In this article, we discuss whether dropshipping is still viable in the current climate in 2020. We also take an in-depth look at numerous factors to consider before you get started, such as profitability and competition, to name just a couple.
Here at Do Dropshipping, we like to present you with the facts, information, pros, and cons that allow you to decide whether dropshipping is right for you.
What is Dropshipping?
If you’ve stumbled upon this article but still not sure what dropshipping actually is, I will give you a brief summary of what the business model is. For a more detailed explanation, you can head on off to our article here.
Dropshipping is basically shipping products to your customers directly from your suppliers. This essentially means that you will never hold inventory.
There are many pros and cons to the dropshipping business model, and they really need to be considered before you decide to go ahead with it. I will also drill down a little further on most of these points later on in this article.
Advantages of Dropshipping
- Low barrier to entry, little capital required
- Low monthly overheads
- Not stuck holding stock which may possibly not sell
- Endless resources to learn on the subject before starting
- Great platforms which aid automation with this business model
You can learn more about the advantages of dropshipping here.
Disadvantages of Dropshipping
- Usually slow shipping times
- Bad reputation due to poor customer service
- Very high competition, more so because of Covid-19
- No control over product quality
You can learn more about the disadvantages of dropshipping here.
As you can see, there are good arguments both for and against dropshipping. The decision ultimately comes around to whether it is a good fit for you and what you want to achieve.
Barriers to entry
The biggest advantage by far is the low barrier to entry, you could essentially start with a few hundred euros and still be a success, as shown in another article here.
If you want to start up a very basic store, you need very little. You will need to buy a domain, hosting, a few sample products, and have enough money for advertisement set aside for the first couple of months.
One problem that many are facing today is competition, more so due to Covid-19 as more people are unemployed, working from home, or furloughed. Your potential competition is also taking advantage of the low barriers to enter the market during this strange time and the numbers of dropshippers are at an all-time high.
As you can see from the above image, users on Shopify, which is one of the main platforms used for dropshippers, has gone through the ceiling this year, so this is a very important fact not to disregard.
If you have an idea for a dropshipping business, then it’s very good practice to put it through Google and social media first to see what comes up. You can also research your trend with Google Trends and see if you have a place in the market.
There are plenty of sources of information regarding dropshipping, however unfortunately there is also a great deal of misinformation out there. The market has, over the last few years, become a cesspit of gurus selling courses that promise six-figure returns that cost people hundreds even before they have started.
We have found quite an interesting example of a ‘guru’ being sued for misleading people.
These courses generally offer very little value as the correct information can usually be found by a little Googling around.
Here at Do Dropshipping, we aim to cut through the nonsense and give you a realistic outlook on all topics in the dropshipping field without you having to pay a cent.
What kind of startup capital do you need to start dropshipping in 2020?
I don’t want to give you an actual figure here because so many factors come into play here. For example, your product, your niche, your current skills, and even a bit of luck.
What I will do is a breakdown of what you will need to get started and roughly how much they will cost.
Also, if you were thinking of buying a premade dropshipping store, then I recommend you to read this article here first.
Domain
First of all, you will need a domain. This can generally cost around $10-15 per year and can go up dramatically depending on how good the domain is. It is advised to shop around as the same domain can cost very different amounts depending on where you buy them from.
Namecheap is generally the cheapest platform to buy from, so it’s always worth it to take a look there first. They also provide free privacy protection for the Whois Registry.
One last tip for purchasing your domain, don’t forget to look around a bit for discount codes. It will surely save you some money.
Also, if you’re not sure yet about your store name, then you can check out this article with tons of tips for picking the right name.
Platform
Shopify is free for your first two weeks to allow you plenty of breathing space time-wise to get your store up and running.
Only sign up when you have carried out all of your research to make maximum use out of this free period because after this, it will cost you $29 per month on the basic plan.
You can check out this Shopify checklist here to make sure that you got everything set up correctly before you launch your dropshipping store.
Another option to consider is WooCommerce, which unlike Shopify, gives you a great deal more flexibility in regards to your stores’ look, apps used, and monthly costs. However, it is not as powerful as Shopify straight out of the box. You can learn more about dropshipping with WooCommerce here.
