More and more people in Germany who are willing to set up their own business are using DropShipping to fulfill their dream of their own online business. This is no wonder, because only with DropShipping it is possible to offer hundreds of products for sale in your own online shop or on eBay without having to buy a single one in advance.
The reasons for the failure of young companies are manifold
Whoever decides to start their own business naturally wishes to achieve maximum success with their business. At the very least, this means that the company will survive from an economic point of view and will generate enough money to provide the operator with a comfortable life. If this is successful, then most of the wishes and dreams that led to the decision to start a business in the first place will come true.
If it does not succeed instead, then unfortunately one often has to struggle with the consequences and consequences of failure for a long time. So there is a lot to be said for dealing early on with the question of what makes young companies fail in the first place. In this way, strategies can be developed in time to avoid failure.
If we first take a more general look at the reasons why young companies fail, we usually find gaps and deficiencies in terms of financing. Even during the start-up phase, companies still run out of financial breath because the costs incurred have been underestimated and the income received overestimated. As a drop-shipping trader you are rather on the safe side here, as no special costs are incurred during the founding and start-up phase and no high costs are incurred during ongoing operations.
Even DropShippers are not protected against missteps
A drop-shipping company can of course still fail. Here we often have to deal with very specific causes. These relate partly to e-commerce in general and partly to the drop-shipping trading model in particular.
Among the causes based on general characteristics of e-commerce, the lack of or incomplete market analysis is the most important. Anyone who, as a founder, does not take a detailed look at the potential of the targeted market risks financial shipwreck. A lack of product knowledge has also brought down many a start-up project. If we turn our attention to those causes that are specifically related to drop-shipping, then the reasons that stand out are those that are related to suppliers.
The manufacturers and wholesalers with whom one works in the context of drop-shipping bear a great responsibility and are decisively involved in the question of whether business is developing positively or negatively. It is therefore urgently necessary to look into this area in order to find and combat the most common mistakes made when starting drop-shipping companies.
Those who know the worst mistakes can protect themselves consciously and effectively
With foundation errors, it’s one of those things. These are the most common causes that can lead to the failure of a young company shortly after its start. Inexperienced founders have the disadvantage that they often do not know these potentials well enough. This means that they hardly have the chance to prepare themselves adequately for what is to come. Unfortunately, they usually only have the necessary experience after several years in the business.
Exactly then, however, the knowledge about foundation mistakes is hardly of use. Of course, founders and entrepreneurs who have already seen their companies fail from an economic point of view are particularly familiar with such causes of failure. We should therefore definitely find a way to know the most common mistakes made by founders in the area of drop-shipping without having to experience them ourselves first. If this happens, then it is usually already too late.
Now, one could of course turn to experienced entrepreneurs and ask them to accompany one’s own start-up and startup process, paying particular attention to ensuring that not too many mistakes are made. However, the problem here is that, on the one hand, there are not very many entrepreneurs who are willing to provide the necessary information and, on the other hand, that these entrepreneurs are constantly working so that they do not spend their precious time advising and supporting future competitors. In your search for a better and more realistic way, you will be interested in the following 10 sources of error, which we would like to present and share with you.
Learning successfully from the mistakes of other DropShippers
We have compiled for you the most frequent and most serious causes of failure of young companies. We have been guided by the e-commerce sector on the one hand and the drop-shipping trading model on the other. Therefore, you can expect no unimportant generalities, but instead a very differentiated elaboration of the most frequent sources of error in exactly the business area you have decided on.
We recommend that you study the presented errors, reasons and causes very carefully. Try to deeply internalize the individual sources of error and pay particular attention to the many recommendations in the text which will help you to avoid these errors. In this way you lay the solid foundation for a long-term stable company that is economically sound and provides you financially with everything you need.
You should avoid these errors at all costs
However, in order for a drop-shipping trade to be really successful, potential sources of error must be eliminated. In the following, we will introduce you to the ten most common mistakes made by inexperienced drop-shipping traders. Those who take these sources of error into account and consistently avoid them when setting up their own drop-shipping business have good prospects for a profitable and long-term flourishing business.
Market and consumer interests ignored
Products cannot be sold without a reasonable demand on the market and a corresponding interest among consumers. Before you decide on a specific retail area, you should carefully analyze the market potential. In this context, do not only examine whether the respective goods are in high demand, but also get an accurate impression of the competition and the current prices on the market.
If you succeed in discovering a promising niche that has not yet been filled, your chances of successful sales will increase. If you have reasonable doubts about the success potential of products, then you should rather decide on another product area.
Too little time is invested in the selection of suppliers
Anyone who decides too quickly in favour of a drop-shipping supplier risks overlooking crucial details. Every potential drop-shipping supplier has to be put through its paces before entering into a concrete cooperation. This requires extensive research, which ideally also involves personal discussions. One way to get in touch with potential suppliers is to attend suitable trade fairs and commercial exhibitions.
