Is Dropshipping Worth It In 2024? (2024)

Dropshipping is a business model that allows entrepreneurs to eliminate risk, simplify their operations and focus on their strengths.

In traditional retail businesses, the value chain is quite unwieldy—especially for entrepreneurs who are just starting out. It requires entrepreneurs to master and orchestrate several unrelated competencies, which has traditionally made starting a retail business very difficult. The dropshipping model simplifies the retail value chain.

The retail value chain consists of:

• Design
• Sourcing and buying
• Inventory management
• Store operation
• Marketing
• Sales
• Fulfillment
• Support

In the dropshipping model, entrepreneurs are only responsible for marketing, sales and customer support—everything else is handled by a third-party partner. Dropshippers don’t have to handle products directly, take on the risk of holding inventory or bear the cost of maintaining warehouses and physical storefronts. When customers buy a product, the dropshipper purchases it from a third party, and the item is shipped directly to the customer.

Is Dropshipping Worth It?

People who look at the glass as half empty will tell you that it’s a bad time to start a dropshipping business. “It’s too late. It’s too crowded. It’s too optimized and the best niches are cornered.” Although there is some merit to these concerns, they’re not major barriers. It’s still an excellent time to start your dropshipping business.

For one, it’s definitely not too early or too crowded. Researchers estimate that there are between 3.2 to 6.4 million businesses that offer dropshipping. That does seem like a lot. But when you consider that the dropshipping market is expected to quadruple in value by the end of the decade to over $1 trillion, it doesn’t seem as crowded. Thanks to consumers’ growing affinity for shopping online, more retailers will be required to satisfy all this demand. You’re not too late, and there is plenty of room.

And yes, it’s going to be very difficult to break into mature niche markets such as toys/hobbies, furniture/appliances, fashion or electronics. Thankfully, society’s trends, tastes and needs are always changing. There will always be a new product that is coming to market.

The dropshipping model offers several benefits. Starting a dropshipping business doesn’t come with anywhere near as much risk or require the enormous, top-heavy investment costs as a traditional retail venture. You can launch your business in a day and pivot at a moment’s notice to capitalize on new trends and opportunities quickly. It also helps that dropshipping limits the growing pains associated with scaling a business.

Low Startup Costs

It doesn’t cost a lot of money to start your own dropshipping business. Unlike with a traditional retail business, you don’t have to spend a ton of money upfront on inventory or a physical place to store and sell it. To get your dropshipping business off the ground, the only things you need to invest in are sample products to vet suppliers, a web platform to sell your products, tools to integrate with your suppliers, and advertising. Realistically, you can do all of this with a budget of $100 to $200.

Low Risk

Dropshipping eliminates risk associated with purchasing and storing inventory. In traditional retail environments, businesses lose money paying for storage and when inventory goes unsold. But since dropshippers don’t have to purchase inventory upfront or pay for storage, there are no store costs or unsold inventory to erode margins. Outside of the low initial startup costs and advertising costs, you only have to spend money when you’re making money.

One thing to remember is that you cannot confuse low risk with guaranteed success. Upwards of 90% of all dropshipping businesses fail during the first 90 days according to a report by AppScenic.

Fast, Flexible and Scalable

It doesn’t take a lot of time to get your dropshipping business started. Once you’ve set up your shop and integrated with your supplier, you can start making money right away.

It’s also easy to take your business in a new direction as trends change after you’re already up and running. The low costs of samples and zero risk of losing on unsold inventory make it easy for retailers to test products and collect feedback, so you can see what works and ditch what doesn’t quickly.

Dropshipping businesses tend to scale nicely, as you don’t have to increase your costs to support increasing sales. In a dropshipping environment, your costs are a fixed percentage of each sale, whereas in a traditional retail environment, businesses have to hold more inventory—increasing risk and costs. If anything, you can negotiate better rates and access to more inventory as your business grows, which would further expand your margins.

While the dropshipping model eliminates a lot of the complicated components that come with starting and running a retail business, it can also create some problems. Let’s explore.

Lower Profit Margins

Perhaps one of the biggest downsides of the dropshipping business model is the margins. The average dropshipper only makes between 10% and 30%, depending on the product being sold. Meanwhile, healthy margins for a traditional e-commerce retailer sit between 50% to 70%.

Given the highly competitive nature of online marketplaces and the high volume of price-conscious consumers who frequent them, retailers don’t have a lot of room for margin to begin with. Add in all the seller fees and the cost of outsourcing fulfillment to suppliers, and you’re not left with much.

Dropshippers also lose out on wholesale discount opportunities. Remember, whenever a dropshipper makes a sale, they are reselling a few units of a given product at a time. Essentially, dropshippers are trading the wholesale savings for decreased risk. When you’re just starting out, this is fine—especially if you have a limited budget. But as your business scales, the risk of dealing with inventory might be worth the reward.