Shopify offers a ‘ready to go’ platform and is incredibly simple for people with no technical experience.
If you want to learn about picking the right platform for your dropshipping store, then you can read this article here.
Advertisement
Advertising will be by far your largest overhead in the dropshipping business, and it will very likely make or break your business.
To begin with, whichever platform you decide to advertise with, you can put as little as $10 per day into advertising just to test audiences and general interest in your store. Most advertisement platforms use the first 3-5 days to fully optimize.
When you have figured out what is working and what isn’t, you can then look at scaling, which could cost as little or as much as you want.
It is important to make sure that you are scaling cautiously and not blowing your entire budget in one go. Should you have already achieved a few sales early on, it’s good however it doesn’t justify going all in until you have consistent sales.
If you’re interested in learning more about all the advertisement options for dropshipping stores, then you can take a look at this article here.
Sample Products
This is a very overlooked part of setting up a dropshipping business. As you will not be holding the product, it is absolutely crucial to know the quality of the product you are shipping as well as how long it is taking to get to you. Blindly dropshipping without physically seeing your product first is a recipe for disaster
For single product stores, you have virtually no excuse not to buy a product yourself first however, for general stores, you should at the very least look at buying a few of your predicted best selling products.
As this is going to be your only means of quality control in this business, it is important that you get this bit right. If you plan to have a long term and sustainable business you have to make sure that your products are both of good quality and arrive within a reasonable time frame.
You can also use these initial purchases to build the required dialogue with your suppliers and get to know them a little better.
In a previous article, I spoke of a very embarrassing situation in which I was put in a very awkward position with regards to packaging. This is also another reason to always sample your products, you aren’t only sampling the product itself, but the customer experience, which will reflect onto your own business.
Another great thing about ordering samples of the products that you’re going to sell is that you can create unique product images and videos. This way, your product images will have a more unique look and feel to them making you stand out from the others.
Finally, it is worth mentioning that AliExpress is not the only place to dropship from.
Yes, a lot of the tutorials and articles you may have looked at may focus on them, but it really isn’t the only platform out there. Spocket, uDroppy, and SaleHoo are all a few good other options, to name but a few. You can check out these 15 AliExpress alternatives here.
Logo & Social Media Pack
Branding is a very important element of your business that truly impacts how your customers will initially perceive your business, it could potentially determine whether that visit results in a conversion or not. In dropshipping, you are not just selling the product, but the concept as well.
Not only will you need a logo to go onto your store, but if you are going to have that social proof, you will need social media and branding for that. You have a few options when doing this.
For the first way, you can make them using online applications that can generate one for you. They are generally very basic and lack anything bespoke. They are also very restricted in the formats in which the logo is given to you, so basic Photoshop skills would help along with this.
Shopify has its own logo generator named Hatchful, which generally gets the job done for free as well as a nice portfolio of formats, as seen below.
If you are looking for a more professional finish to your business, you can outsource this on a platform such as Fiverr or Upwork. This can usually cost between $5-20, just remember that you get what you pay for.
It’s also important to take into consideration the reviews of the freelancer and always ask to see their portfolio. It’s normal for them to have a choice of packs to buy, so see which suits you best. They can cost upwards of a few hundred dollars, but it all depends on how much you have to spend to get a certain outcome.
Apps
To start with, you need a few apps to help you get going and make your life a little easier. Order tracking and mailing list apps are a must at the very minimum. The good news is, most of these apps either have a free trial period or access to limited features within their app for free.
As your customers will likely be messaging you asking where their order is quite frequently, having an order tracking app is important, most so when dropshipping because the wait times can sometimes be in excess of a month.
These apps, in many cases, are free for up to 100 orders per month however these are very basic in functionality and tracking page customization. There’s plenty of choice around there, so shop around and use the free trials to see which is the best fit for you.
The paid version of these apps generally cost between $10-20 per month.
