Is Drop Shipping a Sustainable Business Model? Drop shipping has become one of the most prevalent business models, especially for new entrepreneurs. Statista estimated the global drop shipping market to be worth $102.2 billion in 2021, and it is expected to grow 28.8% annually through 2026. The reason behind the growth is low barriers to entry and the increasing number of online consumers, which will be 2.14 billion global digital buyers by 2023. With drop shipping, online business owners can run an online business without holding any products in inventory, which reduces the initial capital and operating costs. The model operates by collaborating with suppliers that deliver products straight to customers. Entrepreneurs only buy the products once an order is made by a customer, reducing financial risks and storage costs.
As much as its attractiveness, success in drop shipping is contingent on various factors. For example, the choice of products is vital, with companies dealing in niche products tending to perform better than those that deal in generic products. A study conducted by SaleHoo found that niche stores, i.e., pet stores or stores dealing in eco-friendly products, are more profitable and less competitive compared to general online stores. Also, to succeed in drop shipping, one must possess sound marketing skills. According to Shopify, companies that invest in paid advertisements, particularly in platforms like Facebook and Google Ads, experience higher returns on investment, sometimes even averaging 400% return for every dollar spent on advertisements.
That being said, there are also problems with drop shipping. The margins are low, typically ranging between 10-30%, depending on the type of product and the level of competition in the market. Additionally, the supply chain can sometimes be the cause of delays, especially when shipping products from overseas, which can impact customer satisfaction. In a survey by E-commerce Foundation, 63% of online consumers expect to receive their products within 3-5 working days, which can be difficult to meet in drop shipping if the suppliers do not manage their logistics accordingly.
Profitable businesses, such as Oberlo, a site that enables entrepreneurs to start drop shipping businesses, have suggested that the average monthly revenue for drop shipping businesses stands at about $2,000-$10,000 in the early stages. Scaling this revenue, however, involves not only optimizing the supply chain and customer service but also finding and adapting to the changing demands of the market. “The key to success in drop shipping is consistency,” says Tim Wang, owner of an e-commerce consulting firm. “If you can provide good products, great customer service, and a well-optimized marketing strategy, you will be successful in the long run.”
In conclusion, as profitable as drop shipping can be, it requires diligent product selection, effective marketing, and a good relationship with suppliers. Entrepreneurs who wish to use this business model must be prepared for both its advantages and challenges. For more detailed information and to start with Drop shipping, entrepreneurs can access websites that offer the tools necessary to run and expand their online businesses.