đź“š 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?
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.
Not so fast! Let’s examine some of the downsides of dropshipping.