For example, here is what it will look like without any order tracking app:
And this is what it looks like if you add AfterShip to your dropshipping store:
A mailing list is a good way to not only an incredibly effective tool to market with, but also to recover missed opportunities with abandoned checkouts. As with the tracking apps, these too can be free up to a certain amount of registered customers. After this, you are also looking at between $10-20 per month.
There are also others to consider, such as image compression, currency/language switchers, and SEO optimization apps. Image compression apps will reduce the image sizes and, in turn, reduce page loading times, which help improve conversion rates, generally free for the first hundred or so images.
If you are targeting an international audience, then make sure your customers can see prices in their currency and read pages in their languages. Some apps use geolocators to auto-switch, which is a very nice added feature.
The free currency conversion apps generally do the job but added features such as the geolocator are paid for, usually only $10-15 per month.
SEO optimization apps will perform the menial tasks like adding alt tags to your images and adding keywords to your pages. You won’t see much benefit in organic traffic for the first few months, but it is good practise to start with SEO optimization from the beginning.
Again, this can be free to a limited extent but can cost $10-20 for the paid package.
If you’re going to use Shopify for your dropshipping store, then you can check out this article here that contains both free and paid options for every app that you need.
Store Themes
Whilst Shopify and WooCommerce both offer themes that are free, the premium themes make your store stand out from the others and also have some cool built-in features that the free ones don’t provide.
The price of the premium themes can vary from $50-500, a preferred choice for Shopify stores is the Out of the Sandbox range. Their prices are generally $180 or $350, and they offer a very polished look to your store with built-in features such as quick shop and currency converter, to name but a few.
If you have the budget to buy a premium theme, then I would strongly recommend one; however, if you are just starting out and with a low budget, the standard themes work just fine.
If you’re wondering now what themes are out there, then check out the articles below for some great resources:
If your ecommerce platform is not on the list, then simply Google ‘best + ‘ecommerce platform’ themes’. You can even add the keyword ‘free’ to it if you’re looking for a free one.
Legal
What is important to consider is registering your dropshipping business as an actual business. Ultimately it comes down to whether you want to run this as a side hustle or as a fully-fledged business.
It is completely normal to transition from one to the other as your time or financial commitments change but to legally protect yourself, and your business is an important step to make.
The general advice is to look up the laws in your country on taxes and operating as a business as they do vary tremendously. The reason we are talking about this here is legal costs are involved in forming a business, and unfortunately, this is not a number we can pull out of the hat as it will vary a great deal.
If you are interested in this subject, then you can head on over to this article on legal steps to get your business up and running. That article will also cover the kind of taxes you need to know about when you registered your dropshipping store as a business.
Shipping times
Currently, this is a hot subject, with logistics worldwide being affected by Covid-19.
Epacket used to be the safest option for delivery, taking on average 10-15 days to the US. Whilst this option is still available as a delivery method, it is no longer viable by any means and, in most cases, is not even leaving the country of origin months later.
It is crucial to have these conversations with your supplier prior to using them and ask more than ‘how long is delivery taking to this country?’ as they are sometimes not very truthful about delivery times.
Ask which courier they would recommend and also don’t be shy to ask for previous tracking numbers to prove delivery times mentioned; this is not an unreasonable request.
If you are unsure how delivery times are faring in your target countries, Google Data Studio is a great tool to help with this. It will show you trends in deliveries in said countries and be able to determine whether delivery times are generally on the up or down.
Please note, Google Data Studio is an extremely powerful tool that can help identify trends in pretty much all walks of life and is not just used for this particular task.
With AliExpress, their standard method of shipping has proven to be much more reliable than ePacket during this time, offering both fast and reliable shipping worldwide as well as being tracked throughout.
You are advised at the time of writing this article to avoid ePacket delivery at all costs.
Profitability
This is where many new entrepreneurs will struggle as it is completely normal to know the cost of the product and your sell price, however, it is easy to disregard additional costs.
These small costs, such as transaction fees, payment gateway fees, and taxes, generally do not get taken into account however add up and can determine whether the business is profitable or not.
Believe me when I tell you that paying attention to the little things will make a huge difference, so we will go through a few important factors to take into account on whether your dropshipping business can be profitable in 2020.
