Dropshipping: Challenges You’ll Eventually Encounter and How to Solve It
Not all people enjoy their 8-5 job. Many of them dream of making their own job, setting up their own business. They want to take control of the things that matters in their life: time and money, to get a better life. And, if you are reading this, you’re very likely one of them. Specifically, one of them that is thinking of setting up dropshipping business, or even have been running one.
If we are wrong and you aren’t a “dropshipper”, maybe you’ll want to understand what we’re talking about. Dropshipping is a business where the seller doesn’t take control of the inventory. Instead, when a buyer purchase a product, dropshipper will tell the wholesaler/producer and let them handle the packaging and shipping of the product.
Because of its nature, dropshipping is one of the low-risk business model you can run. The set up cost is not high, because you have no need to provide a physical place to store all the items you sell. The barrier of entry is low as well.
But, low-risk doesn’t mean low-challenge. Sure it doesn’t require much to start, but it doesn’t mean your dropshipping business will just flourish away without any obstacle at all. But don’t worry! We have collected four solutions for challenges that you probably will encounter in your business, sooner or later.
Finding reliable supplier
Supplier (or wholesaler, or producer, basically whoever it is that provide the items you’re going to sell) is the key to almost every aspect of your dropshipping business. Product quality? It depends on them. Product availability? Likewise! Shipping punctuality? On them as well!
So, the first challenge you’ll encounter is to find a supplier that is reliable in term of product and shipment, with low price and good customer service. Sounds easy?
Solution: do your research. Observe the market you want to enter. What niche can you enter to get noticed more by customer? What advantage can you offer that is not offered by other stores? Once you know what products you want to dropship, find out how many suppliers options can you get? Which one of them seems to be the most popular and which one of them that is the most reliable? Compare your findings in term of product quality, product availability, customers service, financial positions, as well as technology and of course, price.
COGS is higher than expected
COGS in accounting is abbreviation of “Cost of Goods Sold” or basically the buying price of the product you’re selling.
As a dropshipper, we make our profit from margin between this COGS and the price we offer to our customers. In e-commerce, customers tend to be quite price-sensitive, because they have many store options to buy from, and to switch from one store to the other is as easy as clicking several times! Because of this, you don’t want to put too much margin and lose potential customers over it. But, business is business and you’ll want to get certain profit from it. Cutting the margin too low will hurt your business’ finance.
That’s why, many first time dropshippers are usually surprised to see that the COGS they get is higher than expected. Price for dropshippers are usually higher than price for traditional reseller of brick-and-mortar store. It’s not because the supplier is not being fair, but it’s because traditional reseller buys in bulk, while dropshipper only give suppliers orders at small numbers (they’re selling retails, after all). Remember that buying in bulk is cheaper because the fixed cost is shared according to number of the order.
Solution: once again, research to find suppliers that is willing to offer you the lowest cost so far. But, that’s not the only way. You can charge premium margin and the customers will be happily
Product availability is not up-to-date
So you finally get your first customers, who order two items. You excitedly pass this order to the supplier, only to receive a message from them that the product is sold out.
Of course, when this happens, it doesn’t cost you anything. Buy, you’ll have to spend some time doing customer service (a.k.a emailing your customer about the bad news and dealing with their response). Also, if this happens too often, customers will notice and it may hurt your store’s reputation.
Good product doesn’t mean anything if your customers can’t get it. That’s why inventory management is very important in business. You have to make sure fresh new items are ready as soon as (or even before) the old batch is sold out.
But wait, you’re running a dropshipping business here, so why exactly do you have to care about inventory management? Isn’t the point of dropshipping is to not have any inventory at all?
Well yes, you’re correct. But, while you don’t have any control about how inventory in the supplier’s side is managed, you are still responsible to rely the correct information about inventory to your customers.
Solution: invest in good technology. Find suppliers that can update their inventory status automatically rather than manually.
Website doesn’t get enough visitors
This is classic challenge in retail, both online and traditional. How to get people to visit your store/website and how to get them buy items from there?
Advertising helps. Google and Instagram ads these days help generate traffic to your site, and they offer affordable plans as well. But don’t forget that traffic doesn’t always equal purchase.
There are many reasons why traffic from advertising may not lead to purchase. One of them is because the ads probably exposed to the wrong target market. They got interested with the ads, click and visit your website, but what you offer may just be what he not need, so he clicked out.
Or sometimes, you hit the right target, and he really wants to buy that product you display in your website, but the layout of your site is too confusing and the checking out process is too complicated he ended up abandoning the cart.
Solution: invest in technology, with a dash of creativity. Your website will be the face of your business, so you have to take it seriously. Make sure the interface is simple and easily understood, but still pleasing to be seen. Test the signing up, logging in, shopping, checking out, and paying process, see if they are all efficient enough to not make your potential customers stop in the middle.
If you know nothing about web design, hiring help is the best way to make sure this challenge is going right. Website like https://ali2woo.com/offers incredible design with affordable plan every dropshipper rookie can start their business with.
Of course, there are many more challenge you will encounter, but these four are the most often and the most crucial. Now that you know how to handle them, you are ready to start your very own dropshipping business.
Drop us a few letters about how it is going!