Is Dropshipping A Sustainable Business Model?
Dropshipping is a fast-moving and quick profit-making business model, but to scale it to further and to achieve new heights with an end goal of a long-lasting business will require the right steps for you to take.
With the combination of building a brand, lowering product acquisition costs, and effectively using online advertising and marketing techniques, you can create a sustainable business with dropshipping.
A study of French-based drop shippers concluded that 73% of drop shippers earned between 100 and 500 euros.
And people who were planning to open a store hope to earn between 1 000 and 5 000 euros.
So we can see that most drop shippers can’t scale into a sustainable business using the model without significant effort.
In this article, we will learn these steps to grow and scale a dropshipping business into a sustainable business while building a strong brand.
We will assume that you have already dabbled, for example, with Shopify dropshipping, or achieved success with the model, so these steps will not explain how to start with it.
But now, let’s look at the steps you can take to ensure your dropshipping business is scalable and you can grow it into a sustainable business.
A strong brand is key to running any successful business, and a dropshipping business is not an exception to this rule.
While you could be making millions upon millions of revenue through effective advertising based sales funnels, the exercises of brand building are what differentiates a business from a hustle.
A well-planned and consistent brand can achieve more with less. A consistent brand could mean lowering ad costs, or as you are more renowned, it may reduce your product acquisition costs.
But most importantly, a brand is memorable and has intrinsic value. While strong sales funnels might make more profits for you than building a brand, it increases the chances of long-term success.
For example, you build a dropshipping business worth $10K a month, which is nice, but not significant in the grand scheme.
Then you would have issues in product sourcing, which would lead to either increased costs or even completely wipe your business out.
Dropshipping business relies heavily on how you source your products for sale, and any hiccups can have drastic effects.
But with a strong brand, you can withstand these momentary hiccups more efficiently, as customers wouldn’t go away instantly, something goes wrong.
And the benefit of building a brand for dropshipping business is clear. You won’t have to always start anew with different product lines or even new brands all the time.
As the money spent on advertising collectively increases your brand over time, losing that investment every time and starting from the bottom will lower your chances of success.
But of course, you will need to have a clear and strong brand from the get-go, and taking the time to build that is crucial.
Scaling without a strong brand will lead problems sooner than later.
The Control Of Supply Chains
As we already explained how supply chains could make or break a dropshipping business, let’s see it in more detail.
The beauty of the dropshipping business model is the speed at which you can create new brands, with product lines that have established supply chains and offer it to the masses in an almost instant fashion.
That is also its biggest weakness in building a long-lasting business.
As the speed allows you to source the trendiest and coolest product ideas, the rate also means they can vanish as fast too.
If you’re looking to build a lasting brand for dropshipping, you will need to carefully see how you can control products’ supply chains and how they fit your overall brand.
While technically, you can quickly find products for sale online, your competitors may choose to compete in the trendiest products.
But if you were to take the time, and make sure your supplier has
- A scalable inventory
- Wide range of products that match your brand
- Offers a discount on scale
- Is a trustworthy business that you can completely trust
One core tip is to even if you follow trends, follow trends within an industry and build relationships within said industry with suppliers and manufacturers.
Changing your supplier every time you have a product idea limits your dropshipping business’s scalability by a large margin.
There’s a reason why the suppliers for dropshipping businesses are the real winners of this business model, as they can achieve economies of scale having more partners to sell for them.
The key is to develop a supply chain that can scale as you scale to maintain profitability and the quality of your brand.
Maintain Customer Satisfaction
One customer’s negative experience can snowball into a significant problem to the whole business if not handled correctly and quickly.
Due to the virality on which dropshipping marketing methods rely on, negative experiences can also go viral to damage the online store and brand further.
Managing customer satisfaction and maintaining high-level customer support at scale is one of the bigger issues dropshipping businesses face, especially at scale or when they achieve higher growth rates than previously thought.
And the other issues the entrepreneurs may face is a high-return rate of products from negative customer experiences or faulty products.
While scaling through profitably through advertising that achieves a high return on ad spend (ROAS) quickly might be a solid reason for running a dropshipping business. That fast growth rate also may lead to unnoticed problems in your management of customer support and ensuring product quality is top-notch.
Let’s Take A Product Sales Cycle Into Questioning
You have a product that takes, on average, three weeks from purchase to arrival at your customer. And in those three weeks, you scale your advertising because you found a profitable marketing channel that would continuously produce results.
Let’s say you achieve 1 000 sales in those first three weeks at a revenue of $30 per product sold. And you spend $12.5 for each sale from advertising, and the product costs you $5.
Your total cost would be $17.5 per product sold. And in this case, you would make $12 500 in the first three weeks.
But you realize after the first three weeks that 50% of customers would return their orders due to faulty products or false advertisement.
Meaning your real profit would go down to zero.
We didn’t even consider shipping prices, transaction fees, and lackluster return policies with suppliers that may have an impact on your bottom line.
But a case like that is easy enough to spot, as you won’t have any money left to run the business.
