Problems with Dropshipping

In my peak, I made around $2,000 profit in a month via dropshipping. It dipped to a few hundred now as I preferred a more passive income such as content blogging. I liked to share some of my experiences in the problems with dropshipping.

What are the problems with dropshipping? Dropshipping is a low-margin business with problems like returns and chargeback from buyers' regrets, underestimated cost of sales support, expensive and complicated to set up winning ads.

Therefore, I find it ridiculous whenever I hear dropshipping deemed as passive income, given how rapidly your income will drop if you don't manage it. 

There are 3 different channels to sell a drop shipped product which I tried with their pros and cons:-

I don't recommend dropshipping to anyone as the margin are too low to be worthwhile.

I will go through what is bad with each channel based on my experience. I will go through my experiences with all and why they were bad in general.

Why Dropshipping on Classified Sites Is Bad

I started with a local classified site selling Instax films. At that stage, I did not even know I was dropshipping. My ideas were

• I could buy cheaper in bulk with all the discount coupons and free shipping. Buying in small quantities incurs shipping costs.
• Instax films are evergreen supplies that people will buy even as Instax came up with a new model of cameras. If I failed to sell them, I could just use them myself.

Both points were valid and I did make a few dollars for each box I sold.

Nevertheless, I quickly reached the limit as you have to keep communicating with new buyers and low-ballers who offer you lousy prices that you have to reject. You are also limited by your time to meet up (as shipping will be too expensive). The competition also creeps up and I just cleared up my stock and didn't continue.

Therefore, I slowly explored how to scaled up, seeing too many dropshipping videos touting crazy revenue. 

Why Dropshipping on Own Site is Bad

I was introduced to this concept through online videos, people selling the idea of making thousands through cheap FB ads to audiences.

Having the experience now, I feel dropshipping on your site is a bad idea because it costs a lot to acquire a buying customer and it is not sustainable with the endless competition.

It seems possible as gurus kept touting their success until I tried it myself. For info, I had 1 sale eventually and my dead site (recentdrones.com) was sold in GoDaddy and now seems like a dead China parked site.

The steps are logical and easy, and you don't even need to attend a course to understand:-

1. Find a cheap product that has sellable benefits (e.g. charcoal teeth whitener, cool fidget spinner, face slimmer, etc). The product will be sourced probably from Alibaba, SalesHoo, or other wholesale contacts since Alibaba is oversaturated
2. Produce viral ads for FB or find an Instagram influencer to promote them. 
3. Process the order automatically via AliDropship or Oberlo
4. Process return/refund, if any.

Step (1) finding a winning product and (2) advertising it cheaply is the hardest and most people end up failing, including myself. Before I continue, I will rant on "fake" gurus if you are a newbie and learn to be wary of the promise of success.

What I see mostly is people becoming "gurus" selling courses instead of having winning products that work because dropshipping is hard and lose lots of money. You end up being their income.

Don't trust gurus too easily as these gurus can

1. easily fake their sales figure by editing pictures,
2. hide/reduce the amount they spent on ads,
3. only focus on 1 product that works in a short period but ignore the tens that failed or how it failed in the long run.

That said, I do know a guru who did tooth whitener on a large scale with his customized brand and fulfillment. Even for him, the success rate is really low and not worth your time unless you think you are the one.

Many gurus proclaimed that

1. You don't even need to find a winning product at first just test cheaply at a few dollars with different variants (I tried)
2. Once you find it, just scaled the ads up (not possible with Instagram Influencers)
3. You can then increase your margin by buying in bulk or getting orders/returns processed in a fulfillment center

The main reason why drop shipping on your Shopify or WooCommerce is that it is expensive and not sustainable. Facebook is expensive and Instagram is not scalable.

Testing for a "winning" product is hard and expensive and not as easy as you think. Imagine 10x harder if you are a starter.

The $5/ad you tried over a few days easily add up to hundreds. I did learn a few things while I failed when I clocked up a few hundred per product without success.

• You can easily get likes and views with little money (even if you excludes Indian, Pakistan English viewers)
• You cannot get buyers even if you choose Facebook viewers with buyer intent
• I learned that the people with buyer intent might be your competitors trying to find your "winning" product that clicks through as I did it myself too. They will resort to even adding the product to your cart to make Facebook show them more "relevant" ads
• The few seconds does matter in FB ads before the audience scroll or even view your ads

Next is the method I used to get two thousand in a month and still is a bad idea I feel as an income.

Why Is Dropshipping On Local MarketPlace Bad?

Learning how hard to get audiences that want to buy (easily hundreds), I realized a better idea is just to post your product in the local marketplace.

I didn't drop shipped from overseas (i.e. China) and dropship from one local marketplace to another local marketplace (e.g. Qoo10 to Lazada for an audience in Singapore who understands).

You just find a "winning" product in the marketplace that is missing in the other marketplace. This reduces the issues or penalties with slow delivery from overseas and also finds a product that is already winning.

You do need a way to process orders quickly and I did since I am a computer engineering and script kiddie (or daddy). It started well as my marketplace was new and had a 0% fee early on. Eventually, it increased as expected.

In addition, they require you to use their logistic method to ensure integrated tracking for their customers. This makes dropshipping difficult unless you have something their logistic company cannot ship or keep informing your customer to still choose seller delivery method instead of the integrated shipping method. 

The problem is the marketplace imposes transaction fees on top of the payment fees that eat up your margins. Imagine a 5% transaction fee and 2.6% payment fees for credit cards making it 7.6%. Unless you have a huge price advantage, you are looking at a single-digit margin. The integrated shipping method also makes it difficult for you to dropship.

Conclusion

Overall, dropshipping is full of problems as people thought it is a form of income which it is not. 

Instead, I viewed dropshipping as a method to test products and understand product demands. I can easily "resell" someone else products and see the demand by offering them at a cheaper rate. This is more effective than doing complicated FB ads.

With that knowledge, I have a customer base that I can consider introduce white label products if I can source them cheaper after learning there are demands. That is less risky than manufacturing or buying a product to sell, without knowing market demands.