Is dropshipping worth it?
Yes, dropshipping is still worth the investment if you’re looking for a low-cost business idea. The number of people searching the term “dropshipping” has increased exponentially in just a few years.
Success lies in choosing the right products, maintaining profit margins, and choosing the right suppliers. Cover those bases and it’s possible to create a successful, profitable online business as a dropshipper.
With social media influencers promising entrepreneurs that they can earn thousands of dollars in side income through a single dropshipping store, you may be debating whether it’s worth investing in your own.
The process of starting a dropshipping business is relatively simple: create an ecommerce website, find a supplier, and select your products. Then watch the money start to roll in … right?
Not always. Opening your first dropshipping store can be a hefty investment, both in terms of time and attention. This guide shares whether dropshipping is worth it, alongside six things you need to know before opening your own online store.
Why is dropshipping so popular?
The dropshipping industry is estimated to be worth $197 billion—a 53% increase from 2020, with experts predicting a $500 billion valuation by as early as 2027.
The pandemic is largely responsible for dropshipping’s exploding popularity. Research shows that 52% of consumers increasingly turned to online shopping compared to before the pandemic, with one in three purchasing items they’d otherwise buy through traditional retail.
The advantages of dropshipping
Dropshipping is a popular route for new business owners to start making money online. That’s because the dropshipping business model offers:
- Low barrier to entry. New entrepreneurs don’t need a lot of money to invest in inventory. Once you sell a product, the dropshipping supplier handles order fulfillment and shipping.
- Flexibility. Sell as many (or as little) dropshipping products as you wish through your store. It’s a scalable ecommerce business model, allowing you to work whenever and wherever you like.
- Simple testing. Since other tasks—like order fulfillment and shipping—are taken off your plate, your main focus is testing which products sell best. It’s why some entrepreneurs consider dropshipping a crash course in ecommerce marketing.
Absolutely... Dropshipping still a massive part of a merchants journey and there's always an opportunity to do it better (more quality products, faster shipping, better search/ux, etc)— Brian Peters (@brian_g_peters) January 12, 2022
6 things to know before starting a dropshipping business
“Due to the benefits of low start-up capital and overheads, dropshipping has developed a reputation as an 'easy money and get rich quick' scheme,” says Shane Liuw, SEO expert at First Page. “Naturally, some people are skeptical of dropshipping.”
Before investing time into your own dropshipping store, let’s take a look at some of that skepticism.
Is dropshipping profitable?
Dropshippers often pay a premium to source inventory from suppliers, and with so many companies selling comparable products, there’s often a ceiling on how much profit you’ll make on each item. The luxury of not dealing with fulfillment, shipping, and returns comes at a cost.
That’s not to say dropshipping can’t become a profitable business. It can—so long as you pick the right products to sell at the right price.
Take it from Noah Wickham, owner of IdleShopper, whose dropshipping stores generate an average of 40% gross profit and 20% net profit: “It really depends on the products you are selling and how heavy you are going in on marketing efforts. However, nearly any dropshipping store can be profitable given the right circumstances.
“At the end of the day dropshipping is also a very money intensive type of business. To run a successful dropshipping business, you need to be able to spend money on graphic design, advertising, and a whole slew of other variables. However, it is very lucrative to get money back out.”
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How competitive is it?
Since anyone can start a dropshipping business with $0 upfront, it’s an attractive business model for entrepreneurs looking to sell products online. That makes it competitive—even more so if you’re selling in a popular dropshipping niche.
Clothing, home and garden, and jewelry and watches are the most crowded dropshipping niches, with half a million clothing dropshippers competing for your target market’s dollars.
Experts estimate that between 10% and 20% of dropshipping businesses succeed. Increase your chances by standing out from dropshipping competition using techniques like:
- Choosing a less crowded niche. Dave Hermansen, CEO of Store Coach, evaluates any new dropshipping niche using this criteria: “The number of daily searches (more than 100), level of competition (who is on page one), whether or not the products can be found in a wide variety in local stores (not good if you can), and retail price (at least $500, on average).”
- Prioritizing customer service. Dropshippers often fall into the trap of focusing solely on marketing and neglecting existing customers—despite the fact that existing customers are more likely to purchase products you’re selling.
- Building a brand. Cole Turner, who made millions through his dropshipping store, says, “The only way to be successful in dropshipping nowadays is to have a real identity as a brand, and have a real legitimate business, even if it’s not legit to start with. If you’re still shipping from AliExpress, you still have to be believable. People have to trust you.”