Usually, what happens, is that return rates, customer satisfaction, and product quality decrease over time and rarely in one instance. Hence, it’s critical to understand the steps of customer support and sourcing of products.
This example shows how customer support and engaging with customers frequently can and will increase profits directly and later on through repeat purchases or increasing brand value.
Re-engagement And Investing In Retargeting Ads
Re-engagement is crucial for building a business with dropshipping. As useful as online advertising methods is to acquire new customers at an increasing rate, the power re-engaging is quite clear to the bottom line.
Simply put, you will eventually run out of profitable audiences within your target audiences if you’re not investing heavily in retargeting measures.
And even at the largest of scales, you might be, still reacquiring customers is cheaper per acquisition than a new customer.
All comes down to lowering your customer acquisition costs to as low as possible.
Remarketing is only one of the methods to re-engage audiences.
It would be best to have a solid retargeting strategy in the most crucial content distribution channels you use for marketing.
For example, you discovered that the combination of Facebook Ads and Google ads produces the most sales while maintaining quality at a high level.
Then you should invest heavily even into retargeting advertising to increase the number of times your customers see your brand.
Luckily retargeting advertising, in most online ad platforms, is reasonably simple, and your biggest hurdle will be what would be the best way to re-engage with customers with different stages of sales funnels, tastes, and interest.
Learn more about Facebook Ads and social media marketing or Google ads.
Development Of Business And Not Just New Product Ideas
Business development in a dropshipping is more than just discovering new product ideas or new advertising angles to test.
You need to understand every element that makes it into a business as a whole.
While new advertising methods and new products are crucial, without investing time and resources into developing the business, the brand, or overall online marketing mix, your chances of long-term success will diminish greatly.
It’s hard to strategize and optimize a business when it’s reaching its max sales potential at a time when everything is right, and you hardly see any underlying issues.
Therefore, it’s an excellent tip to take time and step back to think about your business in other terms or perspectives.
Only through digging deep into your overarching business model will you discover the optimization opportunities that you might not have seen at first glance after succeeding a bit.
Always consider the things that you could improve today or something to improve in the future. And remember to align your goals with your business development strategy.
Invest In Content Marketing
With content marketing, companies can elevate their brands, lower the cost of acquisition, and build authority within an industry.
Content marketing in dropshipping will utilize their online stores and social media profiles for content distribution as an online business.
There are many strategies that you can use content marketing to improve performance.
For example, if you want to increase organic traffic to your online store, proper use of ecommerce SEO strategies will be crucial for you.
And say your video marketing has a solid foundation because you used video ads on say Facebook ads, then using those video ads as base your YouTube strategy could be beneficial.
But the core benefit of content marketing in dropshipping is the lowering of the cost of acquisition through gaining cheaper sources of traffic to your product landing pages.
SEO or organic social media traffic takes what could seem like an eternity to see results compared to paid ads that generate traffic and results almost instantly.
But brands are not built in a week, and content marketing is a method of ensuring that your future business also holds firm when you can’t advertise as powerfully.
Bring CAC Down At All Cost
As we already talked about customer acquisition costs (CAC) a bit in the article, we want to emphasize it slightly.
While it may seem obvious that lowering the cost of acquisition is beneficial for dropshipping businesses, you need to make it into the core and guiding goal for every business strategy you try.
The lower CAC you can achieve through testing, the better the chances of succeeding you have.
CAC’s are not stable, and through time even the most profitable methods of today won’t work tomorrow. That means that you will have to test new ways regularly to keep developing the business and achieve lower CAC.
For example, a profitable influencer marketing campaign will have varying performance due to influencers’ types and audiences.
Learn Your Target Audience Thoroughly
To make a dropshipping business successful, you need to collect, analyze, and follow through data-driven decisions with web analytics.
The use of data can help you discover the most profitable audiences for your business.
For example, understanding the audiences with the highest lifetime values and optimizing everything (like marketing and product trends) for them is a sure way to maintain business success.
As an online business model, dropshipping has many opportunities to learn and discover their target audiences.
For example, you can use your advertising data to pinpoint your audiences, like from Facebook Analytics and through the use of Facebook Pixel and the way it optimized campaigns in the past.
Or using Google analytics and the right goals to track user behavior to see what works to whom.
You can also expand the knowledge and understand how your target audience searches for something through keyword research or looking at your industry trends through Google Trends.
Depending on the platforms you use for selling products, their analytics tools can also be beneficial. Such as Shopify Analytics from Shopify.
Learn the benefits of using Shopify for dropshipping.
The better data you have from your customers and potential customers, the easier and cheaper it gets to market your brand and its products.
These were the eight ways to grow a dropshipping business and scale it sustainably so that you will have a long-lasting and profitable business in the future.
The core takeaways here is to
- Invest in branding and customer support
- Increase management of product distribution
- Test new marketing channels to achieve a lower CAC
- Keep testing all aspects of your business
- Always grow through re-engagement when possible
- And use data for decisions you have to make.