Dropshipping is a low-cost business with minimal overhead and high scalability potential. But is dropshipping dead? Can you make money with the business model? And is dropshipping still worth it in 2022?
In this article, we take a closer look at the advantages of drop shipping. Including how much it costs to get started. And why people fail with this model. We'll also cover topics like what percentage of dropshippers are successful. And the five reasons why I quit dropshipping. Plus, why starting a local lead generation business is a better option. (At least if you want to make some real money in 2023).
What Is Dropshipping?
Dropshipping is an e-commerce-style business model. So you don't need physical inventory, and you don't handle shipping. But despite the simplicity of drop shipping, success is not straightforward. And it's not easy money. The plus is that you don't need a ton of upfront capital.
And you can test products with minimal risk. Find what's working and shift gears fast when things aren't. But with a market value of $196.78 billion, it's a competitive playing field. Plus, with razor-thin profit margins, you'd better know what you're doing if you want to make money.
Advantages Of The Dropshipping Business Model
Dropshipping isn't a get-rich-quick kind of deal. Of course, like any business model, there are disadvantages and risks to dropshipping. But the business model does have some advantages. Especially for people who don't have a ton of upfront capital or space to house inventory. A few of the pros of dropshipping include things like:
How Much Money Should You Have To Start Dropshipping?
You can start Shopify dropshipping for as little as $100. But the less capital you have to spend, the fewer products you'll be able to test. And you need to consider that you'll have to cover the cost for non-negotiables like:
But if you want to set yourself up for success from ground zero, you should plan on a budget of $3000-$5000. Then you have the cash flow to test products and cover ad spend. Plus, you can opt for better wholesalers (which generally means faster shipping times). Like the ones found in our US dropshipping suppliers list.
Pro Tip: Plan on spending $200-$300 for every product you want to test. And 10%-30% of your budget on paid advertising.
Is Dropshipping Still Profitable?
Yes, dropshipping is still profitable. But you need to be prepared to hustle fast and treat your ecommerce store like a real business. And you need to find and capitalize on a winning dropshipping product before the market becomes saturated. But because your wholesaler is doing the majority of the heavy lifting. (For fulfillment and inventory).
As a result, your profit margins with the dropshipping model are razor-thin (10%-30%). And this is much less than traditional ecommerce or other online business models. (That can recoup profits of up to 50%). So if you want to make money with drop shipping, you need to pick high-ticket items.
Find merchandise you can sell for a profit on sites like Amazon Best Sellers list or Google Trends. Or go on platforms like TikTok, Facebook, or Reddit and access things like:
- What are people talking about?
- Are certain items generating a buzz online?
- What are people searching for?
You can also use third-party tools like ecomhunt or NicheScraper to see what's hot right now. But the key is to pick a product that isn't easy to find or can:
But if you can increase the perceived value of a product (through ad copy or video marketing). Or grab the attention of your target market. Then you can make money as a dropshipper. But you need a compelling hook and a unique angle.
Give people a reason to stop mindlessly scrolling and click on your offer. Tap into customer pain points and focus on how your product can help make their lives better. So yes, dropshipping is still profitable. If you can drive online traffic to your store, make sales, and generate a profit.
Why I Quit Dropshipping: 5 Reasons Why Dropshipping Is Dead In 2023
I had some pretty sweet success as a dropshipper. In fact, I made two profitable Shopify stores. And I made a killing selling Shark onesies (to the tune of $48K in revenue in one month). You can read about that here.
But for me, dropshipping as a long-term business model is riddled with issues. Plus, I could never achieve the kind of cash flow I've been able to produce with my lead generation business. So I quit dropshipping. And listed below are five reasons why. Check it out:
Dropshipping is a low-entry business model. And a lot of dropshipping courses focus on teaching people how to copy other dropshippers. From how you design the layout of your Shopify store to your ad copy or creatives. But it's this aspect of the business model that creates product saturation.
Plus, everyone tries to sell the same products to the same target audience. So, to make money, you must constantly hunt for the next best dropshipping product. Plus, you need the skills to create a Facebook or Google ad campaign with a WOW factor. And that can drive online traffic to your store. (Or you need to be willing to cough up a chunk of change for paid advertising).
But ad costs are skyrocketing. Plus, with FB ads, you're paying $$$ for every impression. So without a high enough click-through rate (CTR) or conversions, you're bleeding cash. And if the product doesn't have a viral component. Then it won't get enough clicks on Facebook to generate real profits.
So your success is often short-lived. But if you want a sustainable business. You need to find something that requires a high-level skill, like owning a local lead generation business. So you build and rank generic websites and leverage Google to reach the SERPs' top.
