It’s accessible, it’s easy, and it only takes a small investment: dropshipping. More and more starting companies are switching to this ‘economical’ logistics option, but is that a good idea?
Dropshipping works as follows: the customer orders a product in your eCommerce. You then place an order with your supplier. Your supplier then sends the product directly to the customer. You, as an entrepreneur, therefore only play a mediating role; you have no stock and have nothing to do with shipping.
In this article, I share five risks that you need to know before you start dropshipping in 2020. This way, you are better able to make the right choices so you will not be faced with any surprises.
1. Logistical dependence
The main reason for start-up companies that want to make use of dropshipping is that they do not have or do not have enough storage to store the stock. Dropshipping then seems to be the perfect solution because the product is sent directly to the customer. However, the risk here is that you are completely dependent on the supplier.
A good example is a COVID-19 virus (coronavirus). If you are working with a supplier located in China, you will most likely have stock issues at this time caused by the effects of this virus. According to the NOS, about 80-90% of all cargo flights from China have been canceled due to the outbreak of this virus, which means that you cannot meet your delivery promise. If you managed the stock yourself, you are less dependent on this situation.
2. Right of withdrawal and warranty
The European Union entitles consumers to cancel the purchased product within 14 days of purchase. The consumer does not have to provide a reason for the cancellation. Also, under EU law, the seller must provide at least a 2-year warranty.
With drop shipping, it is sometimes confusing who is liable—the moment the consumer wants to return the purchased item, that must be possible. Only suppliers (often) do not accept returns, so you must have a small space to receive any profits.
Also, you must make good agreements with the supplier about the warranty. If your products come from a supplier in China, most likely other warranty conditions will apply. Your customer should simply receive a 2-year warranty to which he/she is entitled, according to the European Union.
3. Intellectual property rights
Unfortunately, it often happens that companies still regularly use photos or resources that are not created by themselves. It is forbidden by law to use other people’s media without permission. If you decide to use ‘stolen’ media secretly, you risk high fines. As Charlotte Meinderma says in her article: “In straightforward cases, this can now also be limited to the liquidation rate. In simply simple cases, which it usually is, it can go up to $8000.”
Tip: order the product you want to drop ship yourself and take photos/videos of it. This prevents fines, and you can start selling the product without any worries. This step will indeed cost money because ordering and taking professional photos are not free. Still, it is a much better option than using other people’s material. Better be safe than sorry!
4. No control
Dropshipping may ensure that you do not have logistical worries, but on the other hand, you do not have any / little control. The customer does business with you as a dropshipper and not with the supplier, so you are liable for any problems.
A tip: do not deal with suppliers who have bad reviews or whose products you have not ordered first. You are responsible for the quality of the item and trust that the supplier adheres to the agreed delivery time and quality requirements. If this does not happen, you are responsible and will damage your reputation.
5. Import duties
Additional costs are snag. These can have negative consequences for your dropshipping store. I take China as an example again, where your supplier is located. The model below provides a good picture of the additional costs of importing a product from China.
The annoying consequence of this is that as a drop shipper, you do not pay for these import duties, but your customer. The moment the delivery person comes to the door to deliver the order, the customer is asked to pay the import duties. If the customer refuses to pay, he/she may not receive the order. This is, of course, a very unfavorable situation for you as a drop shipper because it only produces angry customers and a bad reputation.