Dependency on Suppliers

When you outsource any process to a third party, you’re giving up control over the outcome of those processes. Your business success is closely tied to the reliability and efficiency of your suppliers. Issues such as backorders, shipping delays or poor product quality from suppliers can negatively impact your customer satisfaction and overall business reputation.

As far as your customers are concerned, your supplier’s shortcomings are a reflection of your brand. Remember, many dropshipping customers don’t realize they’re buying from a dropshipper. Your partner’s follies and mistakes are your follies and mistakes, and it’ll ultimately fall on you to make things right.

Dealing With Multiple Suppliers

Since you will likely be selling products from various suppliers, maintaining a consistent brand image and identity can be challenging. Customers may not associate a particular product with your brand, affecting long-term customer loyalty. It can also create complications such as dealing with inconsistent shipping providers, time and costs as well as different return policies.

The process of starting your own dropshipping business is very simple. But there is a science to getting it right. You can’t just follow each step one by one and expect to wake up with $10,000 in sales. There are best practices for handling every step of the way, which, if followed, will increase your probability of success.

Choosing Your Business Concept

Your business concept defines everything from your branding and store layout to the products you’re going to sell and who you’re going to sell them to. When developing your concept, it’s a good idea to start with a specific niche that you are passionate about or have a lot of expertise in. It’s also a good idea to monitor social media platforms and use tools such as Google Analytics to see if a certain topic, trend or product is increasing in popularity. Being early to the market can give you a major leg up.

Sourcing Products and Finding a Supplier

You’ll need to spend time researching products to determine what you’re going to list in your store. When you’re selecting your products, consider how much room for margin you can build into the price, how it fits your brand and if it’s in demand within the niche you’re trying to sell into. You’re not going to make money selling ballerina slippers through your hunting equipment brand.

Once you know what product(s) you want to seIl, it’s time to find a supplier (or suppliers). Investigate the company’s reputation, reliability and product quality by reading reviews from customers and other dropshippers about the company and its products.

But you shouldn’t be making decisions on reviews and hearsay alone. If you find a supplier that looks good on paper, put them to the test: order samples so you can get a feel for the customer experience from purchase to fulfillment, and assess the overall quality of the products firsthand. Don’t forget to shop around—not all suppliers are going to charge the same price, have the same fulfillment and return policies, or offer the same shipping options.

Setting Up Shop and Integrating With Your Supplier

You have to decide whether you’ll host your store through your own website or an e-commerce platform. Both have their advantages and disadvantages. Building your own site requires a lot more time and attention, but offers greater aesthetic and functional flexibility. Meanwhile, building your store in an e-commerce platform will require less time and attention, but place a limit on how it can look and behave.

When you’re designing your actual storefront, make sure every detail is reflective of your brand. Product listings should include plenty of pictures to showcase key features and details. Product descriptions should be comprehensive and be able to answer any question that a customer might have. The last thing you want is to lose a sale over a mundane detail such as size and weight dimensions or if batteries are included.

Regardless of how you decide to host your store or how you design it, you’ll have to integrate it with your supplier’s platform. If you don’t integrate your storefront with your supplier, then you’ll have to manually enter orders as they come in. This will lead to mistakes, delays and upset customers, and it’s untenable once your business reaches a certain scale.

By integrating with your supplier, they are alerted immediately and can start taking action right away. Ease of integration can be a big factor into which platform you ultimately decide to sell on.

Marketing Your Business

Once you’re up and running, it’s time to get the word out about your business and drive customers to your store. But before you embark on your marketing campaign, you need to spend a lot of time researching your target customer: Who are they? What kinds of problems do they have? Where are they most receptive to ads? What type of messaging and media are they most receptive to?

Once you’ve got a feel for who you’re dealing with, it’s time to think about how to drive them to your store. A good place to start is with your competitors, especially the successful ones. Focus on the components of their brand and marketing strategies that work, and see how you can integrate them into your campaigns. Obviously, you’re not going to rip off their ideas—this is an exercise in inspiration.

There are a myriad of ways to reach potential customers. You can send them texts and emails, place ads in their social media feeds or just interact with them in social media platforms and forums. There is no one right channel when trying to reach customers, as each demographic is different.

You need to use what you learned during the market research phase to figure out which channels you should focus on. You want to concentrate ads in places where your target customers congregate the most or through a channel they find trustworthy. Your messaging should use the parlance of your target audience and tickle their buying bone.

Bottom Line—Is Dropshipping Worth It?

Given the rapid and sustained increase in online shopping, and the ease of starting it up, it is absolutely worth it to start a dropshipping business right now. All you need is a laptop, $100, a few hours of your time and the entrepreneurial spirit, and you can start your very own business. There is virtually no risk or limit to your success. There isn’t much to lose—maybe a few hundred dollars and a couple of hours out of your life—but there is everything to gain.