The Commerce Club Podcast

S204: Why Traditional Drop-shipping IS NOT a Long-Term Business Model

• Sophie Biggerstaff • Season 2 • Episode 4

Share episode

So many people think drop-shipping is going to be their “get rich quick” scheme - but can it ACTUALLY make you rich?

IMO NO…

Dropshipping is for sure a popular business model in the ecommerce world, that has a lot of benefits, but it is not a get rich quick scheme and actually you could end up losing more money than you make... 

While dropshipping offers low risk and low barriers to entry, it is not a sustainable long-term plan if you don't build a brand around it. 

Many people approach dropshipping as a way to make quick money by selling trending products without being passionate about what they're selling. 

This leads to a crowded market, lack of customer loyalty, and poor customer experience. 

However, dropshipping can be done well by building a brand, white labeling products, and utilizing platforms like Amazon FBA.

I share more of my personal opinions on dropshipping in today's episode.

If you've enjoyed this episode please make sure to hit that subscribe button :)

Incase you just stumbled across this episode and we haven’t met before let’s get formally introduced here: www.itssophiebiggerstaff.com

If you’re an e-commerce business owner looking for support I host my online courses designed for you here: www.thecommerceclub.co

For more content like this follow me on socials:

Instagram: https://instagram.com/itssophiebiggerstaff

TikTok: https://www.tiktok.com/@itssophiebiggerstaff

LinkedIn: https://www.linkedin.com/in/sophie-biggerstaff-retail-consultant/

Subscribe for free business resources: https://itssophiebiggerstaff.myflodesk.com/instagram

Is dropshipping your get rich quick scheme for an ecommerce business? In my professional opinion, no it is not. Dropshipping is a hot topic right now in the ecommerce world because you know so many people can set up a dropshipping business. It is very accessible especially with the likes of Shopify having loads of dropship partners and functionality for you to just be able to get stock from a supplier and drop it directly to your customers. Now

In theory, that is a great business model. So if you don't know what drop shipping is, drop shipping is basically where you will set up your website and you will stock other people's products and the brand that you're stocking is going to ship and fulfill those orders to your customers. Now you still have to build up a customer base. You still need to kind of promote those products and you obviously can drive traffic to your website in order for them to sell. You still need to take a customer on a journey.

convert when they're on your website but it leaves you out of control of the shipping and fulfillment process and you have no inventory on hand that you need to look after or manage or pay for in a warehouse. So in theory that's a great business model because it's really low risk it's like really low barrier to entry you don't have to invest thousands and thousands of pounds into products which is why so many people are teaching you how to drop ship and

that it's a great business model and that you could make loads of money from dropshipping. And I don't disagree with that. There is a way to make a lot of money and really be successful in the dropshipping world. However, some of the advice that's getting put out there and some of the real life examples that I have seen about dropshipping, I just don't think it's been going about in the right way. And I don't think it's a sustainable or long term business plan to have a dropshipping business in the way that quite a lot of people are putting it out there.

And I wanted to do this episode because I actually went to an e -commerce meetup a couple of weeks ago. And the whole premise of that meetup was that these two founders that were running the meetup, they had run their own dropshipping business. And whilst I'm very admirable for anybody that's made it a success, the way that they were talking about it was just like that they were just trialing loads of products and just putting ads run into these products just to make money.

And that's the bit that I disagree with. That's the bit that I disagree is going to be a long -term sustainable business model for you because ultimately you as a founder need to be really passionate about what you're selling to be able to put it out and market it to the world. If you're not passionate about what you're selling and you're just selling any old product as a get rich quick scheme, you're not going to have a long -term sustainable business model there.

So most of the people there were dropshipping kind of random products. They'd done like obviously keyword research to see what people are looking for right now and they're filling a gap in market, which great idea. You're definitely going to be able to do that in the short term and that's going to be successful. But obviously trends change. So dropshipping is very much based on current trends because you're looking to see what people are searching for right now then you're going to fulfill that product there and then in that market.

and you can get access to these products very quickly, you can build Shopify website very quickly. There's so many different app integrations now where you can connect directly to a supplier through Shopify and then literally just integrate it onto your website and then go live and sell it. So it's so easy to set up, but where I have an issue with this is that you are not...

really excited about the product that you're selling. You're literally just selling it because the key word has told you that it's popular and trending right now, in which case, it might make you a quick bit of cash. Secondly, you're not building a brand around this product. You're gonna have to spend so much money and time getting traffic onto your website, which is fine. If you've got budget, go for it. Why not? But in my opinion,

for a long lasting business and if you want to create something that's going to last you into the future, you're going to need to build a brand around this. If you think about the businesses that are out there, let's think about Burberry, let's think about Topshop, let's think about ASOS, let's think about Revolve, like all of those businesses, yeah, they might have started in one way, but they've built themselves into a really big brand. So in my opinion,

you have to have a brand around the product that you're dropshipping for it to be a long -term business plan. Otherwise you've just got this really short -term business that is not going to probably get you to the goals that you want to achieve long -term and you're also probably gonna lose passion for it along the way because you're not really selling a product that you're excited by, you're literally just selling a product that you know that your customers want.

