Is dropshipping still profitable in 2020
Is dropshipping worth it in 2021? Advantages and disadvantages
The Truth About Dropshipping Nobody Is Talking About
Before investing all of your savings in a new dropshipping business, you should be aware of the risks.
It is difficult to run a pure dropshipping business, let alone start one.
For the following reasons:
1. Low margins
Since you don't have to manage or store your own inventory, the fixed costs are low - but so are the returns.
You put in less money, but you also get less money out of it. That means you have to make a lot of sales to stay afloat, let alone make a profit.
With every sale, most of the money goes to the supplier. Basically, what you earn is always skimmed off from above.
This is usually barely enough to cover your expenses for marketing / advertising, maintaining your website, managing customer orders, and your own office hours.
According to Fit Small Business, you can predict your income using the following variables (these are averages and can vary depending on the industry and supplier):
2% conversion rate.
You can then use this equation to calculate a profit estimate:
(Traffic x 0.02) x (Average Order Value x 0.2) = Profit
However, there are a few additional things to keep in mind:
Sometimes your discount from manufacturers and wholesalers is less than 20%.
This calculation does not include any of the above costs (marketing, administration, etc.) that you have to pay for.
For most products, you will need to further reduce your profits in order to keep your sales prices competitive. If you stick to your 20% margin tenaciously, other companies will easily undercut you.
In addition, you will find that your profit largely depends on your traffic as well. So if you are starting an online store business from scratch, you will face problems and overheads for some time in building a customer base.
Dropshipping is a lot of work no matter how you twist and turn it. Dropshippers have to take care of their wholesale suppliers, order processing, customer service and often also the returns.
In most cases it is much more sensible to use dropshipping if you have already built traffic and customers through a traditional online shop.
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