Thanks for joining us on the Launch Commerce Ultimate eCommerce Blog. In this article, we’re going to discuss 9 Reasons Why Dropshipping from China is a Bad Idea.
As promised, these two posts are the only two posts that will ever be on the Ultimate eCommerce blog talking about dropshipping from China.
But we wanted to give people the truth about this flawed eCommerce business model. And in fact, we have 9 reasons as such to cover in today’s episode so we’ll jump right into it.
1. Too Much Competition
I’ll be the first to tell you to never to be afraid of competition. In fact, competition means that you are in a healthy industry and you actually WANT competition in your industry.
But that is when you have something of your own and are able to control your own fate with a superior product or service or something that you can’t have when you’re shipping someone else’s products from China.
I’ve already discussed this one quite a bit with the examples in the previous post – so if you haven’t yet read that one I would recommend you stop reading right here and check out the previous post on Why Starting a Dropshipping Business is a Waste of Time. This is part two of a two part series and catching only the second half is like showing up 45 minutes late to a new movie.
As I explained in the previous article, competition is a big negative when it comes to dropshipping because of the absurd numbers involved. There is no cap on the number of sellers, there is no enforced MAP (minimum advertised price), and there is really just nothing to protect you and your business.
In fact, I just read an email sent out by Oberlo to their entire mailing list. The email was titled “Best Dropshipping Products to Sell in Spring 2018”.
Yes, Oberlo – which is owned by Shopify – sent an email to the thousands of people on their mailing list, AND posted on their site blog, a list of the best products to sell on your eCommerce store right now.
How do ya think that is going to work out for those people who follow that advice?
Of course, if you want to jump on the bandwagon of bamboo sunglasses, hideous anchor bracelets, or LED pet collars, you probably have that entire niche market all to yourself.
Just you and the other 50,000 people that opened that same email.
Grab your popcorn and watch the race to the bottom begin!
Ooh… Don’t forget the ever-popular yoga pants on the list too, because who didn’t come across 5,000 terrible yoga pant stores last holiday season? Don’t get me wrong, yoga pants are a hot industry. People like comfort and ladies enjoy yoga pants.
If you are thinking about starting your own brand that sells Yoga pants and are going to be the next Lulu, then go for it. I’ll be here to help you every step of the way.
But selling the exact same poor quality yoga pants that all those other people are trying to hustle? Don’t waste your time.
The kicker in the whole thing that really makes me laugh is that Oberlo not only gives you the product, but they give you the EXACT Facebook targeting that you should use with screenshots.
So when you’re selling your bamboo sunglasses that Oberlo is telling everyone to push, be sure to target 18 to 65-year-old people, in the U.S. who like Maui Jim.
Along with all of the other people doing the exact same ad targeting, you’ll spend so much money on advertising that maybe you’ll forget all about why dropshipping is a terrible idea and instead be ticked off at how expensive it is to advertise on Facebook these days and how you aren’t getting any results.
2. The Tools Are Intentionally Misleading
Now, I don’t like to go around calling things a scam for no good reason, and even in this case I’m only going to say “intentionally misleading”.
And I would never call something out unless I’ve actually witnessed it myself. I believe there are many products that do basically the same thing, but one of them is called eCOMHUNT.
Now, I mentioned this site in our last episode and said there would be more on the topic later, so here it is. Sites like this are membership sites that dropshippers join to identify the hottest, latest and greatest new trinkets being offered by AliExpress, along with everything you may ever need to know to make your money in eCommerce!
Here you see in the first screen grab, it is literally the first product in the results page of ECOMHUNT (because you don’t have to look hard to find examples of what I’m referring to).
It is a product called “Grip & Flip Tongs”, which is funny to me because in the last episode I was referring to useless kitchen items and this product seems to fit perfectly with that theme.
But I digress… anyway, the ECOMHUNT page shows that this product will cost you $6.99 and that you can set the selling price to be $22.99, which I guess is some number pulled from thin air because there is no way anyone would ever pay that much for this item.