Whilst dropshipping is a proven business model and in some ways I think it's great, I think it's brilliant that you don't have to invest in inventory. the ones, the dropshipping businesses that aren't building brands around their products, that's where I have an issue because that's where you're just trying to make a quick buck. And whilst that's great in the short term, it's not a long term business plan. And the way that, again, why I'm talking about a subject, the way that...

They were talking about this at this e -commerce meetup that I went about was like, you know, this is your future. You're going to build this drop -driven business. It's going to be great. You're going to have all of this money coming in for a long period of time, blah, blah, blah. And I was like, no, you're not. No, you're not guys. This is really bad advice. And I find it a lot that I go to some of these events and a lot of really bad advice is being given out because it's from somebody that's just had a bit of luck in the industry. They haven't actually had like full on experience in the industry.

They've just had a little bit of luck with a product that's worked really well for them. And you can tell that it's only going to be lasting for a short period of time and it's not going to be a long -term business plan because one, when you drop ship products, you're really out of control of the service that the logistics partner provides because ultimately you're not shipping out that product. You aren't in control of that process.

So the quality of service and probably the quality that the product is actually getting to a customer in is not going to be the quality that you would probably want it to if you were really running a brand and you had like full on values and mission for your brand. Which means there's not going to be any customer loyalty. Your customer is going to be a bit disappointed probably when they receive the product.

Most of the time these people that are drop shipping, haven't even seen the product that they're selling. They're literally just drop shipping random products. So then you as a customer are getting this product, you're like, well that doesn't look like what it said it was gonna look like on the website. And that's because nobody's actually doing any quality checks around like that process. So your customer is very quickly gonna be like, well this is crap. I'm not gonna come and shop here again, in which case you're not gonna have any customer loyalty.

The other thing is that people buy from people. So if you're just this faceless brand on the internet in this day and age, nobody's going to trust you. Nobody's going to understand the story or like mission that you're on. You're literally just running ad traffic to your website, which again,

In theory isn't a big problem, but for the longevity of your business it is because you're just getting this empty traffic and you're not kind of building any relationship with the people that are shopping with you, in which case people are less likely to convert. You're going to be spending a ridiculous amount of money on ads to get all of these people on your website and they're not going to be buying from you because they haven't built any relationship with you. You haven't built any credibility with them. Why would they?

with you there isn't it doesn't make sense so you might be lucky and get the odd transaction going through but it's gonna take you a long time realistically to get to your revenue goals because you're gonna have a very high ad spend and it's gonna make your profitability very low because your ad spend is gonna be very high and probably the cost of your goods when you're dropshipping is still quite high because obviously all of the logistics costs and stuff are out of your control as well so

your revenue from this business model is going to be quite low. There's also a lot of competition. So if you are just dropshipping a random product, like as an example, I met a girl when I lived in Bali and she had been given the advice that to make money quickly, she could create a dropshipping business. So she decided, I'm going to do a jewelry business. Great. Cool. Very easy for you to source jewelry. She did her research. She looked into like which markets she should sell it in, which products, which suppliers. Cool.

And she was like, yeah, now I just need to run the ads to the website. I'm not gonna do any socials. I'm not gonna build a name, face to my brand or whatever. And then I looked at her product and I was like, I've seen this in about 50 other stores because you're all buying or using the same dropship supplier because everyone's got this same business model. So you're entering in to this really crowded market, especially if you are jumping on a trending thing because there's other people also jumping on those trends.

So you are literally going into a market where it is so crowded and you're not gonna have very high visibility because you don't have a unique selling point. again, going back to like the longevity of a business, you need a really strong unique selling point to be able to build that relationship and credibility of your customers and get them to buy from you over the competition. The other thing is so much in dropshipping is out of your control. Like I say, your supplier,

most of them probably being in China are in control of that shipping process from when they get an order from you to when it gets to your customer. So that whole process is out of your control. So imagine your customer doesn't get their parcel and they're going to come to you. They're not going to the supplier, they're coming to you. So you then have to like crisis manage and figure out where is that parcel you've got to go and speak to your supplier in the Far East.

and then go back to your customer, try and figure it out. They then have to go and speak to their logistics partner. It's like an extra line of communication that you have to go through. And it just doesn't really make any sense. So your customer, again, is not going to be very loyal to you because they are experiencing not a great experience from the service that you're providing them.