Transaction Fees
If you are not using Shopify payments as a payment gateway, which is only available in selected countries, then you will be subject to not only a charge on the transaction but also on the payment gateway as well.
With Paypal, the typical fee is 2.9% + 0.30¢ per transaction; the same fee applies in most cases to all other third party card payment gateways.
As with Shopify, this fee can be reduced on their more premium plans however you will need to be pulling in a lot of sales to benefit from this extra charge.
Taxes
As mentioned earlier, this is something to consider as, for example, within the EU, this is at the minimum 15%, so quite a large amount to disregard. Or Sales Tax, if you’re in the United States.
Whilst this is something that many new dropshipping businesses disregard initially, it is something to certainly consider for when you are ready to take this to the next level. You can find more information about taxes here.
Product Costs
On the lower ticket products ($30-75) especially, you are expected to have a firm grip over your product costs as these prices will frequently change and could affect your profitability.
Luckily, most applications such as Oberlo and DSers will update you of these changes, these also fully integrate to your Shopify/Woocommerce platform.
What is important to consider is shipping costs, whilst shipping is normally free using the standard shipping methods, it is not always the case.
Some suppliers will even set their shipping fees to similar or even more than the actual product cost, and shipping cost increases don’t get picked up in these applications. Any suppliers that pull this tactic should be perceived as untrustworthy, so be wary of this.
If you are shifting a great deal of produce, look to suppliers further up the chain, for example, Alibaba.
These suppliers sometimes request a MOQ (minimum order quantity) however this can be talked down, and some even offer dropshipping capability if they think you will bring them enough business to justify the extra work.
Refunds
Either it is because of slow shipping times, poor quality products, or even a simple case of buyer’s remorse, refunds are an inevitable part of the business. How to handle refunds is a very large subject, luckily we have covered it here in more detail.
Why I am mentioning it here is because refunds will cost you money. Here you lose not just the cost of the product and the shipping fees but also the cost of advertisement that it cost you to initially bring the customer to your store.
It’s important to note here that, if dropshipping from China, they will not request the product returning to them as it’s not financially viable to do so, they will generally refund you the product cost less the shipping after proof of the problem has been provided to them.
A lot of sellers chose to factor an additional 10% into their prices to account for this loss, as refunds happen all too frequently to either ignore or soak up the loss yourself.
So, is dropshipping still worth it in 2020?
Yes, absolutely. However, the days of picking a single product on AliExpress, running Facebook ads, and making them insane figures that they tell you about on YouTube are pretty much over. It has so far been a very strange year for many reasons, which has brought forward many problems but also many opportunities.
2020 has seen an increase in ecommerce trade by an average of 15%, Covid-19 has played a huge role in this increase as many bricks and mortar businesses have adapted to what could potentially become the new norm.
On the flip-side, Covid-19 has severely hampered logistics, and even as more borders are reopening, trade is not yet back to running at a ‘business as usual’ stage.
Dropshipping is beautiful in both its simplicity to get started and its difficulty in running efficiently, and this is what sets entrepreneurs apart from people destined to work their 9-5 jobs. To dropship in 2020, you have to do your research, use all the tools available to assist in efficiency and automation, whilst at the same time squeezing every cent.
It is no longer a case of ‘Buy Low Sell High’, as so many other factors are at play, which ultimately affects your profitability.
Are you ready to start dropshipping in 2020?
2020 is indeed a difficult year to get into dropshipping, and it is progressively getting harder to squeeze into many markets unless your store is ultra-niche.
Should you tap into a quiet sector of the market, it is usually not long before others learn of what you are doing and try to take a slice of your pie.
Hopefully, my bombardment of information and warnings hasn’t scared you off and instead lit a fire in you to get started but in a pragmatic way. If you do your research and factor in everything mentioned in this article, then there is no reason this cannot work.
However, if you’re second-guessing now, then take a look at these dropshipping store examples for some great inspiration.
Just consider yourself lucky that you have all of the learning material you will need in one place here at Do Dropshipping.
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