Can you lose money with dropshipping? Yes, you can lose money with dropshipping. It has its perks, but it’s not without its downsides. Dropshippers might find themselves with some unexpected costs that can create a negative ROI. In this article, we’ll discuss 5 of the most common reasons why you can lose money when dropshipping! And, we will also provide some tips on avoiding these pitfalls and making the most out of your dropshipping business.
I lost around USD2000 with dropshipping. Not all at once, though. Some losses were due to unsuccessful niches, and some were due to bad marketing, bad product pricing, supplier issues, quality issues, unpredictable shipping delays, etc.
But I am not alone; here are some of the answers to the same question on Reddit.
So, what is your takeaway? Should you start dropshipping or not? Wait a minute before you make your decision.
Dropshipping is not bad! After I lost a lot of money trying different ways to do this business, I have identified why people lose money doing dropshipping.
Many dropshippers lose money because they start this business thinking that they can start their own profitable business by opening up an eCommerce store and buying goods from China at wholesale prices for resale. But there is more to it than first meets the eye. It’s important to know what you’re getting into before starting a business like this because not all entrepreneurs end up being successful with it.
So, I have a practical solution for beginners. Why don’t you try starting dropshipping for free? If you do that, you won’t lose money. Without losing a fortune, you can learn from your mistakes and slowly scale up your dropshipping business to a full-time business.
Now, as I have promised, here are the five most common reasons why you can lose money with dropshipping.
5 Ways to Lose Money with Dropshipping and how to avoid them
There are five main ways that you can potentially lose money with dropshipping. Remember, the risk is not zero, but it is relatively low for a business model of this kind.
Unsuccessful dropshipping niches
Every dropshipping business should be built around a niche. You invest your money in shop design, advertisements, branding design and everything based on this niche. But if nobody wants to buy that product, it is going to be an utter failure and you will lose all your hard-earned money.
So, if you are a complete beginner to dropshipping, I would highly recommend selecting an evergreen niche to get started. These best dropshipping niches are already tried and tested, so you are cutting down one reason to lose money with dropshipping.
Of course, evergreen niches can be competitive and less profitable. But I believe it is better to play defensive while you complete your learning curve.
Amazon offers same-day delivery! for FREE!! Yes, anyone can get their 30-day free Amazon Prime trial and they can experience the convenience of online shopping. And, they would love it and get used to it.
But at the same time, if you start dropshipping from China, it can take 2-3 weeks to deliver your orders. So, it can be very common for a customer who ordered a product 2 weeks ago and hasn’t received it to get frustrated. Frustrated customers will ask for a refund. Then you will have to refund the customer and pay for the return as well, it’s likely you will lose money on the transaction.
So, what is the solution, how to avoid losing money with dropshipping due to refund requests?
One thing you can do is always be frank about your delivery time! Do not over-promise. Secondly, you can work on shipping delays to keep the customers happy every with delayed delivery. Also, if you can select dropshipping suppliers who have fulfilment centres in the USA or Europe, you can drastically reduce the shipping times and shipping costs.
In my experience returns is one of the major reasons to lose money with dropshipping. It makes no sense to return an item back to China due to the shipping costs. So, if you get return requests, you will have to anticipate the cost of goods and all other additional fees of that item.
Since everyone is quite used to the concept of “Free returns” they don’t care much before ordering. They buy clothes and shoes without even paying attention to the size charts. I sell pet toys online as one of my dropshipping businesses. And, I can many return requests from those who mistake cat toys for dog toys. It can be unbearable sometimes.
It is not only the customer’s mistake, sometimes Chinese suppliers botch the deliveries by sending different products or low-quality counterfeits. Some suppliers even add different quality products within the same delivery box.
A few things you can do to avoid return requests are to pay attention to the UX/UI design so can avoid “mistakes” when ordering and to select good quality suppliers for dropshipping.
Chargebacks and account suspensions
If PayPal or your payment gateway detects many chargebacks, returns, and refunds from your account, they may suspend your account without letting you access your funds. And, I know dropshippers who lost thousands of dollars in a split second due to account suspensions.
So, try everything you can do to avoid your customers opening a dispute with the payment gateway. Try to avoid returns and refunds by providing outstanding customer service.
Even though we have added marketing as the last on our list of ways to lose money with dropshipping, it can be a really common cause for many beginners. Learning how digital marketing works is time taking. There are a lot of variables that you need to watch for.
For example, you won’t believe this, I have used two ad creatives for one of my recent FB ad campaigns and just by changing the background colour reduces my cost per like from USD0.50 to USD0.02
Likewise, even the tiniest change in ad creative, ad copy and targeting can help you save or lose money when dropshipping. So, it is worth investing in hiring professional freelancers to get things done in the right way.
In conclusion, it is possible to lose money with dropshipping. However, if you do it the right way and have someone on your team that knows what they are doing – then you will be able to keep a lot of potential losses at bay. This blog post has shared five reasons why people can lose money when dropshipping and how these problems could be avoided.