Some Myths and their Truth about Dropshipping: Advice for the Beginners
Often the desire to start your own business quickly runs dry after trying to find a suitable format in which the work scheme is transparent and straightforward. It seems impossible to start a business without a huge start-up capital.
Dropshipping is a relatively new model for India, but it has already won a considerable number of fans around the world. Quora is full of resources where users share feedback on working with dropshipping suppliers, their advantages, and their grievances about several shortcomings of this business model.
I recently got a chance to meet Shubham Sailani, an Engineering dropout who started his career as a freelancer in 2014 and is now running several dropshipping stores successfully. He is also the founder of Beta Affiliate, a marketplace for dropshipping stores. I collected the most common complaints and placed them in front of him.
Claim No. 1: Availability of Goods
A Dropshipping supplier assures that the entire range that is present on his website is always available. In this case, the list may include 5000, 10000, or even 20,000 products. However, even if the goods/products are marked as “in stock,” the customer has to wait for months. The seller loses time, misinforms the customer, and as a result, the customer leaves.
The “Beta Affiliate” has a secure warehouse, which stores all liquid goods that are mostly in demand. Also, there are goods that we receive from external warehouses – we work with them through a highly developed IT system. Each item has a planned shipping time. We work with balances very carefully, and for each position, the time is calculated accurately to the minutes when we undertake to ship the product.
Our company has a reasonably good turnover. If we had significant problems with drains, we would be stuck in this task. It is essential to understand that we are not interested in any delays because any such overlay significantly complicates the processes and affects the cost. Therefore, we relate to the remnants carefully and understand how important this is.
Claim No. 2: High Competition
Dropshipping has a large number of advantages and is suitable for those who have limited starting capital, respectively; many will try to work on this scheme.
Unfortunately, I do not have any counterarguments on this. I can only say that dropshipping is an exciting model. And, of course, any exciting model makes you want to work with it. But even though we have a reasonably large number of customers, it is compensated by quality. Professional players who are well versed in e-commerce, advertising, and the IT field will always find ways to stand out from the rest of the market. And it will be difficult for non-professionals to prove themselves in the market, and this has nothing to do with dropshipping.
Claim No. 3: Inability to Control the Quality of the Goods sent
Since the supplier sends the products, and the seller does not see the assortment “in person,” there is a danger that the supplier will try to sell illiquid goods, and the client will receive products of inadequate quality. All claims will be directed to your address, and not to the supplier.
This is a challenging situation for us because we process all claims of our customers on our own. When the customer contacts the store with a problem, he is redirected to our call center, or the customers can send a claim to us directly. Since this is our area of responsibility, we are primarily interested in the fact that there are few such appeals.
Claim No. 4: A Large Percentage of Non-Repurchase of Goods
Dropshipping often works with cash on delivery; for this reason, some customers do not purchase the products. Classic online stores also have refusals, but they usually occur before the goods are sent to the customer, rather than during the delivery process for which you already paid the supplier.
The model of the online store does not affect the percentage of non-purchase of goods. We make every effort to minimize the failure rate. Firstly, we track parcels along the entire route. When the goods arrive at the post office, the buyer receives an SMS message. If we see that, less than five days remain before the end of the parcel storage, the client receives an automatic voice reminder.
In the second stage, an operator is connected, which calls the customers and finds out the reason for the failure of delivery. We take preventive measures so that the parcels are never returned, and we do not charge sellers for this. If the online store decides to provide these measures itself, this will entail additional costs for the provision and adjustment of the system. And we do everything within the package.
The second factor which significantly affects the percentage of non-repurchase is the quality of the online store. A simple example from practice: the failure rate of one of our clients reached fifty percent. After analyzing his site, we found that he configured the entire ordering system as- ‘quick.’ The conversion was high, but the buyback percentage is low. Because buyers placed “quick” orders, but then, when it was time to get the package and pay the money, a lot of people changed their minds.
Claim No. 5: The Inability to Organize an Upsell System
Upsell allows you to increase the profits of the online store significantly – the client bought the base model, and you offer to “upgrade” it at a discount. About 30% of customers willingly agree. Thus, you attract one client and sell two or more products without spending additional funds on their advertising. With dropshipping, it is challenging to implement an upscale system because the other product often needs to be sought from another supplier.
Our model allows online stores to work according to two scenarios: he can take the calls to customers, or give this functionality to us. Accordingly, if he performs it on his own, he can implement upsell in any convenient format. Another option is to configure the site so that customers can select additional products on the checkout page. But if the order is transferred to us, we will not be able to help. It is essential to understand that the “Beta Affiliate” is primarily engaged in logistics, and advertising and sales remain in the hands of our customers.
Part No. 6: Additional costs causes an increase in prices to uncompetitive
In addition to the price of the goods, there is also a margin that should cover the supplier’s commission, advertising costs and leave you a margin. It turns out that this margin is higher than that of competitors working according to the classical scheme.
There are several serious errors made in this statement. The first is a misunderstanding about the meaning of dropshipping margins. For each order from the seller, we take a service charge, say $5. It is essential to understand the sever amount of work “Beta Affiliate” carries out, which includes: Packaging, customer service, automated interaction with all delivery services, tracking the order, working with customer notification, handling complaints, and working with negative feedback. Few online stores will be able to keep this within $5, deciding to organize the entire list of these operations on their own.
Dropshipping is more profitable than the independent work of the store according to the classical scheme. If an online store starts working with a courier service on its own, it will have to generate a massive volume of orders to get comparable benefits. The difference in tariffs, as a rule, exceeds these $5.
Claim No. 7: Unprotected Customer Base
The supplier collects the entire customer base of the online store. He receives it for free and can, at any time, begin to interact with them directly, bypassing you as an intermediary.