Then you generate organic traffic and leads you can sell to small business owners to generate cash flow. And because lead gen is a learned skill set, there's a higher barrier to entry. So you're not faced with market saturation.
Plus, natural barriers control the competition. And this creates a business with longevity. You're like a plastic surgeon with a skill set that a lot of other people don't understand. But because anyone can do drop shipping. So they can copy you out of your own market. And this can end up costing you time and money.
Jared Goetz coined the term 'drop surfing.' Dropshipping is about finding the right product. So you need to be able to jump on current trends. And ride that viral wave like a surfer. But the idea behind this makes a lot of sense. Consider that you don't have to educate the public if something is trending. So your ad is immediately going to garner attention because the awareness is already there. Then you can turn that awareness into money.
But the problem is that all trending products eventually die out. So you're always looking for the next winning product. Plus, every new product has its own set of variables. So you need to do more testing. And develop the best content strategy for your ad campaigns each time. Or harness the secret to create dropshipping ads that convert. But this product inconsistency makes it challenging to scale your dropshipping business. And if you don't know what dropshipping niches to avoid or what makes a winning product. You're not going to make it with the business model in 2023.
Facebook is the go-to platform for dropshipping advertising. But the customers belong to Facebook. And if you don't comply with their rules, you will get shut down. Consider that you have zero control over the platform. So if Facebook suspends your account, you're out of dollars and time.
Plus, if you don't understand the algorithms. And you don't have the skills to develop ad copy. Or scroll-stopping creatives that get front and center for your audience. You'll end up with low-quality traffic that will still cost you money. Plus, Facebook runs on a bidding system, and more dropshippers are using the platform. And the cost per click has gone up.
So this means lower profit margins. Plus, it just keeps getting more challenging to create a profitable Shopify store. (Especially if you don't have the skills to drive organic traffic to your store). And this then poses the question of whether dropshipping is saturated. Or if advertising on Facebook is the best way to drive online traffic to your store. So you need to research. And know where your ideal customer hangs out before you pay for ads.
To make money with dropshipping, you need to sell inventory. But when people return products, you're out the cost of the item. And you could be on the hook for shipping. Or face a charge from your wholesaler. And with profit margins sitting between 10%-20%, you need to sell a ton of products if you want to be successful. For example, if you sell a product for $50 (which is a reasonable price for a dropship product). Then your net profit at 20% is $10. And if your goal is to make $10,000 monthly, you have to sell to 1000 customers.
Now consider that 10%-15% of your customers will request returns or refunds. And because you have zero control over product quality or shipping times, you spend a lot of time doing damage control. Plus, it's not uncommon to get emails from customers daily. But this becomes both stressful and time-consuming. So instead of creating a passive income, do a ton of work for marginal profit margins at best.
Plus, you'll lose money if you don't have a reliable dropshipping supplier or use a random wholesaler overseas. (Or you're trying to sell knock-offs from a Chinese supplier). And if you get too many chargebacks or returns, you could also face penalties from your payment gateway. Or get suspended from platforms like Facebook. You also risk getting negative reviews from customers. And too many negative reviews are the fastest way to lose money with drop shipping.
Pro Tip: People in the industry don't talk much about this side of drop shipping. But ongoing customer support issues. And the never-ending barrage of complaints is among the biggest reasons people quit the business model.
Dropshipping is boring. Think about it. You're doing a lot of the same things every day. You have a checklist that includes the following:
- Checking Your Ad Campaigns
- Looking For New Trends
- Addressing Customer Service Issues
The business model becomes very monotonous. You have no personal contact with anyone. And all you do day in and day out is look at digits on a screen. Plus, drop shipping is less about innovative products. And more about what's hot right now. Or the next big trend.
And most items sold by dropshippers aren't products people need. They're impulse buys-this is what sells. But it's not a business model that offers a meaningful way to help people. And that was my number one reason for quitting dropshipping. I wanted to be part of an online business where I felt I was making a difference—doing something that added value to people. And why local lead gen is now my number one recommendation.
What Percentage Of Dropshippers Are Successful?
Data suggests that only 10% of dropshippers are successful. The other 90% of the dropshipping industry struggle with marketing. Or they have a hard time creating a high perceived value for their products. Others don't know what drop shipping niches to avoid. And some choose the wrong inventory. Or don't have a reliable dropshipping supplier who can promise fast shipping times.
