It’s one of the hottest topics promoted by “gurus” in Singapore, making claims that with hard work, drop shippers can potentially quit their day jobs and see multifold year on year income growth.
Some may even label the guru’s success a fluke.
Which is not wrong.
Quoting Kevin Malone from The Office (US), a fluke is one of the most common fish in the sea. So if you go fishing for a fluke, chances are, you just might catch one.
Nevertheless, grit and luck are not the only factors to build a successful dropshipping business.
Here’s why you should think twice before you embark on your dropshipping journey in 2020.
Background (2016 – 2017)
I was a drop shipper from Singapore back in 2016 when dropshipping was no longer a blue ocean territory but way less saturated than the current state it is in today.
Nope, I wasn’t a prodigy like the rest of the gurus and was only making a comfortable 4 to 5 figure income from it (varies from month to month).
Considering that it was a side hustle to me, the idea of running a dropshipping business was more than appealing to me.
Zero product research was done, and yet, all product listings on my eCommerce store, Amazon, Lazada, Qoo10 and Carousell were getting hits 24/7.
Even picking up SEO was much easier back in 2016.
“Perhaps this can be a full-time job?” I thought.
This continued for a year or so before I began to face some bottlenecks in my strategy, such as the slow delivery turnover on the suppliers’ end and my pace of acquiring new product lines.
Although income was growing, I was far too shortsighted not to have automated a significant part of the operations.
Entering 2018, I’ve decided to give it all up and pursue a different ‘hobby’, as income trickled down consistently and the number of drop shippers was on an exponential rise (most of them will try to undercut aka predatory pricing).
The underlying reason for quitting isn’t because I was afraid of standing up to the challenge, but merely this – Costs are getting steeper each month, causing profit margins to become horrendously low.
I didn’t have a way to streamline my business fast and dropshipping was not my way out of the rat race at that point.
The Dropshipping Concept is Promising
Don’t get me wrong.
Dropshipping can still be a viable business for some even in 2020, it’s just a classic case of you win some, you lose some.
To make it work, some major mindset changes must be made
Unlike the ads you see on YouTube, I wouldn’t dare to call it a meta get-rich-quick strategy. Neither should you quit your day job for this nor treat it as a passive income stream.
Dropshipping is promising in theory as it takes away or reduces the need for storage, runs on a flexible cost structure, i.e. pay suppliers at the point of sale, and much more.
Essentially, it means less work for stores and in turn, can focus their efforts on improving their online store presence, better shopping experience and implement more marketing campaigns.
That’s not all.
As the industry continues to mature, many tools have been developed to allow store owners to streamline their businesses even further.
With all that said, let’s move on to what we can do to make dropshipping work in 2020.
Execution is Key & it is not Dependent on You
You may have delegated logistics and other aspects of a business to your supplier, but you remain the face of the company.
As mentioned earlier, shipping delays and bad delivery turnovers were a common sight in my dropshipping business.
Events like this were seemingly unavoidable as it was not up to me to ensure timely delivery.
Eventually, I managed to circumvent the negative impact by stocking up some of the inventory in a local warehouse, but this, in turn, reintroduces some storage costs again.
The learning point to this example?
Choose wisely what and what not to outsource to third parties, exercise caution and perform your due diligence on selecting reliable vendors.
Do You Know What is SEO?
Short for Search Engine Optimisation, every digital marketer knows that it is a mandatory skill to pick up if you want to have a higher chance of showing up on the search results.
SEO is different for each platform’s search function, which is why the results on Google aren’t the same on Bing or Duckduckgo.
That being said, the fundamentals of SEO are more or less similar across all platforms.
For starters, you should try to optimise (but not over optimise) your product listings for keywords and description.
This is called on-page SEO.
Off-page SEO is another key aspect of SEO for search engines, where the number and quality of links linking to your site determine how authoritative you are.
You may see ridiculously cheap gigs and offers on Fiverr, Upwork or Seoclerks that claims to build high-quality backlinks to your site.
As such backlinks are built through unscrupulous means, which is also known as black hat SEO, these backlinks will put your site at risk of getting penalised by Google via manual actions.
Third-party tools like Moz also developed metrics such as the spam score, which shows the percentage of similar sites who have already been banned by search engines.
If you have already committed this newbie mistake, it is crucial to weed off these bad links through the disavow tool or ask the seller to reverse the damage he or she has done.
To learn more about SEO, read our definitive guide here.
SEO is Slow… Time to Pour Money into Facebook Ads
SEO is a long and endless process.
In the case of ranking on Google, it can take up to months to appear on the search results and seconds to disappear when the algorithm is changed.
