Hey, what's going on everybody. Preston here. And in this video, I just wanted to talk about drop shipping. And I wanted to explain some of the things that you'll never hear from some of these dropshipping people on the internet. Who just hype, hype, hype, hype drop shipping. It's the best business model. You don't have to carry any inventory. And go on and on and on.
Well, here's the real story of what actually happens when you try to start a drop shipping store on Shopify.
What is Dropshipping?
So drop shipping works like this. It's basically the idea that you set up a Shopify store and you list all these different products on the store, that you don't carry any inventory of. Meaning you don't have to have a capital outlay to buy the products, store them in a warehouse and pay those storage fees, to then ship them to the customer upon an actual order.
What you do, no, you list all these different products and then when somebody buys, you ship them the product. It sounds great in theory, here's what actually happens.
What Value Are You Providing?
So if you think about the drop shipping model, what are you actually doing? What is your role in the drop shipping model? It's marketing. So if you're not a great marketer or you don't know marketing, you are going to burn through cash like crazy. You're going to do these Facebook ads, you're going to do ads on Google, and it's going to burn through your bank account very quickly. Because even on Facebook, if you're a new seller with a new pixel, as people go to your website, it starts to identify those people on what they do on your website. And without a bunch of sales or add to carts or volume on the site, you're not actually going to get enough data for the pixel to be effective.
So, in general, what you have to do is you have to spend about $3,000 to $5,000 just to get enough data to then start optimizing that pixel. So keep that in mind.
Consumers Expect 2 Day Shipping
But that's not actually the worst part of this yet. The worst part about this is people in the United States, which is where I'm based. I'm in Texas. But people in the United States have become accustomed to two day shipping thanks to services like Amazon Prime. Whenever they buy on another website, your Shopify site for example, they are going to expect that two day shipping.
Now, okay, you can't provide that. They'll be a little bit lenient if it takes three to five business days. However, when you're doing a drop shipping model, a lot of the products that you see in a drop shipping model are not from the US. It's not a US-based supplier or warehouse. It's in China. Off something like Aliexpress.com. Or Alibaba even. But mostly Aliexpress because you can buy one unit, you don't have to buy a thousand units.
So when somebody buys, you then place the order with Aliexpress to ship to your customer. Well, guess what? That free shipping, that could take a month. One month. 30 days. So guess what? Let me play out this scenario for you. It's the first in the month, you have a customer order. A week later after you've already placed the order with your supplier, your customer says, “I want a refund. Where's my product?” And you explain to them, “Well, it's going to take longer than expected.” Your product either gets lost, you don't have updated tracking information. Guess what? You got to issue a refund. So wait, you're not at zero. You've actually lost money on this deal because you've already bought the product from Aliexpress, it shipped from China, and now you've got to issue a customer refund.
The Returns Nightmare
Guess what though? You can't redirect that package. That package is going to your customer. So now you don't have the money from the order. You've spent money on a product. And now that product is going to your customer and they're going to get it. You've already refunded them. So then you're going to have to tell the customer, “Hey, can you please ship me back the product?” And they might or might not respond. So it's a huge, huge nightmare.
USA Based Warehouses
Now, the solution to this that you'll hear by a lot of these gurus as well, there are US based companies that can ship products. So you want to find a US based supplier. Which is totally fine and it's legit. There are companies in the US that do that. However, they're going to charge you a lot more than the China rate. Because look, almost everything's made in China, right, so they're doing the same thing. They're just doing it in bulk. They're buying thousands of units from China and storing them at their warehouse. So they do have a hard cost in that.
High Ticket Drop shipping
If you're doing drop shipping, a lot of people talk about this high ticket drop shipping. People do buy expensive products over the internet. The issue here on some of the smaller ticket items, depending on what you're selling, is going to be margins. You've got some other areas that you need to look at. You've got shipping. If you've got customer service costs of people who are responding to customer messages, reviews, etc. You've also got logistics possibly, unless you're going to do it all by yourself, of tracking all those packages and where they're at at all times. You've got some of the web development work that needs to be done. You've got branding, you don't want to have one off sales, you want to have people coming back to your store again and again and again.
Quality Control on China Products
Unless you've really quality controlled, tested some of these products, you don't know what the heck you're sending your client here. If you've just seen these videos, I myself have ordered products off Aliexpress and gotten them. And it looks really great when you look at it on the website. And then you get it and it's a piece of crap that literally falls apart in five seconds. So just be careful of that.
Final Thoughts About Drop shipping
So those are my thoughts about drop shipping in 2020. I've done a little bit of drop shipping myself. I tried it out. It's very, very expensive to get started. And there's a lot of risk involved if it's just you on your own doing it. And you need to have a very, very broad skillset in order to be successful.
That's not to say that you can't do it. Those are just some of the things that I wanted to explain in this video. Having worked with clients who run Shopify stores that do millions and millions of dollars annually.
So those are my thoughts about drop shipping in 2020. If you like this video, hey, hit that like button. Go ahead and subscribe if you like this content. And let me know down in the comments if you want me to do videos that are similar to this on other topics that are close to this.
Thank you so much for watching. And I'll see you next time. Let me know your comments down below!