I heard about drop-shipping for the first time a few months ago, when I stumbled upon an AMAA on Reddit with some guy claiming he was making $100k per month running drop-shipping websites. This guy also apparently verified the information with some mods of the AMAA sub-reddit, and provided a short introductory guide to drop-shipping that he later removed. Lucky me, I also bookmarked the link to the guide when I bookmarked the AMAA, here is the guide he made. The guide includes, at the very end, a list of the companies that he is using for his marketing. Some comments on Hacker News about this AMAA said that this looks like a scam aimed at promoting those companies.
After reading the post on Reddit, I started to look into drop-shipping as a possibility for creating a small business that would generate small but steady revenue. I already explored other options, as documented in a previous blog post about micro-ISVs. Here is what I found and what I think about drop-shipping.
What is drop-shipping
Drop-shipping is simple: you work with wholesalers, and every time you sell a product to a customer, you call your wholesalers, and tell them to ship this product to the address of the customer. The difference between the price you charge the customer and the price you pay the wholesalers is your revenue. I also learned about private label products, which mean that a company packages its own products under your brand, for you to sell in your own shop. This is the ideal solution for a drop-shipping business, as you can sell products under your own brand and grow that brand, instead of just being a proxy for the development of another company’s brand.
The typical internet drop-shipping website is just a product listing page, and connects directly to the inventory of the wholesalers. The main source of traffic is either organic clicks from Google, or paid traffic from AdWords or any other form of online ads. So basically, you have no stocks to manage, the wholesalers takes care of shipping the product for you, and almost everything is on auto-pilot. It’s the perfect middleman business, but maybe too perfect.
Drop-shipping from China
Doing a bit of research, it seems that some people are operating drop-shipping businesses by selling the products on eBay while having them shipped from wholesalers based in China, mainly from Hong Kong. This implies serious issues, as the customers might be subjected to fines and unexpected tax fees if their packages are caught by the customs when crossing the border. In addition, a quick search on Google revealed many forum posts in which people talk about their bad experiences with wholesalers based in China, and how highly unreliable these wholesalers are.
Europe is just not ready
I am currently based in Barcelona, and I thought about finding a wholesaler in Spain or in my home country, France. I didn’t have any product in mind, I just wanted to see what kind of products were offered by wholesalers for drop-ship. So I started to look for wholesalers in France that would provide such a service as drop-shipping, but really couldn’t find much. Talking about it around me in Barcelona, I met people who told me they tried to find wholesalers in Spain that would drop-ship, but in vain. I also searched in the UK, and I did find more wholesalers offering drop-shipping than in France or Spain, but nothing that compares to what is available in the United States. Running a Google search in the United States, I could easily find thousands of wholesalers offering drop-shipping services. It seems that wholesalers in Europe are not ready yet to offer drop-shipping services.
A last option for Europe would be to find some well established wholesalers, and go on-site to explain to them the idea of drop-shipping and see if they would be interested. I might be wrong, but I believe that in France that would be difficult, as most businesses are very conservative. Also, if these wholesalers are not ready for drop-shipping, it might be a complete mess to integrate a website to their inventory system, and in the end, impossible to work with them.
The “get-rich-quick” delusion, all over again?
To be honest, this whole drop-shipping thing seems to be yet another get-rich-quick thing. The idea that by setting up a stupid website, we are going to make $100k a month is really attractive, but very few will make that much money it in the end. Most articles that I have found on the internet completely undermine the amount of work necessary to create a drop-shipping business, and how hard it will be to beat the competition. I would categorize drop-shipping as a delusional business type, along with iPhone apps, micro ISVs, and most startup companies. I am not saying that it’s not possible to make money with any of these business types. I am just trying to make three important statements:
- Looking at the statistics, the percentage of businesses that fail is extremely high, and it would be delusional to think that statistics do not apply to us because we have some special skills that others do not have. Drop-shipping is just a business.
- Just like for any other business, the amount of time, work and energy to put in a drop-shipping website is significant, more significant that what’s being advertised. It would be delusional to think that we will make it in a short time and/or with minimal effort.
- We must not forget to systematically reject the success stories relayed by the business and high-tech media. Those stories typically include teenagers who got rich in under three months with 100 lines of code, and while playing Call of Duty. The stories are true, but those people just got lucky, and their success is therefore not reproducible in a systematic way.
After various searches on Google, I still haven’t found any serious source of information about drop-shipping. All the things I have found look like scam websites, or personal blogs and amateur websites that talk about drop-shipping but seem to never have tried it or succeeded at it (just like my current blog post!). I still find the drop-shipping idea interesting, that is, the absence of stock. In addition, I still believe that it is possible to build a successful website with a drop-ship business model. It would takes time, effort, and a serious amount of luck, but it’s definitely feasible. This is what CandyJapan.com did, though after reading their story, I would argue that it was mostly an accident and they were just lucky.
I think that building a drop-shipping business is not worth it in Europe, as the time invested initially is very likely to be lost due to the fact that the wholesalers are not ready. Finally, there seems to be a lot of scams around drop-shipping, so I would recommend to anyone who wants to try this out to be careful with wholesalers and marketing companies.