Dropshipping is sometimes not a sustainable long term method of importing and starting a new import business. Although I have seen it used effectively as short term model.
The nirvana for online sellers is to not hold stock and resell product which is imported direct from the manufacturer and shipped direct to your customer. While they may become possible after you have developed a strong working relationship built over several successful imports, consider the implications and risks before parting with your hard earned cash.
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Why Dropshipping can be Unsustainable
- No quality control or risk management – you trust the manufacturer or wholesaler to deliver a product to full specifications. You often have no control over the quality process and no way to prove the parcel the customer has received is not up to scratch
- Your brand at risk – you are staking your business reputation on external organisations with little control over the process, and little accountability to your brand
- Short term sale, long term pain – if the customer wishes to return the product, you are required to replace or refund and carry the cost of freight and returns (in Australia anyway). A possibility given you have not seen or quality checked the product
- Selling branded products – high recognition brands actively control prices and channels to market, the profit margin for selling branded products is not sustainable in the medium or long term for drop shipping
- Reliance on trade websites – finding a manufacturer online is easy, finding a well suited long term supply partner requires skills and due diligence
- No economies of scale – the cost of shipping single parcel items means you are paying much more for freight than an importer that ships in bulk
Have you Though About Just in Time Manufacturing Instead?
Similar concept to drop shipping – and some overlap too. Just in Time manufacturing (JIT) is about ordering production after you get your order, so you are not ordering and expecting (hoping) to fulfill the quota with sales.
Clearly there are some products well suited to JIT manufacturing, like furniture. Big ticket items that you are not surprised to wait many weeks to receive the product, whereas fast moving consumer goods are expected within days, and the low value of the product doesn’t allow for JIT to be cost effective.
Build a Sustainable Import Export Business with My Import Label
- Economies of scale – planning your business, including economies of scale in purchase price, freight, distribution and sales
- Product quality and risk management strategies – actively manage product quality and ensure your customers are not receiving dud product
- Strong relationships with manufacturers – communicate with the manufacturer and build long term relationships for continuous supply at acceptable quality and low costs
- Own branded products – build your own product brand, and coach you to launch your product brand to market
When establishing your import business, consider the practical implications before committing your investment to a drop ship model.
Why dropshipping is an unsustainable business model