But the page also has a profit margin calculation right there on the page that says $16.00 as your profit.
It also calculates your cost per conversion is between $2-$4, which again… there is no way that is accurate even if you were to get a 3% conversion rate considering the average cost per click on a Facebook ad is 2-3 times more than the $.07 to $.12 you would need for their numbers to work.
The site also tells you to target U.S. residents aged 18-65, either gender, with interests in Buzzfeed Food.
So you and everyone else knows exactly how to target this product, and I know that I better never click the Like button on anything from Buzzfeed Food.
Anyway, clicking on the link to the AliExpress page for this product shows that today the product only actually costs $6.80! It’s my lucky day, except tomorrow it very well might cost $9 and there is nothing I can do about it.
Oh, and it will be here in a speedy 12 – 20 days.
After a quick Google search for the phrase Grip & Flip Tongs, I quickly find some wonderful dropshippers offering this very product.
The first site I see is called ExpressDen, which is funny because items arrive at a timeline that is opposite from Express anything. This is a poorly designed website that tells me that this product is actually $40, but if I hurry and order one of the last 2 products, I can get it for the bargain price of $24.95.
The product description and images are exactly the same as on AliExpress.com, and it contains my favorite line – Items “May Take 15-30 Days To Arrive Due To High Demand”. Nothing bothers me more than an eCommerce site treating customers like idiots and lying to them.
15-30 days has ABSOLUTELY NOTHING to do with demand. But if you want to call me an idiot, I’ll be sure never to shop on your terrible site ever.
The next option from Google sends me to a site called Joopzy.com, which is somehow way, way worse than the last site and might be one of the worst looking ecommerce sites ever created.
No offense if the owner of that site is reading this, but if so, yikes… your store is terrible in so, so many ways. But on the bright side, this item that is “regularly” $39.99 is on sale for only $19.99 today!
Hey… wait a minute. ECOMHUNT says I can sell it for $22.99!
But alas, if you look in the bottom left corner of that image, you see that this site is also using that terrible app by Beeketing that allows people to lie to customers by popping up little overlays that try to convince you that Oscar in Orlando Florida just bought some other product.
No, Oscar did not.
Because even if there was an Oscar in Orlando, there is no way he is breaking out a credit card for a site this bad. I don’t even know Oscar, but I can be certain he’s not an idiot.
Don’t treat your customers like they are stupid. Enough of this nonsense already.
Besides, maybe with a nicer and more honest site, you can get that ECOMHUNT $22.99 price to work for you.
The third result on Google offering this product is called Bocs.co, and it is the most professional looking site of the three so far, by a lot. So here is where the $22.99 comes into play right?
There, the regular price of this item is $34.99 and you can get it for only… $15.99. What’s the deal with that $22.99? Well, we have a new leader in the race to the bottom.
Let’s just take a look at the first Ebay paid search result listing on the Google page. And… interesting. Here is the exact same product for only $9.19 – with FREE SHIPPING.
And it tells you right there that this is shipping from Shenzhen China and might take a few weeks. Honesty is comforting, and I almost would not mind the wait if I am being told the real reason for it from the beginning. But that $22.99… what’s the deal there?
Ok, we’ll give it one more shot, another Ebay listing for the same product. And there it is, listed at… $6.99. WITH FREE SHIPPING, shipping from Shenzhen, China.
It seems the factory would prefer to sell this product directly to U.S. consumers, and by going directly, they can sell it for less than you can get it on AliExpress yourself!
I think we have a winner in the race to the bottom!
Anyone interested in playing this game? Seriously… how can anyone think this is a good business model?
And how a site like ECOMHUNT can charge people $20/month for such misleading and harmful information is just so frustrating for me to see. It’s sad really.
But even if that wasn’t enough to convince you how bad of a model this is for a business, we still have 7 more reasons to go!
