Should Your eCommerce Business Be D2C or Use a Dropshipping Model?

Last Updated February 24, 2021

📚 This blog post has been edited and excerpted from the eBook Unstoppable Growth, now available for download.

In the past several years, our business development team has spoken with over 4,000 prospective eCommerce entrepreneurs.

One common question we get is about dropshipping. The question is asked differently each time, but it goes something like this, “I’m dropshipping, do you think a growth strategy will work for me?”

The answer, as you might guess, is it depends. It’s kind of like asking a painter, “Should I use this big roller for my painting project?”

The answer is “yes” if you want to paint a lot of open wall space quickly. But not so much, if you need to paint the balusters along a handrail, or the risers of a staircase. For this, you need a smaller brush for more precise painting.

Okay, first things first. What is dropshipping?

Dropshipping is a retail business model.

If you haven’t heard of it before, it’s a process where a store doesn’t hold any physical stock. Instead, they process orders from customers directly and then have a third party ship the product to the customer.

The difference between what the customer pays the store and what the store pays the third party represents the margin of opportunity.

Dropshipping is an attractive model for many entrepreneurs who are just starting out. Since it doesn’t require any upfront investment to purchase and hold inventory, it’s less risky than a direct-to-consumer (D2C) model. All of the investment can be focused on growing sales.

Dropshipping isn’t just an approach for lean, low-budget entrepreneurs. In fact, some of the largest companies in the world employ the model. Wal-mart and Amazon both leverage dropshipping with vendors on their platform.

So yes, it is possible to build a large, 9-figure business with a dropshipping model.

It almost sounds too good to be true, right? Why take the unnecessary risks of developing a product, establishing supplier relationships, and holding inventory? That kind of makes D2C eCommerce brands look a little like chumps. 

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Not so fast! Let’s examine some of the downsides of dropshipping.

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Dropshipping is a hot commodity...for fads.

When dropshipping hopefuls find products on marketplaces like AliExpress, they typically fall into one of two categories: fad items and commodities.

For fad items, look no further than the famed fidget spinner.
Fidget spinners took off in 2017 as a fad among younger buyers. Many fortunes were made during this time for dropshippers who joined in early.

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But within 8 months, the trend had slowed significantly.
As soon as the fad lost steam, so did the opportunity to make money.

In fact, that 8 month window of opportunity was much shorter in reality. After about 60 days of steep growth in demand, so many competitors jumped into the mix, it became a race to the bottom on price.

If you enjoy the constant hunt for the next trend and don’t mind starting from scratch every few months, this might not bother you in the least.

But if you want to build a sustainable, long-term business with high growth potential, fad products are not the optimal way to get there. Unless you have an informational advantage on emerging trends (if you do, let's talk...) or own some part of the supply chain, it’s incredibly difficult to remain competitive.

A second way dropshipping comes up short is with customer experience. As a dropshipper, you have little or no control over the customer experience: how the product is packaged, when it’s shipped, or even the integrity of the product itself.

Long-term businesses depend on their customers to be repeat buyers or at the very least, advocates of their brand. And when you’re nothing more than an order-taker, it’s difficult to fulfill any kind of brand promise that wins over customers for life. D2C eCommerce brands will pretty much have dropshippers beat in matters of customer service every single time. 

Dropshipping works for Amazon, so why not me?

If someone isn’t dropshipping fad products, they’re often making the mistake of trying to sell commoditized products. In this case, by commodities, I’m talking about products that can be found in virtually every retailer around the world.

Maybe you want to dropship a generic version of Windex. You think: “How many millions of people need to buy Windex every year? I can sell it for less! The market is huge!”

You reasoning doesn’t answer a simple question: Why would anyone buy generic glass cleaner from you?

You might be thinking, “yeah, but people buy glass cleaner online already on Amazon.” To which I say, “exactly.

Amazon, with their two-day prime shipping and consistent customer experience, has all but locked up the market on selling household commodities online. They're a massive marketplace popular among dropshippers and small businesses (and pretty much everyone in between).

Your success or failure is dependent on your ability to differentiate.

So, should you dropship?

If it leads you to a fad product or trying to sell a commodity with little differentiation, my advice is to avoid it like the plague.

But we are not “anti-dropship.” We're just pro- sustainable growth systems.

I should disclose that we have and currently are dropshipping products ourselves. We like operating our own eCommerce businesses because it gives us an awesome sandbox to test new growth experiments on our venture like mad scientists before we roll something out to clients.

Here’s what our dropship strategy looks like on a high level: we use local suppliers, picked a long-term niche, and promote a unique product without a lot of competition and plenty of margin.

There’s a way to do dropshipping well and take advantage of the smooth logistics and low upfront investment. But only pursue the model when it doesn’t undermine your ability to keep customers happy long-term.

You owe it to yourself to think strategically and on a long-term timeline and make sure that your model isn’t dead in the water before you even start.

You’re going to be spending significant time and resources building the business of your dreams, whether it's a dropshipping model or a D2C eCommerce shop.

Jump on a call with one of our growth experts. We'll talk about your goals and create a strategy to get results. 

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