So if you want to be in that 10% dropshipping success rate, you need to become the better marketer. Plus, you need a winning product. But you need to do your research. And leverage tools like TikTok Made Me Buy It and Google Trends to find hot-ticket items you can sell in your store. Then use third-party software like AdSpy or Dropispy and check out competitor sites. Look for things like:
Dropshipping Competitor Analysis
The goal is to stay one step ahead of trends and beat the market curve. Then you can hone in on a product that makes people's lives easier—one with a good profit margin that can invoke an emotional response. Or trigger impulse buys from your target audience.
Why People Fail With Dropshipping
People fail with drop shipping because they don't understand the business model. Or fail to recognize that there are dropshipping mistakes to avoid. So you need to do market research. Be prepared to test and fail again before finding that winner. And you need a good product.
Because even if you have a stellar store and great ad copy, you will fail in your dropshipping journey if you don't have a winning item. But you don't need to reinvent the wheel. Instead, look at merchandise selling well now and design a better offer. It's about being a better marketer. And finding gaps in the market. Use spy software like BigSpy or PiPiAds to determine things like:
- Where are your competitors lacking?
- How can you make your product stand out?
It's about controlling the narrative with the best products. But you need to be able to act fast. Drop shipping is about jumping on trends before they become saturated. Plus, you want to sell items with virality potential. But that also meets a demand in the market. So you should focus on the platform your ideal customer hangs out on. And be ready to change your copy or increase the amount of content you publish to get eyes on your online store.
In 2023, driving online traffic to your Shopify store is one of the biggest challenges. But if you want to make money, you need to attract customers. So you either have to pay for traffic on social media platforms like Facebook and YouTube. Or you need the skills to create organic posts on platforms like TikTok and Instagram reels.
It's not too late to start dropshipping, and you can achieve success. But if you don't want to fail, you need to treat your dropshipping store like an actual business. And be prepared to invest some time and resources if you want to make a profit.
Is Dropshipping Worth It In 2023?
Dropshipping is worth it. But you need to be prepared to invest the time to learn and understand the business model. Plus, you should have a big enough budget to test the market for a couple of products. But you need to have realistic expectations going into this business.
Drop shipping isn't about making a quick buck online. So you need to research to find the best niche and winning products. Plus, you should be skilled in creating ad campaigns or organic content with virality potential. (Or be willing to pay for a dropshipping video ad service to scale fast and get a steady traffic flow checking out your store).
But if you learn the skills and understand platform algorithms. Or know how to go viral on platforms like TikTok or Instagram. Then dropshipping is worth it. Dropshipping offers a chance to perform product research without a ton of risk or capital. So you can test products quickly. Find a hot-ticket seller or switch gears fast when you don't.
But the goal is to find a winner before the market becomes saturated. And the gold rush of the 1990s is long gone. So if you want to achieve profits with drop shipping, you need to be able to control the narrative—increase perceived value. And be better than the competition with killer moves to advertise your dropshipping store. But if you consider that stores like Wayfair are doing drop shipping on a national scale and making serious coin with the business model. Then yes, dropshipping might still be worth it.
Could Lead Generation Be A Better Choice For You?
Dropshipping is an attractive business model because you don't need much money to start. But you're also leaving critical aspects of your business to chance. For example, you don't have any control over quality or shipping times. And you need to always be on the hunt for the newest product. Or create a better offer than the competition.
And it's this slippery slope that causes a lot of people to fail with drop shipping. But with lead generation, you control every aspect of your business. You don't need a physical product. And there are minimal costs to building and ranking websites. Plus, you leverage local SEO tactics instead of relying on paid ads to drive your lead gen sites to the top of the SERPs.
Take this site above, for example. I built this lead gen property in about 15 hours for $500 over six months. But this site has been making me $2000/month for over six years. Plus, it's only one of over 80 I own and rent to local business owners. And each one pays me mailbox money every month for my leads.
So I own the sites, the tracking number, and the leads. Plus, now that this site is at the top of Google, it takes minimal maintenance. As a drop shipper, I was always hustling and looking for the next winning product. But with local lead generation, I follow a proven concept. So I've been able to harness time freedom and create a passive income.
Dropshipping might not be dead. But the rules of engagement have changed. So you need to know how to stay ahead of market trends. And you need to be prepared to test and fail and test again to be successful with the business model and when to shift gears. (Or call it quits and find the next hot-ticket product) if you want to make money online with this model. But you have no control over fundamental aspects of your business. So you need to connect with reliable suppliers.
Automate wherever possible and create a shopping experience for your customer that beats the competition. And you need to be the best marketer. Plus, have a budget to drive traffic to your online store. But if you want a business where you control every aspect. And one that is backed by a proven concept. Then you need to take a closer look at the local lead generation business model. So maybe drop shipping isn't dead. But it might not be the best choice if you want to make money in 2023.