Test the capabilities of the potential wholesaler extensively. Make some test orders and check especially the quality of the products and the reliability of the delivery. Ask existing customers of the respective supplier about their experiences with DropShipping at the company and research on the Internet for opinions and ratings.
The conditions with suppliers are not well negotiated
The profit is made at the purchase. Keep this old principle of successful merchants in mind and carefully check the purchase prices at your drop-shipping suppliers. False shame in negotiating list prices is out of place here. Your counterpart is an experienced trader and will not feel offended by an open inquiry for special discounts and better prices.
However, do not only consider the pure product price, but also agree the costs and fees for shipping and handling with your suppliers. Also discuss minimum order quantities and any minimum quantity surcharges that may apply. In any case, these conditions must be clearly agreed before the start of the cooperation, as they are very important for your future profits.
Trading in products that are not understood
When selecting a product area, you should not be guided solely by market opportunities and achievable profit margins. Make sure that you have a personal reference to your future product range if possible. Remember that products with which you are well acquainted can be described and documented much better. As a non-expert you would find the compilation of a consumer-oriented assortment an almost impossible task.
When deciding on a particular product group, bear in mind that you will have to answer customer questions regularly, both before and after the purchase. If you decide on products that interest you personally, you will follow the markets, technical innovations and trends anyway and you will not have to invest additional working time for this.
The costs of drop shipping are underestimated
Those who decide on a business model based on drop-shipping often have the low start-up costs in mind. Even if this business model requires considerably less capital than a comparable concept in the classic retail sector, you will still incur various costs. You should know these costs and take them into account in your planning. Think, for example, of the software and design of your future online shop and the costs of programming interfaces to the respective suppliers.
In addition, calculate the costs for setting up your future workplace, for the creation of business stationery and also include the expenses for advertising and marketing, which are necessary to make your future shop known on the Internet. Although drop-shipping can eliminate the need for a warehouse and warehouse and shipping staff, you should consider early on who can help you handle customer inquiries and support tasks and what this support will cost you.
There are no regulations for returning goods
If you sell products to private customers on the Internet, you are legally obliged to grant the buyer a 14-day right of return. Remember that this right does not apply between you and your drop-shipping supplier. This is because this is a matter between merchants and the rules of private consumer protection do not apply in this environment. Under certain circumstances it is possible to agree an extraordinary right of return with the drop shipping supplier.
If your supplier is not prepared to do so, you should plan to sell returned goods on eBay. Keep in mind that you will usually not achieve the originally planned sales price with such returns. It’s also important that you clarify with your drop-shipping suppliers how to proceed in warranty and guarantee cases. In any case, always agree to whom the customer can return a defective product during the warranty period and how he can obtain a replacement.
Communication with the supplier is poor
In order to convince yourself of the efficiency of a drop-shipping supplier of your choice, you should get an exact picture of the company of the future partner personally and on site. Although today a large part of commercial communication is handled via telephone or e-mail, there is no substitute for personal contact, especially at the beginning of the cooperation. In direct dialogue you have better opportunities to negotiate the concrete prices and conditions.
In the offices of your potential supplier you can get a comprehensive picture of the seriousness and efficiency of the company. Check whether the products offered are actually in stock and have the handling structures and processes in the company explained to you. Pay particular attention to how quickly incoming orders are processed and ordered goods are dispatched.
The amount of work is estimated too low
Online trading via drop shipping involves considerably less processing effort than traditional mail order. However, even the modern form of online trading cannot do without planning and structure. Therefore, it is essential to plan for indispensable work steps and increased time requirements.
On the one hand, you should not underestimate the effort involved in carefully looking after prospective buyers and customers. On the other hand, the business relationship with your drop shipping suppliers can also involve a higher workload, if, for example, inventories do not have to be updated via data interface, but have to be transferred manually.
The deliverability of the goods is not checked optimally
As a drop-shipping online merchant, it is your responsibility to ensure that the products you offer are available for delivery. If a product is not available or is only available late, this will reflect on your reputation as an online retailer. When trading drop-shipping products on eBay, you as a seller are even obliged by the guidelines for sellers to ensure that the products can be shipped immediately after the sale.
The consequences of delayed availability of products can also affect you economically. For example, if a customer orders two products, one of which is not available on schedule, you will usually have to pay double the shipping costs.
Goods with high return rates are selected
Returns of products are part of the daily work routine of every online retailer. Both the law and the general rules for customer service require an unconditional right of return of at least 14 days. In many cases, returned goods can no longer be sold regularly, but must instead be sold elsewhere, usually at a lower price. The online trader has to bear the resulting losses himself.
Against this background, the product areas under consideration should also be examined with regard to the return rate to be expected. The market knows various product categories that are particularly susceptible to returns and can therefore be classified as unsuitable for drop-shipping. An example of this is the clothing sector. Here the return rates can reach up to 40 percent in some cases.
If you know the most serious mistakes, then you are in the best position to avoid them consistently.