3. It’s a Terrible Customer Experience
The only thing worse than a dropshipping site that buries the phrase “please allow 2-3 weeks for delivery” somewhere in their fine print is the dropshipping site that doesn’t even bother telling a customer that the wait will be that long.
Actually, maybe the people like I just mentioned are worse, when they lie to their customers in an effort to trick them. That’s pretty low actually.
Seriously, don’t do that. Don’t ever do that.
The goal is to build a lifetime customer, not a one time customer. Followup sales are going to be your least expensive sales, and if you treat customers poorly, they won’t ever come back.
But back to shipping, now in the era of Amazon Prime and 2 day delivery everywhere you look, dropshippers and those pushing dropshipping actually try to convince you that customers would be ok waiting 2-3 weeks to get their product, and on top of that, they are probably already a bit skeptical about the order to begin with.
Even if the customer is ok with it, it’s a terrible customer experience and you aren’t likely going to wow them into being a future customer with you again.
On top of that, most customers will either not see the shipping terms on the site, or will forget about them – and inevitably will reach out to ask about their order status. So your customer service time investment will be significantly higher than someone not dropshipping.
Many of those customers will be unhappy, and some will leave you a negative review based on shipping time alone, or perhaps ask for a refund on a product.
Worse case scenario, they don’t bother telling you they are mad at all, and simply file a chargeback with their bank where your payment processor takes the money to give back to the customer PLUS a chargeback fee of $15 (if using Shopify payments) or more.
That the big reason why technically this dropshipping business model is against the terms of service for payment processors such as Paypal and Stripe.
And if you aren’t worried about that because you are using Shopify payments, well, maybe you should know that Shopify Payments actually is run on Stripe.
4. It’s a Terrible Shopping Experience
I get many people with dropshipping sites that reach out to me to help them fix their business. And I feel bad for these people, but many of these sites are really poorly designed and built on free themes they downloaded from Shopify.
A common theme among dropshippers is that they often don’t want to spend any money on anything. So they go with a free theme they can download, and their site looks terrible.
I’ll be the first to tell you that often times in life, you get what you pay for.
Maybe you don’t want to spend $350 to buy what is hands down the best Shopify Theme (called Turbo, from a company called Out of the Sandbox) – and really there isn’t a close second. I can tell you that this theme pays for itself over and over and over again.
I will also tell you that almost all of the free themes available on Shopify are flat out terrible and should never be used.
I’ve installed dozens of themes, including virtually all of the free ones – and there are maybe 2 or 3 that would even be usable on a normal eCommerce store.
Oh, and if you do decide to buy Turbo, send me a tweet to let me know (@JoeRozsa) and I can probably save some money for you when buying a license.
Another thing with these sites, one of the biggest mistakes that almost all dropshippers do on their sites is to use the product photos and descriptions provided by the supplier.
Most of these images are just horrible… terribly unprofessional… and by using them, it makes your site very unprofessional as well.
Not to mention, these people are using the EXACT same images that the hundreds of other people are using when they try to sell the exact same product on their site.
When one seller is selling products from different manufacturers, the style from the images is all over the place, and they clash and form a horribly inconsistent appearance that just screams “this is not a legitimate business”.
Similarly, product descriptions intended for U.S. customers written by non-native English speakers will often not strike the right message that will make the customer want to buy.
But many dropshippers don’t actually spend the time to write their own descriptions so they just let it go.
Here are a couple of extreme examples I’ve come across. One for a product whose description was “Sexy Lingerie for Fat Women” and “Denim Pants for Chubby Boy”. Tell me that those wouldn’t make you whip out your credit card to buy!
5. No Control Over Pricing
As someone who makes multiple trips to China each year to meet with my factories and to attend product sourcing events such as Canton Fair, I can tell you that pricing for products is really all over the place.
And I will tell you that if I wanted to sell these products that I can get better pricing just by attending these events, than ANY listing on AliExpress offers for the exact same product.
