Dropshipping is a low-cost way to make money online. You don't need to own any products or house inventory. So this makes it a popular business model with a low barrier to entry. As a result, the global market saw a 23.7% YoY increase from 2021-2022 and is now a $196.78 billion industry. But the reasons why dropshipping is so attractive are the same reasons why it's a bad idea in 2023.
Not only are you faced with insane levels of competition. But because you don't own any inventory, you rely on third-party suppliers to supply, package, and ship goods to your customers. So you've just given away all control over fundamental aspects of your business. In addition, the industry has become more saturated. (Plus, more people continue to enter the space). But consider that dropshipping has a short shelf life. So you need to have a better product than the competition. Plus, you need a unique angle and reliable suppliers to see long-term profits.
In this article, we'll take a closer look at why dropshipping is a bad idea. First, we'll uncover some of the critical flaws in the business model. And share eleven reasons why dropshipping is a bad idea. Plus, we'll outline why starting a local lead generation business is better if you want complete control over your business and your money. Then we'll offer solutions on how to be successful with dropshipping. And why the business model might still be worth it in 2023.
What Is Dropshipping?
Dropshipping is a retail fulfillment method. You take orders from a customer and transfer the orders to a third-party supplier. The business model is popular with online stores because it doesn't require you to house inventory. (So you don't need to worry about packaging and shipping products).
As a drop shipper, your only job is to sell merchandise at a profit and offer the best customer journey possible. At the same time, an overwhelming number of people enter this online business model and get lucky. But drop shipping isn't easy. So if you want to generate profits in 2023, you need to choose products that:
Features Of Profitable Drop shipping Products
Data suggests that there's a 99% failure rate. So the dropshipping business model isn't a get-rich-quick scheme. There are a ton of reasons why it isn't a great way to make money in 2023.
11 Reasons Why Dropshipping Is A Bad Idea In 2023:
There are 2.14 billion digital buyers. And dropshipping is set to surpass $557.9 billion in 2025. But only 10%-20% of dropshippers see success. Lack of action and a failure to understand key factors of the business model are among the top excuses why people fail.
But there are other reasons why the business model is a bad idea. We've uncovered crucial issues with the model, and listed below are eleven reasons why a drop shipping business is a bad idea in 2023. So let's check it out:
1. A Shift In Consumer Spending
2022 saw a shift in consumer spending. And with the threat of a recession, 2023 doesn't look promising for online retailers. So if you want to make money with your dropshipping store, you need to understand the latest trends and changes in the business model. Then find a way to stay ahead of the competition and get in front of people. Then you can beat the recession and get around issues to make a ton of revenue.
First, you need to recognize that psychological and customer behavior is shifting. People are only willing to buy purchases they consider necessities. For example, when people don't have a ton of money, they don't want to spend on products they don't need. So consider the perceived value of your product. Then alter your marketing tactics to fit the changes in people's mindsets. Focus on products that people can do from home. Inventory that entertains but has a low price point.
Check out platforms like TikTok and find products that people are promoting. Then find items that are selling well right now. Or look at sites like Google Trend to assess top search queries. Then find a product that fills a gap in the market. Or one that is hard to find and consider things like:
The key is to develop a unique angle and scroll-stopping videos. Next, you need a clear call to action that drives traffic to your online store. But then, you can circumvent the consumer shift and might see success with drop shipping in 2023.
2. Cut Throat Competition
The glory days of the 1990s are long gone. Throwing up a sub-par website and selling cheap stock from China isn't going to cut it anymore. In 2023, if you want to outplay the competition, you need to be the best marketer. Outdated video styles won't work. (Not to mention rising ad costs). So you need to create attention-grabbing videos and reels with on-point copy.
Leverage third-party tools like BigSpy or AdSpy and see what your competition is doing. How and where can you can succeed where they're lacking? Of course, you can also use the free analytics option on platforms like TikTok and Facebook Marketplace. Then you can take a closer look at the ad library and watch the top viewed videos.
