All good things in life have benefits and drawbacks, pros and cons if you will, and drop shipping is no exception. Today, I'll talk you through some of the harsh realities of drop shipping and arm you with the knowledge you need to fight them off to make managing your business as easy and profitable as possible.
Con #1: Your supplier runs out of stock
If your supplier runs out of stock, it becomes a nightmare if you've already sold said item to a customer! In this scenario, you will need to fess up to your customers and tell them that you can't fulfill the order. If they have already paid you, refund them ASAP. If you are selling on eBay or another marketplace, don't be surprised if they give you negative feedback. If you are selling on your own website, such as a SaleHoo Store, luckily you will be able to skip the agony of receiving bad feedback.
In some cases, your customer might be willing to wait until your supplier has the item back in stock. This is called a "back order." If and when your supplier does run out of stock, ask when they will be re-stocking so that you can at least offer your customers this option.
What to do about suppliers running out of stock
You can help eliminate this stressful situation by working with suppliers who have an online stock level system that you can view. That way, if stock levels are low, you can pull down your listings. Not all drop shippers are set up for this, however, so simply keeping open communication with your suppliers about stock levels is crucial.
Another good practice is stocking a few popular items yourself so if they sell out, you have a backup. Obviously you will have to pay for these yourself, but it's worth having a contingency plan!
Con #2: Competition can be tough and profit margins can be tight
When you are drop shipping, you are not buying in bulk and therefore, you cannot enjoy bulk discounts. If another retailer is selling the same items as you, and they are buying them in bulk from a wholesaler, they'll be able to offer better prices. On price-driven marketplaces such eBay and Amazon, this makes it tough because most buyers will go for whoever is cheaper.
Take this Credit Card knife listing below, with so much competition margins are squeezed making drop shipping difficult (you can't make much money from a $0.48 product.
When you drop ship products, you still get a wholesale price, as you are dealing with real wholesalers. However, each order has a drop ship surcharge added onto it by the supplier. This is usually USD $2-$7 and it covers the cost of processing the order: pulling it, packing it and shipping it. Drop ship surcharges are fair prices and you can't expect a wholesaler to ship your items to you for free, but it can make sales a little harder to attract.
What to do about competition and tight profit margins
There are a few tried-and-true ways to overcome the issue of tight profit margins and too many competitors in drop shipping.
- Try to sell items that few other sellers, or better yet, no other sellers, are offering.
- Sell on your own website, such as a SaleHoo Store, and avoid the price-driven mindset of eBay buyers.
- Work toward being able to buy in bulk rather than having to rely on drop shipping forever. Instead, use drop shipping as a way to expand your product range while mostly sourcing your stock through wholesale bulk.
Con #3: Scams are rife in the drop shipping world
It's sad, but true. Drop shipping scams exist because so many people fall for them, so scammers just keep on scamming! Most drop shipping scams prey on new retailers: They know how to attract victims with promises of low-cost branded items that can be sold for big profits, and new sellers fall for it big time.
The scams usually run in the same simple format: They sign you up as a new drop shipping partner or customer, and when you make your first sale, you pay them. Instead of the supplier then shipping the item to your buyer, they will take your money and run off into cyberspace. You lose money and are left with a customer who is waiting to get their item from you.
You'll then have to refund your customer out of your own money and if you are selling on eBay, you will probably end up with bad feedback.
What to do about drop shipping scams
All the usual scam-prevention measures apply here:
- Pay using PayPal or a credit card, which gives you some level of protection against fraud.
- Order a sample to check that the supplier actually has the products in stock! If they can't supply you with a sample, move on.
- Search the supplier’s company name in Google and see whether there are any complaints on fraud sites such as RipoffReport.com. Keep in mind that some complaints on these sites are from people who I quite frankly consider whiners. Make sure you read between the lines before you make a judgment call.
- Only work with suppliers from trusted wholesale directories such as SaleHoo. This is your best and simplest protection against fraud.
Still looking for trustworthy suppliers who offer a drop shipping service? Join SaleHoo and get instant access to more than 8,000 suppliers so you can start drop shipping now.
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