Connect with us

Management

Why Most Dropshipping Businesses Fail

Last updated by

on

packages

The main reason why only 50 percent of startups are still operating in their fifth year is changing market demand. How do you deal with this threat to a business? By staying relevant to your customers.

The statistic for business survival beyond 10 years is just 25 percent but should this concern budding entrepreneurs? No, entrepreneurs don’t have fears of starting a business and they know the right mechanisms and strategies, for customer acquisition and retention.

Change is inevitable and external factors creating the change are hard to control; therefore, as business owners, we must focus on what we 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 company’s control 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 suggests a drop in demand, they can find products their customers want. However, most dropshipping businesses fail too, so this article looks at why it is 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 setup 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 websites and the online store and market them 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 one supplier is probably more a result of business owners’ complacency or laziness than good judgment. When the business is set up quicksmart with little to no prior trading experience, it relies more on luck. Using just one supplier may work out well in the short term; however, your business may be short-lived without a fallback supplier.

Ensure 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 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 using just one marketing or advertising strategy to attract customers. It’s human nature to stick with what we know. However, you need to break free from this habit in business and use many channels and strategies to attract customers.

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

Use more than one method to capture customer data and choose channels to reach out to your prospective clientele. For example, try interactive marketing strategies like surveys, quizzes, and games to capture customer data enjoyably, so your customers share and like your messages on social media.

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

Lack of Funding

All businesses need working capital, and a dropshipping business has overheads and liabilities. 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 data is likely to be eschewed in their favor. Therefore use the internet to find other resources like discussion forums, blogs, and whitepapers.

Network online, particularly on 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, suppliers, and ineffective marketing strategies to attract customers.