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Why Most Dropshipping Businesses Fail

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The main reason why only 50 percent of startups are still operating in their fifth year is changing market demand. The statistic for business survival beyond 10 years is just 25 per cent but should this concern budding entrepreneurs, most of which start their business from their home? No, with the right mechanisms in place, let your business run its course.

Change is inevitable and external factors creating the change are hard to control; therefore, as business owners, we must focus on what we do have control over, and how we deal with it. For example, declining sales revenue is an accurate indicator that not all is well in the business. Changing tact to reverse the downward trend in sales is more often than not within the control of the company as they can innovate new solutions or improve their product line.

The dropshipping business is an ideal model for sourcing products consumers need and want, and when feedback suggested a drop in demand, they can find products their customers want. However, most dropshipping businesses fail too, so in this article, we look at why is it hard to succeed with this eCommerce model.

Thankfully there are plenty of articles on the topic of dropshipping, including Entrepreneur’s 6 routine mistakes with the set up of the store. The set up is the foundation of the business, so get that wrong, and the business is off to a shaky start at best, and at worst will fail within the first year.

The ease of setting up the eCommerce store has turned it into a side hustle, with it seen as a way to earn some extra money to supplement wages from the day job. However ‘all good things, take time’ and that’s why all startups should heed the saying: It takes 10 years to become an overnight success.

Just because you can set up a business overnight, doesn’t mean you should. For example, technology providers have made it easy for novices to create their own website and online store, as well as market it with PPC advertising. However, the DIY approach often leads to investing more money to correct poor-performing assets, and it’s the fault of the business owner’s impatience.

Putting aside the need for education, training, business acumen and experience, startups fail when they make these errors.

All Eggs In One Basket

Sole Supplier

Electing to just have the one supplier, is probably more a result of business owner complacency or laziness than good judgement. When the business is set up quicksmart with little to no prior trading experience, it’s relying more on luck than anything else. Using just the one supplier may work out well in the short term; however, without a fall back supplier, your business may be short-lived. Make sure you do your research and secure the right wholesale drop shippers on terms that work for you. For example, get the legal agreements approved by your legal advisor and check for restraint of trade clauses that may prohibit using competitor suppliers.

One Store

Spreading the risk with more than one wholesale provider also extends to more than the one store. Your stores should be different niches to cater to a broader customer base and thus spread the risk should one of your niches no longer attract the market demand. With your other stores operating well and returning a profit, you can pour resources into finding in-demand products to meet your customers’ needs.

One Marketing Strategy

Another fast way to poor returns is the use of just one marketing or advertising strategy to attract customers. It’s human nature to stick with what we know, however, in business, you need to break free from this habit and use many channels and strategies to attract customers.

Marketing starts with customer data capture and growing a database of customers with their preferences. Once you know what your customers like and want, your marketing messages target their needs.

Use more than one method to capture customer data and choose many channels to reach out to your prospective clientele. For example, try interactive marketing strategies like surveys, quizzes and games to capture customer data in a way that’s enjoyable, so your customers share and like your messages in social media.

Also, another successful marketing strategy is running competitions, prize draws and giveaways in social media to both attract and retain customers for your business.

Lack of Funding

All businesses need working capital, and a dropshipping business has overheads and liabilities too. A lack of cash flow to pay for services and fees is a sure way to business failure. Have a contingency plan for funding shortfalls in cash flow. All startups go through peaks and troughs in sales, learn when they are most likely to happen and fund up before you need the extra resources.

One Knowledge Source

Relying too much on one source of information is risky. The information may be inaccurate and biased depending on its source. If it’s from a current supplier, the information is likely to be eschewed in their favour. Therefore use the internet to find other resources like discussion forums, blogs, whitepapers. Network online particularly in social media platforms like LinkedIn. Follow successful entrepreneurs and dropshipping business owners.

Summary

There are many reasons for dropshipping business failure. Unrealistic expectations of sales and profit lead to impatience. The owner wants their eCommerce store set up fast, and there is often an over-reliance on the one store. Also, a lack of funding, and suppliers and ineffective marketing strategies to attract customers.

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