So what do we do before pumping money into ads?
We craft the most creative ad campaign and adjust the ad targeting settings to market our products to the desired audience.
These are all essential steps of creating ad campaigns to reduce inefficient ad spending and, of course, increase the engagement rate.
Fortunately, there are numerous resources to help you with that:
- Canva (Free, highly recommended)
Note: Be sure to secure your ads accounts with 2FA. There was a time where many Facebook Ad accounts (including mine) were accessed remotely to display scammy ads. Better to be safe than sorry!
Product Research vs. Taking Risks
Now the question comes – Do you sell something that you believe in or do you research on the gaps and demands of the market then decide what to sell?
To be honest, I myself sold items without undertaking much research on the demand and margins.
It was much easier to be a risk-taker as people weren’t as exposed to platforms like Taobao and Shopee back then.
That means drop shippers used to be able to command higher prices and generate more sales.
In short, now, the e-commerce industry has grown a lot but in actual fact, has shrunk for drop shippers.
So here’s the conclusion – When you’re just getting started with dropshipping, doing accurate product research and finding the perfect products to sell is critical to your long term success.
Some of the criteria that new drop shippers should look for are products that can’t easily be found on the market and are able to be sold at prices that can make enough profit margin to (eventually) scale ads.
Most importantly, your product should be of a suitable size (preferably, smaller) and is able to solve some kind of problem the world is facing.
Niching Down – A Highly Effective Counter-Intuitive Approach
Yeah, every ‘guru’ says ‘you gotta niche down’ or ‘you must focus’.
But what does niching down truly means?
Niching down is all about becoming super clear on who your business is meant for and aligning your efforts to match it.
To do that, we need to do segmentation. Yes, the thingy that you learnt during marketing classes.
Traditionally, there are 4 types of market segmentation – Demographic, Psychographic, Behavioral and Geographic segmentation.
No matter how you do it, your niche or niches must be…
Measurable: The market size must be gauged reliably. This is to allow us to project the potential profit and growth potential of the niche. Market research is integral to doing this.
Accessible: If you are unable to reach the very people who may become potential customers, it is not the right niche for your dropshipping business. Make sure you fully understand the behavioural and geographical features of your segment as well as any other barriers to entry.
Substantiality: Aside from the size and growth of the chosen segment, gauge what is the estimate acquisition cost per customer, customer lifetime value, and the average sales value. A segment that is substantial and significant enough is a segment worth pursuing.
Returns & Refunds – A Real Pain in A**!
Things will get messy if a customer decides to refund an item.
As a drop shipper, your job is to own the mistake and adopt a KISS (Keep it stupid simple) mentality.
Here’s what you can do when things go south:
For Physical Items:
Step 1. Apologise to the customer for the unsatisfactory purchase and verify the reason for the refund.
Step 2. If the refund is of a genuine nature, make it up to the customer by proactively offering incentives. Some of my personal favourites are waiving shipping fees, offering coupons for future purchases, or if the item is an upgradeable product, offer the customer a free upgrade.
Step 3. Communicate with the supplier to arrange for a return shipping and redelivery of the product (if requested). Returns and refunds that were made due to the suppliers’ negligence should ideally be covered by them.
For Digital Items:
Step 1. Both parties should verify the validity of the item during pre-sales. For example, sellers can personally take a screenshot of the item being valid before the point of sale for future verification purposes.
Digital goods cannot be unredeemed in most cases. As long as step 1 is done correctly, returns and refunds should not be permitted in the first place unless…
Step 2. Item delivered is not as described. In this case, follow steps 1-3 for physical items (if applicable).
eCommerce is a Saturated Ecosystem, But…
It goes without saying that you have to treat dropshipping like a day job if you want to get out of your current day job in the first place.
Even if the industry has reached a saturation point, you can still be ahead of the game by devising a better strategy, executing better, or bring a unique offering to the table where your competition lacks in.
Additionally, it’s worth considering dropshipping as a way into a new market before branching out to establish your brand or even your products. An online SBU MBA degree can prove useful to get the hang of business management. Indeed, there’s more to dropshipping than meets the eye. While you can leave it at that, there’s a realm of opportunities to use your dropshipping platform for business expansion. It can allow you to get to know a market and the audience before bringing or developing new products and services. Dropshipping means essentially selling brands that already exist. But using dropshipping for market research can be a smart move, as it will provide capital for business growth and transformation and give you insightful pointers to gain a competitive edge into the market.
Some food for thought:
Related to dropshipping:
All images in this post are sourced from freepik.com