Get an idea of the style and best parts of the video. Then you can see why it gets people to stay and watch and why it works so well. Consider that TikTok is the leading indicator of what products are selling well in 2023. If you can create a video with virality potential, you could make a ton of cash. You can also use the platform's analytics to see the highest CTR and maximize your ROIs for a minimal spend.
But more people are getting into this space. So the competition is cutthroat. Plus, traditional ways of doing dropshipping won't work anymore. In contrast, the local lead generation business model is a better option. (If you're serious about making money online). Not only is there less saturation. But because the focus is on a local market, you can get eyeballs on your rank and rent websites faster. Plus, natural barriers like location and skill minimize the competition.
3. Short Life
One of the biggest reasons drop shipping is bad is the business model's short shelf life. You can find the best product and get a ton of sales. But it's so easy to duplicate your ad copy and swipe your content. Other dropshippers can come in and rip your product off. Then they not only take your market share, but you lose revenue. But they might even outplay you out of your own market. And you won't make money long term.
The goal is to destroy your competitors in every area of your business from the ground up. But you need to use a marketing strategy. Become better than other dropshippers and be ready to do the hard work. Remember, the roots of your business are the most critical part of your ecommerce journey. These include things like:
Your Dropshipping Journey Should Include:
But if you can be the best in these areas. Then you can outplay and beat your competition.
4. High Shipping Costs
Shipping costs are spiking around the globe. Data suggests that shipping costs could increase seven-fold by the end of 2023, with some as high as 400% more than pre-pandemic. Plus, as ecommerce trends continue to accelerate, shipping costs continue to go up to counteract the increased demand.
So to balance this increase, you, as the dropshipper, need to take less of a profit. Or you need to pass on increased costs to your customer. But consider the slim margins between your price tag and the top competitor; you won't make many sales if your prices are too high. So you need to find a way to reduce your costs like:
Tips To Cut Your Dropshipping Costs
You need to get eyeballs on your offers. So leverage platforms with high-quality content. Then provide the best customer journey. And become a trusted brand in your niche to increase sales and make money.
5. Lack Of Inventory & Economic Uncertainty
A lack of inventory is another reason why drop shipping is a bad idea. There have been significant changes to consumer spending, and inflation continues to increase. Add the ongoing war in Ukraine and China's zero COVID tolerance policy, and there are a ton of factors. All of which directly contribute to this problem.
But because dropshippers rely on third-party suppliers and wholesalers to handle order fulfillment. You'll lose money if you don't have a supplier with access to your product. Plus, you'll end up with all kinds of unhappy customers.
A lack of inventory is one of the fastest ways for your drop shipping store to go out of business. But you need to make sure your customer is happy. So be proactive and consider things like:
Keep in mind that customers expect seamless delivery. Plus, when competing against big players like Amazon Prime, you need to be on your game. And that includes having stock that will get to your consumers fast.
6. Product Delays
In 2023, customers won't wait for shipping. First, consider that you're competing against players like Amazon Prime. (They offer same or next-day shipping). So there's no chance your consumer will wait three to six weeks for your dropshipping product to ship from China. Add that continue to be ongoing delays due to natural disasters and COVID issues. And shipping times are even longer.
So you need to find dropshipping suppliers where you're selling and negotiate the shipping time. You can connect with reliable US dropshipping suppliers or sourcing agents like CJ Dropshipping or Source In Box. Then you can bypass dropshipping suppliers like AliExpress. So you save money and make your life easier.
You can also offer free or premium shipping methods. Free shipping takes longer, and priority shipping is your upsell. (But the customer covers the cost).
7. Unpredictable Profit Margins
Dropshipping profit margins fall between 15%-30%. But your profits will always depend on your niche and the type of inventory you sell. So you need to aim for low-cost products with high markup potential. Then you can generate the highest ROIs possible. But you need to consider things like:
- How can you increase the perceived value of your product?
- How can you market your item to convince customers they need to buy it right now?
- Where can you get free online traffic?
- Are there upsells or cross-sells you can add to increase your AOV?
Determine how much it costs to get a customer. What can you do to increase your CLV (customer lifetime value)? Consider that refunds and returns will dig into your overall profit margins. So you need to provide stellar customer service. And offer the best shopping experience possible.