The same can be said about the delivery services because the store, in the same way, passes them all the customer data. And the delivery service also has all the resources to take advantage of this base. Beta Affiliate has been operating in the market since 2015. For us, reputation is not an empty word. We make every effort to ensure the security of customer information. Our employees do not have access to the entire database; they only use the data that is necessary to perform their functions. Moreover, most processes are automated, which also increases the level of protection.
Claim No. 8: Poor-Quality Packaging that does not protect the Goods from Mechanical Damage During Shipment
Most suppliers send orders in unsafe packages. Firstly, the goods can get damaged during the delivery process. Secondly, suppliers can send defective products and claim that they got damaged during transportation.
Beta Affiliate offers its customers two options: pack the order in a safe bag or a box. The box is not only an increase in the safety of the goods but also a significant increase in the cost of delivery. When packing in a box, expenses increase: the price of this box, the packaging procedure, and the bulk weight of the order also increases. The safe package can fit in a small cell. A box will require a larger compartment, but in this case, we take full responsibility for the safety of the goods. Therefore, we allow our customers to choose the packaging. This can be done on the checkout page or through the call center service.
Claim No. 9: Orders come to Customers Without Identification Marks
You cannot control the process of picking a product, put flyers in your store, seal it in its original packaging, or stick a logo. The store may remain unrecognized.
We buy black bags without any identification marks, corrugated cardboard boxes without logos and company packaging, adhesive tape without inscriptions. But inside the package on the order form, the buyer will find the name of the online store, its legal entity, contact phone number, and website address. Beta Affiliate does not appear anywhere because we understand how significant the observance of the private label is. The buyer must know that he is in contact with the brand of this online store. And therefore, we do not lay any advertising and promotional materials on our own. This is a taboo.
Claim No. 10: Delivery Time
Often, the delivery of goods to the final buyer takes longer than dropshipping suppliers initially claim. Often they transfer responsibility to transport companies, in particular, to the Indian Post. At the same time, while you find out who is to blame for the delay, the client gets tired of waiting for the order, which increases the risk that he will not redeem it and will no longer return to your online store.
Beta Affiliate works directly with logistics services. Our company has a reasonably clear regulation, and each item has a planned date of shipment. Customers can track their orders at any time either on our website or in information downloads for online stores. Courier services every day come to the warehouse and takes the parcels formed and prepared for sending. As soon as we transmit them, the track numbers of the corresponding delivery services appear in our system, with the help of this you can trace the further route of the order. If we are late, then the client can always contact us to find out the reason for the delay. As a rule, it is objective – the car broke down, or difficulties encountered force majeure. Even if this happens, the delay is not for more than two days. Besides, we have our courier service – morning orders in India are delivered on the day of placement! In the days of increased load, we inform customers about the delivery service from those that are presented in our pool makes sense to conform to our customers.
Claim No. 11: A Complex and Disadvantageous Return System
Inadequate quality of the goods, damage during transportation or long delivery is all that leads to returns. Suppliers are in no hurry to take them back. Firstly, you will pay for the drop shipping service for $5 per order. Secondly, if in case of a return you try to refund the money for the goods, then you will have to send it back at your own expense. Thirdly, proving the fault of the supplier is difficult. You will lose both money and time.
Under the contract, the supplier has the right not to return the cost of the goods that the buyer returned in a damaged state but to transfer the parcel to the seller. However, in practice for all the time of our work, there were no such precedents. We usually charge returns regardless of the form in which the parcel arrived. However, soon the rules will be tightened, and we will return the funds for the order only on the condition that the goods are delivered in a box. Accordingly, it is in our interest to pack it securely. Those sellers who decide at their own risk to send the order in a safe package will be responsible for it themselves. But this does not mean that we are not interested in the safety of parcels in secure boxes.
Our well-being directly depends on the success and profit growth of our customers. After all, we do not earn on dropshipping, but on the wholesale of goods. And it is much more essential for us to increase sales volumes than to get a penny from returns. Therefore, we make every effort to ensure that the parcels are delivered on time, packaged in good faith, all disputed issues are resolved quickly, and customers are satisfied. Only in this case, the buyers will return.
Claim No. 12: An opaque Financial Accounting System
Finance movements in the dropshipping order can be tracked in the client’s account. The cost of the goods, delivery, and commission for suppliers’ services are deducted from the balance, and then the margin is calculated. The accumulated funds can be withdrawn to a personal account. It seems that the system is debugged, but situations where the write-offs are carried out “retroactively” are repeatedly described: these calculations are opaque and cause a lot of questions.
Several financial reports are available in the personal account of the Beta Affiliate client. The seller can download data on charges and charges in the format of tables. They display complete information: how much money the seller earned, spent on payment for goods, delivery, packaging. There are no surprises there – all operations are displayed in real-time and accurate to the penny.
Moreover, we provide access to raw data so that we can conduct marketing research. Our dropshipping system is fully open. If someone has questions, we always carefully analyze them.
Claim No. 13: Recommended Retail Price (RRC)
Part of the goods has to be set at a non-competitive price because the supplier has a recommended retail price. Classical competitors set the price lower and attract the majority of customers.
Several manufacturers want to sell their products at specific prices. And they require compliance with these recommendations. Of course, dishonest people who try to play by other rules are always on the market. But today there are a lot of technologies to reduce the price of goods not directly, but with the help of loyalty programs. I do not see any tremendous complexity in this. Beta Affiliate is a significant and civilized market participant; our clients work on a legal field and pay taxes. Therefore, we must comply with the accepted rules of the game, including the fight against dumping.
We have discussed exactly 13 dropshipping myths. I hope that after this interview, many of you will understand how exactly this system works in India, what to prepare for, and what you will have to face if you choose it for yourself.