“Dropshipping [is] still a massive part of a merchant’s journey, and there's always an opportunity to do it better—more quality products, faster shipping, better search/UX, etc.,” adds Brian Peters, Partnerships Lead at Shopify.
How long does it take to succeed?
Despite dropshipping being a low-risk business model, there’s still a large amount of time that needs to be invested before making your first sale. That includes:
- Starting an ecommerce store
- Sourcing new products
- Evaluating suppliers
- Marketing your products
- Building a brand
Expect to spend at least 10 to 15 hours per week to generate up to $2,000 in monthly revenue through your dropshipping business. But, just like any other small business, the time you invest increases your odds of making substantial revenue. Our experience shows it’ll take at least 12 months of full-time work on your dropshipping business to replace an average full-time income of $50,000.
In a hurry? Save time by buying an existing, already-profitable dropshipping business through Shopify Exchange.
How do you get the right suppliers?
You can have the best marketing campaigns in the world. But if customers don’t like the products they’re receiving (or fail to receive them entirely), your dropshipping business is doomed.
Websites like Alibaba and DSers have thousands of suppliers ready for dropshipping store owners to plug into. Thoroughly vet any dropshipping suppliers you choose to partner with, paying especially close attention to:
- Shipping estimates. Online shoppers want fast, free shipping. Evaluate whether you’re able to offer this by getting shipping times and shipping costs from different suppliers.
- Reviews and ratings. Check reviews from other companies using the same dropshipping provider to improve quality control. Is the product quality up to scratch? Does it arrive with any defects? Is their order fulfillment process fast enough to meet delivery promises to customers? Do they accept refunds on your behalf?
- Customer support. The most important dropshipping tip is to own your supplier’s mistakes. That doesn’t mean you can’t hold suppliers accountable for errors on their side. Look for suppliers who welcome feedback with speedy customer service.
How big of a priority is customer support?
Although the time you spend on customer service can be minimized by partnering with good suppliers, it’ll still eat a large chunk of the time you spend running your store.
As soon as a customer orders an item through your online storefront, details automatically feed through to your supplier. It’s their responsibility to pick, pack, and ship the item to your customer. But it’s inevitable that something could go wrong throughout that process.
Minimize the impact of negative customer experiences by owning the mistake. That includes:
- Communicating delays proactively, such as delivery times
- Asking for another chance if a customer’s order shows up wrong, such as offering a coupon code on their next order
- Making support easily accessible, including links to FAQs in your order confirmation emails and an on-site chatbot
Do these things before the customer publicly complains about your store on social media. That deters up to 94% of online shoppers from purchasing one of your dropshipped products.
Will you need to protect your business legally?
It’s totally legal to operate a dropshipping business, but there are some things you need to consider before setting up shop.
Take these legalities into consideration when confirming whether dropshipping is worth it:
- Business structure. Operating as either a sole proprietorship, LLC, or C corporation has its own benefits, though an LLC can provide greater protection as a dropshipper. You don’t risk being personally liable for any debt the business accumulates, like overspending on marketing.
- Taxes. Dropshippers need to pay sales tax if the state you operate from collects it and an order is placed by someone living in your state. You may also need to pay income tax if you draw a salary from the business.
- Contracts. Consult a lawyer to draft a dropshipping partner agreement and protect yourself in the event something goes wrong.
- Policies. You’ll need privacy, shipping, and returns policies for potential customers to view when thinking about purchasing through your dropshipping store. (Failing to have the latter could turn off 54% of buyers.)
- Insurance. Risk increases as your dropshipping business grows. Consider investing in business insurance to protect yourself.
“Even though you can start with just your laptop, if you’re selling counterfeit goods, using false advertising, or breaching consumer protection laws, then it’s likely you’ll end up in hot water sooner, rather than later,” says Fintan Meagher, marketing manager at ReConvert.
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Is dropshipping worth it FAQ
Does dropshipping make good money?
Many entrepreneurs have used dropshipping to build million-dollar businesses. It’ll take a year of full-time hard work to replace your income—an investment that can pay off in a few years’ time.
What is the downside of dropshipping?
The cons of dropshipping include low profit margins, poor inventory management, and hassle with suppliers. Mitigate that risk and avoid dissatisfied customers by sourcing high-quality products from reliable suppliers.
Is dropshipping still profitable in 2022?
If you’re looking to generate profit, dropshipping works, though margins differ depending on the products you’re selling. Source prices from your suppliers and compare markups from other retailers when deciding on your profit margins.
Is dropshipping on Amazon worth it?
Amazon dropshipping is slightly less profitable than selling online through your ecommerce store, since the marketplace takes a 15% cut of any sales. If profit is your main goal, consider diversifying your sales channels.