The goal is to get five-star reviews and social proof for your drop shipping store. So take the time to develop a strategic pricing strategy and offer rewards and incentives. Or find items that complement your product and offer cross-sells and bundles. But you rely on interruption marketing. Plus, you're at the mercy of the platforms, so not only do you need to have the best copy and videos.
But you have to comply with the platform rules or risk being shut down. That's a ton of variables for 15%. With lead generation, on the other hand, you're building websites that offer services people are actively searching for online. Plus, once your sites are at the top of Google's search engines, they're like a digital billboard. And generate leads on autopilot. Then you sell those leads to local contractors and can make profit margins of 80%-95%.
8. Increased Ad Costs & Platform Bans
To make sales, you need traffic. But getting eyeballs on your products is hard. First, consider that dropshipping products are based on trends. (Unless you have an evergreen product that is always in demand). So you need to get your product in front of people fast. And the quickest way is to pay for ads on platforms like Facebook and Instagram.
Or with videos with virality potential that get a ton of views and engagement on social sites like TikTok and YouTube. But you're at the mercy of the platform's rules. And while they love content. They don't like dropshippers. So you could be faced with account bans. (Sometimes for no apparent reason). Add that paid ads costs are rising as much as 15%-30%, and you're leaving a lot to chance.
Or you risk dipping into your already razor-thin profit margin. So you need the skills to create videos and ads that drive online traffic to your drop shipping business. (But are compliant with the rules of the platform). So you need to keep a close eye on your campaigns. And be ready to pivot fast when things aren't working so you don't lose money.
9. Customer Service Issues
A lack of customer service is one of the main reasons why dropshippers fail. Plus, it's a fundamental reason why dropshipping is a bad idea in 2023. Of course, poor-quality products, long shipping times, etc., might be out of your control. But how you handle customer satisfaction. And ensure that every potential customer has the best shopping experience is something you can control.
For example, consider that unsatisfied customers tell their family and friends. And post on social media platforms. Or even leave bad reviews on platforms like Trust Pilot. But this is one of the fastest ways for your dropshipping store to fail. And you will never see long-term success. But you can still offer the best customer service possible with things like:
Focus On The Consumer Journey
You need to be obsessed with customer service. Without customers, your store will fail. So you need fast response times (24 hours or less). Don't take customer service personally. Instead, stay professional and thank them for their business. Then apologize for the issue and deal with their concern promptly. But if you can check the boxes, you'll see more success with your Shopify store.
10. Unreliable Suppliers
Unreliable dropshipping suppliers are another fast way to fail. You count on your supplier to handle product quality, packaging, and delivery. So you're working blind as a dropshipper. But if you don't have a reliable US dropshipping supplier. (Or a wholesaler where you live that you can count on). Then you will fail in the long term with this business idea.
Of course, you want a supplier who can offer a fair shipping cost and high-quality inventory. But you also need to develop a trusting relationship and should consider connecting with multiple suppliers. Then you don't risk running out of stock or getting hit with supply chain issues. (Which can directly impact your profit margin). And could even shut down your online store.
11. No Quality Control
You don't need to own inventory as a dropshipper. But this makes the business model very appealing. (Not to mention affordable). But it also means you don't have any control over product quality. So you need to be willing to test your dropshipping product. Order it from your wholesaler to assess the quality, packaging, etc. Dropshipping is a great way to test the market. But it's not the best business idea long term.
Consider that you need to constantly be on the hunt for the newest trend or viral product. But it's just too easy for another dropshipper to come in and outsell you. So instead, your goal should be to find proof of concept. And pivot when things aren't working. Be willing to test and fail and test again. But once you find a dropshipping product with staying power, consider building a brand around your winning item to be successful long term.
Is Dropshipping Still Worth It?
Dropshipping is still worth it if you can find a product that solves a problem or makes a person's life better. In 2022 global online sales surpassed over 4.2 trillion dollars. So the ecommerce sales trend isn't going away any time soon, and it's not too late to start dropshipping. But you need to know what makes a bad niche. Plus, how to leverage paid advertising with Facebook or Google Ads.