That piece for me is really important when it comes to like actually building yourself a brand because ultimately part of the your business model in an e -commerce business should be customer retention and you want people to be really happy recommend your products come back to you shop again because ultimately retention is way cheaper than you making ads and putting paid paid adverts out there to attract in new people. So that

for me, is makes dropshipping a little bit of a questionable business model in that way. There are ways to do dropshipping really, really well. And I think quite a lot of people get it very wrong. And then they waste money, they lose money, they waste time, they try out so many different products. And don't get me wrong, dropshipping has its benefits in terms of like you can test lots of different things at once, which is great.

but as I keep banging on, it's not a long term business plan, but there are ways you can make it a long term business plan if that's something that you wanna do. So in my personal opinion, and obviously I work with e businesses all the time, plus I actually tried to look into setting up my own e -commerce dropship business, and in some ways I can see how it's gonna work.

But in other ways, like the way that I've just described to you, the way that people do it, where they're not building a brand around it, they're just running paid ads to a website. That for me is very soulless business. It's not long term. You're not gonna be making money from this for years to come. is literally like, you're gonna put in all this effort and it's gonna last you a year max, two years. And I actually had a client two years ago, I think it was, I had this client.

and he came to me, he had a dropshipping business and he wanted to convert his dropship business into a product development business because he had been dropshipping from China to his customers. He was having thousands and thousands of pounds worth of returns a month because his customers were so unhappy with the quality because he wasn't sampling, he was literally just getting it shipped directly from the supplier. And although he had some success with...

some of the products that sold because he had had them on like high profile celebrities. Again, his business wasn't, didn't have a long term plan because he didn't have the, no customers were coming back to him. His return customer rate was very, very low. And he just wasn't able to keep up with like the standard, the quality standard that the customer was demanding that he was putting out there to the world. So.

Although he had a great test run with Dropship, it wasn't the long term business plan. He, after about a year in, really realised that this wasn't the right business model for him and he had to go down the product development route, in which case he needed to cash flow to invest in his products, which is a whole other topic of conversation. But Dropship can be done in a great way.

if you are a little bit more in control of it or if you are utilizing third party platforms to support that drop ship model because like I say, to have a long term sustainable business, you really do need to build a brand around that business and provide the level of service that a customer is expecting in order to retain that customer. So a couple of different ways that you can do this to actually

keep your business as a long -term business model under the dropship kind of umbrella. One would be to go through Amazon FBA because ultimately if you go through Amazon FBA and you're dropshipping products for Amazon FBA in a niche product area, whilst it's not as easy and accessible as Shopify where you have the integrations to find those products, it is still really easy for you to find a supplier and then get it shipped into Amazon.

And you don't then have to make, any of the brand marketing and create, build the relationships with the customers, create the credibility, create the customer loyalty because Amazon already has that. So you can utilize Amazon as a platform and drop ship off the back of Amazon. That would be a way more beneficial way than you set up a website that takes time to track on Google that you have to run.

direct ads to and nobody knows what the hell they're doing when they get there. Whereas if you are going through Amazon and you are dropshipping through their FBA program, you don't have to do as much brand building, in which case it is a bit more of a long -term sustainable business model because you're going to have consistent traffic coming to your page, assuming you know how to navigate Amazon and set that up in the right way. In my opinion, that would be more beneficial for you as like a

longer term strategy to keep your business going. I still feel like there's an element of like you do need to be passionate about what you're selling, otherwise you get bored of the business if it doesn't actually work and you have to keep tweaking and refining a business model. But in general, if you aren't that bothered about what you're selling and you just want to make money selling online, I think Amazon FBA would be a way easier solution for you and a more beneficial solution for you to run a longer term business model because ultimately, although you don't control Amazon.

it's gonna have ways for you to work on their always like they're a cash cow right like they're not just gonna drop out of their fba model they might change the rules slightly in which case yeah you might have to change your business model slightly but there's always going to be ways for you to make money on amazon because that's their business model is for people to sell through their platform and then they make obviously a good chunk of money out of that as well so

In my opinion, if you were going to build a dropship business, going through Amazon FBA would be a way easier way to do it and a more long term sustainable way to do it than you building up your own dropship business unless you are going to build a brand around your business. If you're planning to do a dropship business and you're building a brand around it, I think that's a great idea because ultimately it really does leave you with really low risk and you are building a brand in which case you can

evolve and change that business model as you go. I think if you're building a brand around your product, a really great idea would be to try and white label your dropship products. So white labeling is basically you're not developing and creating the products, but you are maybe changing the labels, the swing tags to your branding. So the dropship supplier would do that for you. There would be a slight extra cost, but it would just...

give you a little bit more flexibility to then move into doing product development later on down the line or creating a bigger business from the brand that you're already building. So when I say build a brand around your dropship business, what I mean is like, know, build the relationship with the customers, make sure you've got your customer database, make sure you've got your social media set up, you're putting a bit of a face or personality behind your brand, you're setting out your mission, your values. It's not just this random website that's floating around on the internet.

that you're driving traffic to through ads, you're really trying to get a presence out there and push your brand name out there to really try and build relationships with your customers to sustain them and keep them in your business. This was actually something that I was gonna do with my new business, Tina. So initially when I launched times .helo, I actually did an episode on podcast talking about my new business a couple weeks ago. And...

