The last couple of weeks I have experienced a reality check with dropshipping as eCommerce model. Dropshipping is a great business model. If you have read any of my prior blog posts or already know about this way of running an eCommerce business, you know that one huge benefit with dropshipping is that you do not have to keep any inventory.
That part of it makes it possible for entrepreneurs that are hungry to start their business to do so without a big start up capital. Although, do not fall for the Facebook commercials saying that you do not have to put up anything up front, because that is a LIE. You can read more about this in prior blog post:
I would say that you can count on a start up capital of about $2000 – $3000, because here is the thing….If you are dropshipping on eBay, PayPal is withholding the payments from customers until you have shipped the item and provided a tracking number. On the other hand, if you choose to use Amazon, they keep your funds and only pay out every 2nd week. Amazon also withholds a capital for possible returns and refunds.
Now, you probably start realizing that there is NO SUCH THING AS A ZERO START UP CAPITAL. The glorified version you hear from the companies that want to charge you for their training, is that you are instantly using the customer’s payment to purchase the product at the wholesaler and need zero start up capital.
I can start see this happening when you are a few months into dropshipping – after getting lots of sales with high profit margins, so you are getting your first investment back, and PayPal also seems more eager to release funds faster after you reach a certain account threshold. Note, that you constantly have to fulfill new orders using your funds.
For example, you cannot use PayPal to purchase items on AliExpress, which is one of the biggest dropshipping websites. This is a big con! You can get around this by using the AliExpress agent program, but they take 5% of your sales, which is a lot when you consider that eBay and Amazon take their 10-15% on each sale + insertion of storage fees and PayPal takes about 4% per sale. You want to keep your margins as high as possible, and at the same time you need to stay competitive with low prices.
Customer Service Is Demanding
Yes, I have to say this OUT LOUD! It is difficult to imagine before you start an eCommerce business how much time and energy it takes with offering customers great customer service.
Be prepared that even how good and transparent you are creating your product descriptions on your listings, customers are going to ask you lots of questions. Often questions that they can find clearly on the actual product listing, and then you have all the shipping inquiries….
Some customers do not look at the estimated shipping time and get very upset when they are informed that it will take longer than a couple of days to get their item delivered. Often, you can handle this situation with repeating the tracking number and ensuring them that their package will arrive within the given time frame.
BUT then you have the rude customers that just want to be rude and treat you badly no matter how much you are trying to help them. For me, this has been the most difficult part so far. Sometimes it is hard to not take it personally and get upset yourself, especially when you are not responsible for what they are upset about.
FAKE Tracking ID’s From
Again, I have to repeat that this scenario often is related to AliExpress suppliers that do not ship out the items in time and therefore over-extend the delivery time. It is especially difficult to explain the situation and convince customers that their package is going to arrive within the time frame when the tracking ID’s do not work properly. This is something we have experienced at lot lately and makes me consider whether we should keep dropshipping from AliExpress or not.
Many customers are coming back to tell you that the tracking ID is invalid and that they cannot track their item. The only answer you are getting from the supplier is basically that the carrier is late updating the shipping status.
How can you possible motivate that to your customers?!
Especially when you do not want them to know you are shipping their products from overseas. Although, almost ALL products origin in China, people do not want to know and understand that.
I did some research on this issue online, and also understand from my experience with AliExpress suppliers this far, that they are sending out fake/false tracking ID’s. They are doing this to act like they are shipping out the orders faster than they in fact are doing and thereby avoid cancellations for too long order processing.
This is really bad for us dropshippers. Especially when trying to maintain a good reputation. You do not seem trust worthy as a legit business when you cannot provide valid order information.
If anyone has a solution on how to deal with this, PLEASE let me know!
I guess it is a matter of if you have the stomach and an extra layer of skin to deal with all customer service and upset customers that just want to curse you out. If you, like me, are contemplating whether your skin is thick enough, I would recommend to keep your wholesale cooperation’s within the USA (or your country of residence if you live outside the US) with good communication and reliable shipping deadlines. This is the safer path to take, but it may not give you the high profit margins that you are striving for.
I am still in the testing phase with dropshipping as a business model. I am now 4.5 months in on my eCommerce journey and I will keep you guys updated with everything I am going through, good and bad. If I can prevent someone from doing my mistakes, I am glad.
In my next blog post I will flag for scammers on Alibaba. There are many of them trying to scam stressed eCommerce owners on fake orders this time of year before Christmas when they are starting to run out of stock and fast have to re-stock, and I have already experienced one of them!
If you have any questions about this blog post or something else you want to discuss, please leave a comment in the comment section below.
About the Author
My name is Stina Pettersson. I am the founder of Make a Living from Home in 2017 and the author of the articles on this site. I am originally from Sweden and am currently a business owner to 3 online businesses.
I help people to start their own online business and make a living from home. I am especially fond of helping the stay at home parent, or single parents to increase their income.
I hope I will get the honor to help YOU achieving your online success.
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