The pros and cons of the tempting business opportunity

by

CEO of LABELa San Diego-based logistics fulfillment company and member of the businesskinda.com Business Council.

With the advent of the first online social network in 1997, Andrew Weinreich created the Six Degrees platform that allows users to connect with real contacts and even others they don’t know. It was the first of many copycats until LinkedIn, Facebook and Instagram led to the giant world of social media. Social media has created a world that consumes adults and children, influencing trends and fashion, while behind the scenes creating an easy start-up opportunity for those hungry for extra income.

By linking individuals’ needs to changes in their purchasing habits, online shopping has become the new normal. Social media has eliminated the need to meet people in person at physical stores, trade shows, shows, and MLM home sales parties. Thus, online e-commerce stores using affordable social media marketing fulfill the desire of entrepreneurs to make more money and alleviate their economic fears.

This enticing new wave of e-commerce offers seemingly effortless passive income.

The promises of these third-party suppliers and fulfillment houses range from order automation to customer doorsteps to letting your computer do most of the work. However, they fail to mention that when you sell other people’s goods at a low margin, you also pay the transaction costs, marketing costs, advertising costs and more, leaving yourself with a minimal profit. In fact, it can be far from simple.

What exactly is dropshipping?

Dropshipping is an e-commerce business model that does not require an individual or company to keep products in stock. You do not own or own any inventory of your selling products. Instead, you sell the product and then pass the order on to a third-party supplier. From there, the supplier ships the order to the customer. You never see or touch the product. This process allows you to offer a wide selection of products without having to buy them and keep inventory. You are solely responsible for finding customers. Hence the attractiveness of this fulfillment service. You are not required to disclose your shipping method, but you must conduct due diligence with the company you are doing business with to deliver the product ordered. Any delays are beyond your control and will have a negative impact on your customer satisfaction and possibly ratings.

It sounds like a good deal, but there’s a lot more to consider before getting into the e-commerce business. Therefore, with my experience as CEO of a logistics fulfillment company, I want to simplify the steps in the process and make it easier to see the pros and cons.

How does dropshipping work?

In general, this is the most common order in the industry:

First, you must enter into a product sales agreement with a third-party dropship supplier. Then it is time to promote the agreed products through direct advertising or digital marketing strategies. Once you have received an order for a product(s), place the order in the third party’s ordering system. Then your customer receives an order confirmation via email from you, and your dropship company fulfills the purchase with the packaging and shipping of the product. The customer receives the product from your fulfillment house and a follow-up email about their satisfaction with you. Finally, you can ask your customer to post a review of you on Google or Yelp.

What are the benefits of dropshipping?

• There is a minimum investment.

• It’s easy to get started.

• There is little overhead.

• You don’t need inventory.

• You can sell a wide variety of products.

• It can be easily scaled up.

What are the disadvantages of dropshipping?

• Low barriers to entry can lead to unscrupulous suppliers and fulfillment companies.

• A lot of competition requires you to stay on top of your marketing.

• Low margins mean little money for all your day-to-day management.

• Product quality control cannot exist at all.

• Product availability may be variable and unknown.

• Lack of control over processing and shipping methods can lead to customer service headaches.

• Third party customer support may or may not be sufficient.

Be wary of home-based scammers.

The pandemic ushered in and gained acceptance for remote working. The economic climate gave scammers a plethora of potential victims. They offer internet-based work at home programs that are actively promoted through social media channels. One of the ways the scammers get your hard-earned money is by providing an outdated or bogus list of dropshippers or middlemen – all charges that can leave you with a small profit margin. In addition, humans can use artificial intelligence (AI) tools such as ChatGPT to market services or content created by a chatbot.

Is dropshipping for you?

If you are interested in a dropshipping business, there are a few things to keep in mind:

• Make sure you understand that this is not a get-rich-quick business model.

• Know your financial expectations and their feasibility.

• Have the time to dedicate to the company.

• Research potential markets and the size of the competition.

• You must have knowledge of running and optimizing your online presence.

• Keep in mind that retail is very complicated and subject to trends.

How can you protect yourself?

There are many ways to protect yourself when considering starting a dropshipping business. You can:

• Check online consumer protection websites.

• Investigate the external suppliers and contractors and look for red flags.

• Ask questions from the start of your intent to use a supplier or warehouse.

• Avoid providing personal information in advance.

• Avoid paying money in advance.

• Walk away if it’s too good to be true.

Ultimately, the decision to start a dropshipping business is in your hands. What will it be? By sharing the pros and cons of dropshipping, you now have additional information to help you decide.

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