Initially when I plan to launch this the plan was to be a dropship business because I didn't have any cash to invest in the business so I couldn't go down the product development route or the wholesale route but I really wanted to stock products that already existed in the market for the mental health niche so I thought right I'll contact the brands directly and build relationships with the brand so I have a little bit more control

And then I'm going to build obviously this brand around Tina because dropship was only going to be a very small part of the business. So if you're doing it in that way, I think that there's more opportunity for it to be a long term business plan because you've got that direct link to the brand. Also, we were going to look at dropshipping higher ticket products because that will give us more profit. If you're dropshipping products that are like five to 20 pounds, the amount of profit that you're making on that product is very, very low.

So in which case it doesn't really make much sense. So if you're gonna do dropship, I feel like you need to do it at like a higher ticket. And if you're gonna build a brand around it, it would be great if you could factor in some white labeling in there as well, because then you can make it really into your brand and give it an identity. And I know a lot of businesses that do that.

in as part of their business model, they don't necessarily own the inventory, but they have got the brand name on their stock and that works really, really well. So to summarize, I'm not against dropshipping. I think it's a great business plan if you don't have cashflow. What I am against is people building these dropship businesses for get rich quick scheme because it's not that and a lot of people online promote it as that and

there's a lot of like complexities with dropship and I think that the way that it's perceived online is not accurate in the way that it actually is. Like having tried to up my own dropship business, having been around people that have set up their own dropship business and also had clients that run a dropship business, I know for a fact that it requires a way loads more work than the gurus of Instagram are telling you and the amount of money that you can actually make in terms of profit.

from these businesses is actually quite low, depending on how you run the business. Now, if you kind of do your dropship business, building a brand around it, if you're building relationships with your suppliers, if you're really trying to create a customer experience and white labeling your product, I think you've got loads of opportunity. Equally, I think you've got loads of opportunity by running it through Amazon FBA.

I don't think you've got any opportunity in my opinion by just putting product out to what one adds to it. I just think that's a waste of your time. If you're going to set up a business, try and do it with something that you're passionate about selling. Don't just jump on trends because it's not going to be a long -term sustainable business plan. you know, do it because you want to provide value to a customer, not because you want to...

get rich. Like there is obviously in any business that somebody sets up there is a financial goal to that and some kind of personal motivation when it comes to money. But you want it to be something, if you're going to invest your time and energy into something, don't you want it to be something that's sustainable long term? That's just my opinion. You can tell me what you think in the comments. But you know, I really do think that

You can have success with dropship if it's done in the right way. So if you have a dropshipping business and you want to prove me wrong, please go for it. I like to say I've worked with dropship businesses. I've seen the struggles that they face. I've seen the lack of profits. I've seen the time investment into ads and the money and financial investment into ads. I have also tried to run a dropship business. And again, from experience of like doing that process for time is not a healer.

I reached out to over 150 brands. Out of that, maybe I got about 50 responses. And out of those that told me that they would or wouldn't do dropship, only about five of them would do dropship because even for the brand, they said that it's just way too much hassle and causes so much problems. The returns rate is so high. You've got no control, blah, blah, blah, blah, blah. All of the things that I just mentioned. The brands don't even want to do dropship anymore because it is a bit complicated.

So yeah, if you're gonna build a brand around it, you're do white labeling, you're gonna try and create something that can be formed into a business, a longer term business plan where you're gonna go down the development route or buy a wholesale in the future and have more control over your supply chain. I think that's great if you're just doing it to get rich quick. Good luck to you, that's all I've gotta say. So yeah, keep me posted in the comments if you have a dropship business or if you disagree or you agree with what I'm saying.

be really interested to hear your feedback. Ultimately, when you're running business, there's no right or wrong answer. This is just my opinions. So if you don't like it, that's fine. Don't listen. But in the meantime, thank you for listening to today's episode of the Ecomask Club podcast. If you are running an Ecomask business and you do need some support, I am always here to help. I have online courses, Ecomask mentoring, and some digital downloads available for you to get stuck in and...

create more sales in your e -commerce business. might even do one on dropshipping once I've kind of educated myself through the process of running an e -commerce dropship business myself. I might then create a course on that, who knows? But for now, thank you for listening and I will catch up with you soon.