major retailers, or smart online marketers.
I will admit that dropshipping is an easy way to go for people who don’t really know what to sell / make. Since the product already exists elsewhere, you wouldn’t have to worry about production. You would focus entirely on marketing and shipping the product.
Keep in mind with dropshipping, you don’t manufacture your own product. Which brings me to the second reason why dropshipping sucks: Competition.
Too many competitors
Either you aim to sell on Amazon, Ebay, or build your own website, the barrier is low and the product is available to anyone who wants to compete.
So basically, if someone sees your product online, and does some research, he might find your overseas provider, and start selling on Amazon.. For cheaper!
It’s that easy. Find the product on Alibaba, order 100 of it, and sell it on Amazon. So if you have spent time to market it on your website, be ready for a war.
This is the reason why, when you’re looking for a specific item on Amazon, you’ll find dozens of exactly similar products, priced differently, etc. But don’t be fooled, these are the exact same product from overseas.
This is not 2000s’ anymore
Dropshipping sucks because there is no added value. Not to mention the carbon footprint.
Think about it: These products come all the way from China usually by boat, then by trucks to deliver to wherever you are in the country. Then, ship back to your customer. It’s insane.
There are turnkey solutions these days for dropshipping though, where your provider from China ships directly to your customer. But then you lose quality control.
In addition, you’ll find that dropshipping is not fun! You don’t get to create, innovate, add a feature to the product, etc.
Let’s take the example of my company Pastreez. We handcraft and ship fresh macarons from California to your door in the US. We are fond of Baking and Marketing (my wife and I). Together, we love to create new exquisite monthly macaron flavors, launching new products like crêpes, etc.
This part of the work is the most fun: Designing, creating, testing. But you don’t have those in Dropshipping. The focus is “money” since your profit is pretty thin with this business model.
The fact that we control the whole process from scratch, also means we control quality and margin. Which brings up my third point: Dropshipping has tiny margins.
Smaller margin with dropshipping
Since you don’t manufacture your own product, dropshipping lowers your margin. You have to pay for stocks (product + shipping to your warehouse), then pay again to ship to your customer.
Dropshipping is so competitive that 99% of the high margin products are already taken. It will only bring you substantial benefit if you sell in volume. And how to get volume fast? Welcome Facebook Ads.
Most dropshippers use facebook ads. They will sparkle their great return on ad spent (ROAS) like 2x to 3x. But hey, is it really worth it? Let’s take an example:
You sell a $50 design chair. Your ROAS is 2x, which means you spent $25 on Facebook ads to get a $50 sale. So you got $25 so far in your pocket.
Then, remove the cost of goods sold that you paid for the product overseas. Let’s say $15 (and I’m being generous, it’s usually more). So now you have $10 in your pocket. But that’s not it. You need to ship the product to your customer + packaging. Priority Mail starts at about $8 if your product is not too heavy. Let’s say packaging is about $1 per package.
Voilà! You have now $1 in your pocket for a $50 sale. It’s not that bad, since you have a “free” customer, that might come back. But is it really worth the hassle? My answer is a big NO. Not to be a bother, but that’s not it. See my next point.
Facebook ads: From Paradise to Nightmare for Dropshippers
Remember when I said we’re not in 2000 anymore? The war between Apple and Facebook has officially started in 2021. And dropshippers are crying.
Before digging in, it’s important to understand why dropshippers are “addicted” to Facebook ads. In a few words, the objective of most dropshippers is to make money. Fast.
Dropshippers don’t have time to work locally and improve their organic Google rankings. The solution to this is Facebook ads, because as long as you invest into an ad, you can have visitors to your website.
Now, have you heard about iOS 14 on Apple devices? Let me sum it up for you. Basically, Apple wants to make up for their many breaches and leaks from the past (iCloud leaks, security breach, etc.).
Each app on your iPhone will now ask you “Do you want us to track your data” right when you open the app. It might sound like a detail, but that is game changing. The cookies from your browser, when you browse on your iPhone, won’t share the data with third parties like Facebook.
Facebook group (including Instagram, Facebook, etc.) track your behavior via these cookies. That is what helps marketers and dropshippers to filter their audience on Facebook ads.
The problem? Over 75% iPhone users choose “Not to track”, which means Facebook group is blind on 75% over Apple devices. Back to Dropshipping, it impacts a LOT because you won’t be able to know IF a Facebook ad is efficient.
How to keep investing in an ad if you can’t track your return on investment? You can say goodbye to your tiny margin. You then lose the opportunity to A/B test properly, and improve ads over time since you won’t have metrics available.
My honest opinion
You get it. I’m not a fan of dropshipping. I will always push for innovation and creation. Because I think we all have something in us that we are passionate about. For my wife it was baking. For me it was marketing.
Find what you love. Be passionate about it. You’ll find your product or service.