Price negotiating is not only common, but it is expected.
But there is no negotiating on a dropship site. So while you are getting your product for one price on AliExpress, know that someone like me who travels to China on a regular basis can get that same product at a much lower cost than you can.
Want to race to the bottom with someone who has a price advantage?
When you use AliExpress, you pay the price that is listed and you have NO control over what that price may be tomorrow. So you’re really going to invest your time in a business where you have ZERO cost certainty on the products you’re selling?
If it is, in fact, a “hot product”, the laws of supply and demand could make that manufacturer raise their process while you sleep to a point high enough to immediately put you out of the market. You might wake up tomorrow and find that you are no longer profitable and need to close shop.
That CAN happen and that WILL happen. Would anyone really want to build a business on a model where they have no say at all in regards to product pricing?
Not someone with smart business sense, that is for sure.
6. No Control Over Product Quality
Makeup and beauty related products were a very hot item for the dropshipping industry last past holiday season. From Kylie Cosmetics to ColourPop.com, there are billions of dollars in sales of beauty products on Shopify sites right now.
Because of this popularity, there were thousands of beauty related dropshipping sites that popped up in the past year, finding their products from AliExpress or Oberlo to quickly and inexpensively populate a storefront with many products to sell to their customers.
Of course, it was big news when many of these beauty products that were shipped from China and intended for online customers but were instead caught in customs due to having lead and asbestos content that was 15x the legal levels.
Let me repeat that so that it sinks in – the products contained lead and asbestos that were 15 TIMES THE LEGAL LEVELS.
Many customers who purchased these products whose shipments weren’t caught actually suffered from eye infections and facial burns from the unsafe chemical contents included in these products.
Now let me ask you this… Do you think a customer cares where the product originated, or do you think they are going to remember – and potentially file litigation against – the retailer that sold them the unsafe product?
Dropshippers are at a disturbingly high risk – legal and otherwise – for selling products that are either counterfeit, unlicensed or contain dangerous materials. Most aren’t even aware of what they are doing.
Considering most dropshippers never actually order any of the products they sell for themselves, they literally have no idea the quality of what they are selling – with their name attached.
With returns being very expensive / impossible, it is so very important for an eCommerce store owner to know EXACTLY what type of quality they are selling.
The best and ONLY way to do that is to sell YOUR OWN product, made to YOUR OWN specifications, and if applicable, with your ingredients tested by an independent group to make sure they pass all consumer safety testing.
7. No Control Over Shipping Method
Right now, there is something called an ePacket which allows items to be shipped from China and Hong Kong to the United States and other countries at a very affordable price.
In fact, the agreement with the United States Postal Service allows a package to be shipped from China via USPS First Class Mail – with end to end tracking and delivery confirmation – for just a few dollars.
As long as the package is 4.4 pounds or lighter, and is a 24″x36″ box or smaller, it can be shipped to New York from Shanghai for less than it costs to ship the same package to New York from Savannah, Georgia. This is because these packages are subsidized by the USPS.
If you were to receive one of these packages from China, it would likely cost you over TEN TIMES more money to ship it back than the shipper in China spent to get it to you.
So if you receive a return from a customer, you are more than welcome to ship it back to your supplier in China, and they will probably give you a refund on your purchase.
But spending that amount of money to ship it back to them probably makes it not a good investment to even bother with the effort.
But yes, the ePacket is really the only reason that dropshipping from China exists in the first place.
And considering today’s political climate in the U.S., it could be only a matter of time before this type of shipping agreement is in the crosshairs of the trade conversations between the U.S. and China.
And really, there isn’t really any good reason why these shipments from China should be subsidized in the first place.
I think that the entire dropshipping industry could be a presidential tweet away from being crippled, and regardless of your political beliefs, you have to be prepared for the chance that a change in ePacket pricing could end your business, and really all dropshipping of products directly from China.
