Playing middleman is one of the fastest ways to venture into the business world.
It’s relatively easy—buying a product and selling it off with a bit of profit. And with today’s technology, it got even easier—sell a product and the supplier ships it directly to the buyer without going through your hands. How easy could it get, right?
With social media and e-commerce platforms in the picture, the middleman has also evolved and is now known as a dropshipper.
However, dropshipping removes the logistical nightmare of the usual eCommerce business from the equation.
If it used to be that the middleman buys the goods from the supplier and sells it to the buyer, dropshipping places the middleman as merely someone who facilitates the payment. The products go directly from the supplier to the buyer.
And this is where the problem starts in the dropshipping business model.
1. It is cutthroat.
You are not among the first hundred people who have thought of earning a quick buck through dropshipping. I mean, come on!
It is a dog-eat-dog world wherein prices can change with a phone call or supplies suddenly dry up.
A marketing strategy can get ripped off within 5 minutes of posting, since every other competitor is selling pretty much the same, often unbranded, things as you are.
There are instances wherein competitors would pose as buyers and place a bulk order only to cancel it in the end.
2. Extremely slim margins.
While dropshipping gurus have harped on the windfall profits that one can get in this business model, the truth of the matter is: everyone is working around extremely slim profit margins.
The industry is volatile as each dropshipper would opt to drop prices just to close a deal.
3. You have no control.
As a dropshipper, your main goal is to get your target market to place orders through you.
What happens between the placement of the order and the receipt of the order is something that is totally beyond your control.
It is the supplier who does the quality control on the products, select a logistics partner for delivery, and every other step along the chain.
Whether the supplier ships it out on time or not is something that you can only pray about.
As a dropshipper, the products would never go through your hands—you don’t even get to see the actual product before it goes to your buyer.
4. You’re the sole guarantor.
The dropshipping business model is like a ménage à trois involving the buyer, the dropshipper, and the supplier.
As the dropshipper, you have to act as guarantor to the other two, promising quality and delivery of the products to the buyer, and promising payment to the supplier.
In most cases, the dropshipper advances payment to the supplier while the buyer will deposit in escrow — meaning the money is held in trust until the transaction is completed.
Just one of the parties opting out of the transaction puts you in a precarious situation.
Since the dropshipper merely facilitates the order process and payment, there are other factors that aren’t taken into consideration.
For one, delayed shipping of goods, low quality of goods, or plain dissatisfaction of the buyer.
What happens is payment has been made to the supplier but the buyer opts out, putting the dropshipper at a loss with no goods in hand.
Also, good luck getting a refund from the supplier, even in cases when it’s clearly their fault. Reminds you of that toxic relationship, eh?
5. There is no transparency.
One of the pitfalls of the dropshipping model is its lack of transparency.
The end goal of a dropshipper is to get the buyer to place a bulk order and pay.
The dropshipper is just as clueless as the buyer as to the quality of the products or if it was made within reasonable ethical standards.
Despite all its shortcomings, being a middleman is still an essential part of the economy. But if you want to play the role of being one, make sure that safeguards are put in place to protect you and your investment.
After all, a true businessman will not sell a product without vouching for it. At least make sure that the product that you are selling is truly what it says it is.
Business is more than just closing a deal and earning a profit; it is being able to deliver the product that was actually being sold.
Everyone is on the lookout to earn that quick buck. But is it sustainable when you can’t even vouch for the quality of products that you put out there? Is it really worth the risk of getting dropped in the end by unsatisfied customers?
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Featured image from Unsplash.