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Drop Shipping – How to Avoid Common Mistakes

Last week we took a look at drop shipping as a business model and the advantages it holds for would-be entrepreneurs and others who want to start a lifestyle business from home.  It’s easy to launch a business this way as there are very few costs involved with the start-up stage of the business, there’s no need for premises which means that you don’t have expensive overheads such as business rent, utility bills, etc.  However, it’s not all easy sailing with a drop shipping business and there are some pitfalls to look out for, which is why we are bringing your attention to the negative aspects of drop shipping.

  • SUPPLIER MISTAKES – managing a drop shipping business means that you never handle or see the goods that you are selling to your customers.  Any customer buying an item from you will expect that item to be delivered as advertised and on time – and they are relying on you, the seller, not the actual supplier to ensure this.  Any issues that arise with an order will need to be sorted out by you.  So if a supplier makes a mistake or there is a problem with delivery of the item, there are missing items or items are damaged in transit, you will be held responsible by the customer.  These issues can be largely avoided by only working with reputable and reliable drop shipping suppliers and building a good relationship with them.
  • SHIPPING COSTS – most of the businesses that use drop shipping will source their goods via a variety of drop shipping suppliers which may lead to complexities when it comes to shipping chargers.  For example, if a customer buys three different products from you that all come from different suppliers, they will all incur separate shipping chargers.  Paying three separate charges for shipping is likely to result in a customer looking elsewhere to buy all of the goods from one supplier with combined shipping charges.  If you offer a range of goods from different suppliers, you may need to absorb the extra shipping costs yourself in order to secure sales, rather than pass on several shipping charges to the customer.  Alternatively, you could add the cost of shipping to individual item costs and offer free shipping – this will raise the price of the item, but many customers will be willing to pay a little more for an items if delivery is free.
  • LOW PROFIT MARGINS – drop shipping is particularly competitive with so many retailers operating this type of business model.  This means that your prices will need to be set at a level that will attract customers to shop on your website, rather than on the website of another supplier of the same goods.  Because a drop shipping business has so few start-up costs, it is easy to operate on low profit margins but this will have limitations if you intend to create a long-term, sustainable retail outlet online.  In light of this, operating in a niche market is one way to put your business on the road to success.  

Next week we’ll have some advice for you on choosing the right suppliers for a drop shipping business.  Why not follow us on Facebook or Twitter to make sure you don’t miss it?