But that is ok with the manufacturers in China because of…
8. The Manufacturers Do Not Actually Need You
In case you think I am the only one thinking that the ePacket gravy train could be ending in the not so distant future, you should know that most of the manufacturers and factories in China are already planning their next strategic move. And a big part of that move is that they will no longer need dropshipping sites to get in the middle of their business.
Over 25% of all Amazon merchants already are Chinese businesses – not dropshippers but the suppliers themselves – and that number is growing more and more as these businesses figure out and improve their logistic requirements.
I work with many factories in China myself that have approached me to help them pursue fulfillment opportunities here in the U.S. so that they can sell products from within the United State directly to American customers.
And when I say directly, I mean that they do not need dropshippers getting in the middle of it, taking part of their profits as they are positioning themselves to own the entire piece of the pie.
So no, the Chinese manufacturers do not need your dropshipping business.
Which brings us to the 9th and final reason why dropshipping from China is a bad idea.
9. Nobody Needs Your Business
The end game for most of us in eCommerce is to start a business, grow it profitably and sustainably, and eventually sell it. And maybe some of us like to do that same thing over and over again – surely that’s not just me, right?
Maybe you just want to sell it for millions of dollars and move to some secluded beach house on an island in the Caribbean. Well, if your business is a dropship site selling from China, that isn’t likely to happen.
eCommerce businesses are bought and sold all the time. I even help connect people looking to buy them with people looking to sell them. A solid rule of thumb is that you can expect to sell an online business for roughly a 1.2x to 1.8x earnings multiple.
Now there are many factors that go into business valuation, and that will be shared in a future post, but I can tell you that there is no way that you would ever get a valuation near that for a dropshipping site using AliExpress or Oberlo.
If you have a site like that and someone gives you an offer of even 1.2x, your only question should be “where do I sign?”.
Personally, I’ve been involved in buying and selling eCommerce businesses for many years, almost as long as I’ve been in eCommerce altogether – and I can honestly tell you what I would pay for a successful AliExpress dropshipping site.
In fact, if you have one, I will make you an offer right now.
I will give you 0.0x earnings multiple for your site right now. And that is a final offer – take it or leave it.
That’s right, I would not pay a dime to acquire one of these sites.
They aren’t worth the time to take on, as they are not sustainable in the long-term, and they are a house of cards waiting to come crashing down to nothing. Many people who look to acquire businesses feel the same way, and dropshipping businesses are the most difficult to find a buyer for these days.
I talk with lots of brokers on a regular basis trying to sell these sites, and people who try to build them will often try to flip them to some unsuspecting buyer who doesn’t know any better.
It’s very unfortunate when people invest their hard earned money into such a business, without knowing any better. I’ve known many people who have done this and all I can do is hand them a tissue for their tears and offer to buy them a beer to listen to them complain.
If only they had read this two-part series before making their investment, maybe it would have saved them a lot of money and time. Both of which they could have spent building a real, sustainable eCommerce business that would be building a real value right now.
Unfortunately, there are plenty of people who will still fall for the snake oil of a dropshipping business, thinking that they can take a shot at success since there is no financial investment required.
I hope that you listen to me – as someone who has been in eCommerce for over 20 years and has actually worked at real eCommerce businesses and had success building global brands with hundreds of millions of dollars in revenue.
Realize that your time IS a financial investment, as every hour you spend does have a dollar amount associated with it. And while you feel like you maybe have more time than dollars available, just remember that you can always make more dollars.
You only have so many hours and you can’t make more of them. So use them wisely.
There are plenty of models that can still be done for low or no cost. Building a Print on Demand brand like we’re doing with our Ultimate eCommerce OG group is one of those ways.
Affiliate marketing is another great way to get involved and learn the business, and it is essentially the exact same thing as dropshipping without any of the negatives listed above.
But whatever you do, don’t buy into the dropshipping from China nonsense. It’s not worth the risk, and nearly all of these people who try will fail. You are better than that, and you deserve better for your future. Now let’s launch something real.