Then, of course, you need to take massive action and stop doing market research for months. Shopify dropshipping is still worth it. But it's just getting harder. So if you want to try drop shipping, you can't postpone starting. First, get the basics down and put your knowledge to the test. Then apply what you're learned in the real world and develop knowledge in the space. (This is the only way you can become a skilled dropshipper).
You need to be active, do the right things, and treat dropshipping like a real business. Be ready to test and fail and test again. Make mistakes and learn the concepts around this ecommerce platform model. Consider investing in a dropshipping course and learn from an industry expert who has seen success with the model. There are a ton of reasons why dropshipping is a bad idea. But there will never be a perfect time to try if you're serious about investing in this model.
How Can You Be Successful With Dropshipping In 2023?
You can be successful with dropshipping in 2023. But you need to be willing to adopt the new changes to the business model. Stop relying on traditional methods and use current techniques that focus on the long term. Be ready to test the market and find dropshipping products that provide value for your end user. You also need to be a better marketer. And use things like:
- High-Quality Content
- Original Images
- Videos With Virality Potential
- Reels & Shorts With A Scroll-Stopping Hook
Invest in your customers and provide the best customer journey possible. Of course, your number one goal is to build credibility and leverage trust. But if you focus on the customer experience. Then you can become the go-to in your niche for your identified target market. So consider things like:
But stop copying the competition. Instead, start making your own content and unique ads. The platforms love the content. But they want original content. So the more content you give them, the better your drop shipping store will be rewarded by the algorithms.
Of course, there are other ways to increase your odds of success with dropshipping in 2023, like:
How You Can Increase Your Dropshipping Success In 2023
Of course, you can always use dropshipping to test the market and get validation. Then once you have a proven concept, consider creating a brand and shift to the ecommerce model. Not only is it harder for the competition to duplicate. But you can scale faster. In addition, you have more control over product quality and branding. So you might be more successful long term.
Why Local Lead Generation Is A Better Option If You Want To Make Money Online
Local lead generation is a better way to make money online in 2023. Unlike the dropshipping model, you control every aspect of your business. The idea is to build and rank generic websites. Get those sites to the top of Google search engines, and you own prime real estate. Your sites are front and center for an audience of online traffic actively looking for the services you offer.
Once your lead gen property produces leads, you find a business owner hungry to grow and sell your leads for a profit. (As high as 80%-95%). So you don't need to own products or store inventory. Plus, you can build multiple websites at the same time. So you can scale your lead generation business fast. Take this website below, for example. I created this site in about 10 hours. And it took around 6 months to get to the top of the SERPs. But this site has been making me $2000/month since 2015.
Even better is that I own over 80 more. Also, local lead generation doesn't require a ton of capital to start. (I spent about $500 getting this site to the top). Plus, your overhead costs are minimal. (Around $50/month for hosting, tracking number, etc.).
But again, with profit margins sitting as high as 90%, your monthly expenses are a drop in the bucket. Plus, you don't need to rely on third-party suppliers or deal with supply chain issues. Instead, you're providing a service people are looking for right now. So you can build an empire and harness passive income and time freedom.
The landscape of the business model has changed. In this article, we've listed 11 reasons why dropshipping is a bad idea. But if you're still determined to become a dropshipper. Then you're going to face an uphill climb. Traditional ways don't work anymore. So you need to be ready to take massive action. Test products and find proof of concept. Then connect with reliable dropshipping marketplaces.
Or wholesalers who can guarantee high-quality products and fast shipping times. Then provide the best customer journey possible. But remember, you have zero control over critical aspects of your business. But if you're not willing to leave your profit margins to chance. Then you need to consider the local lead gen model. Not only is it a proven concept. But it's the best way to make money online in 2023.
This is such a nice article. Apart from the points mentioned in this article, I think legal issues are also a reason. Dropshipping can lead to legal issues, such as trademark violations, if you're not careful about the products you sell. Also, it can be difficult to scale a dropshipping business since you're limited by the suppliers you work with and their product offerings.