The Truth About Dropshipping
“I earned $30,000 with my business yesterday, and I will show you how it works. Click the link below and learn about my free course.”
That’s how the “get-rich-quick” guy interrupted my video before I started looking for the “skip advertisement” button on Youtube.
Lately, it feels the internet is full of gurus that teach you how to earn thousands of dollars within a couple of days, how to start your own enterprise within a week, how to get financial freedom immediately. These advertisements pop up in on every advertisement and promise immediate success as long as you start a “free” online course.
They forget to mention one part — most of their courses only focus on showcasing their rich lifestyle which surprisingly attracts a lot of followers.
In reality, most new dropshipping and Shopify businesses simply fail despite buying courses from their mentors and investing in Facebook and Instagram advertisements. Spoiler ahead: If you are inexperienced you are very likely to fail.
But let’s start slowly here, what is dropshipping?
Dropshipping is a supply chain management method in which the retailer does not keep goods in stock but instead transfers its customer’s orders and shipment details to either the manufacturer, another retailer, or a wholesaler, who then ships the goods directly to the customer (source: wiki).
Great, so you find a couple of sellers on Ali express and only order once you make a sale on your website. This sounds like an amazing idea. And it was, back then.
Extremely competitive
In the past four to five years every colleague student started their own dropshipping businesses, the starting barriers are low; you buy a domain and set up a nice web template, a shop can be created within a couple of days.
But keep this in mind, you are entering markets in which you have no competitive advantage. You are not developing a unique product that creates additional value for society. Instead, you are just creating another layer between an existing seller and the customer.
In case you find a great new product that no one saw before and beat everyone else to market, you will have competitors already within a couple of days that provide the same product and undercut you in the price.
Finding a niche is hard and once you do, people can simply take it away from you. The ones who stay and dominate a market are the ones willing to invest the most in marketing, while they simultaneously beat you on the price.
Look at Amazon, this is their business model. You as a dropshipper would need the same funding as a proper company to dominate a market in which no one creates unique value. This outlines that a dropshipping business will not survive with just a couple hundred dollars in cash.
The shocking fact is that you create no additional value to the world around you. Think about if this is what you want to do.
You will only hardly find a niche market through dropshipping. Even if you find one, the market does not care that you were the first one, you will be replaced at some point if you don’t enter the market with very deep pockets. Think about if that is really what you want to do.
Increasing advertisement prices
Due to the high demand, the Cost-Per-Click (CPC) has constantly been on the rise over the past years which makes it even harder for your business to get profitable and limit your positive return on investment.
While I don’t want to dive too deep into the possible approaches to build up an audience, paying for it is always expensive, especially when you start without experience.
The high cost of marketing is usually overseen when gurus try to sell you ways how to quickly earn thousands of dollars. You will invest thousands of dollars first to find a good audience.
Building a brand
Building a brand out of your online shop seems to be the ultimate goal to differentiate your store from the competition. It allows you to reduce the marketing cost, people appreciate the brand and the awareness spreads by itself. However, who wants to follow a brand of a product that can easily be bought on Ali Express just because you printed a nice logo on it?
While the Starbucks cup in the image above stands out through the logo, at least they offer their own coffee. Imagine they would just reheat the coffee from McDonald's. Would you still follow that brand?
Realizing how hard and expensive it is to establish a brand that has no uniqueness is one of the common findings for every starter.
What you actually should do
Start by analyzing a market to understand what customers really want.
Invest the time into product development and make adjustments to an existing solution or go the extra mile to develop a product yourself.
Think about the experience a customer has when he buys a product from your store until the point he unwraps it.
There is no reason to be proud to build a business within 24 hours.
There is no need to order products from China if a local business around you can provide perfect customizations.
Invest the time to build a sustainable business that can compete in the long run. At some point, you will always face competition. Given this strategy, you will at least decrease the risk of competitors, since it will require equal investments to participate in your market.
