Dropshipping, a business model where the retailer doesn’t hold any inventory but instead fulfills orders by purchasing from a third party, has long been praised for its potential to generate passive income.
It’s a low-risk means for entrepreneurs to start an online store with little upfront investment. It’s an attractive way to get an ecommerce business off the ground with limited capital investment, and as a result, many have been drawn to its low barriers to entry.
Despite its advantages and the attraction of startups in recent years, dropshipping doesn’t offer a foolproof way of growing a new business. While there is no official rate, industry experts estimated that only between 10% and 20% of dropshipping businesses succeed.
While it might seem simple, there is no doubt that dropshipping has its difficulties. In reality, it presents numerous challenges, especially as we move into 2024.
In today’s post, we take a look at seven reasons why successfully running a dropshipping store is hard in 2024.
1. Increased Competition
To start, it’s a competitive environment. The dropshipping landscape has become more saturated than ever. As we already mentioned, it offers a low-risk means for entrepreneurs to make money. With thousands of new entrepreneurs entering the market every year though, finding profitable niches is no longer as easy as it once was.
Many niches are crowded, making it difficult to stand out. Profitable product categories are dominated by established sellers with extensive experience in marketing and sales.
In such a competitive market when having a viable business model is key, thorough research is vital. Using dropshipping research tools like Koala Inspector, which provides insights into competitors’ Shopify stores, is becoming essential for those entering the game. Koala Inspector helps entrepreneurs uncover valuable data on top-performing products, traffic, and suppliers, giving them a competitive edge.
However, even with the best tools, the sheer volume of competition makes it challenging to carve out a profitable niche. The best weapon you’ll have in this regard is data and research.
2. Cost of Dropshipping
While dropshipping is often marketed as a low-cost business model, the reality is that scaling it into a full-time venture takes significant investment.
Many beginners underestimate the costs involved, and as a business grows, so do its expenses. Beyond purchasing inventory, entrepreneurs need to invest in website design, product photography, paid advertising, and customer support systems. These all come at a cost. To try to run a dropshipping business without having these systems in place and the assets to run them, would be a significant challenge.
Advertising costs, particularly on platforms like Facebook and Google, have risen dramatically, with many dropshippers reporting that ad costs have increased by 15% to 30% over the past few years. Without a healthy advertising budget, it becomes difficult to attract consistent traffic, leading to lower sales and profits.
There are also hidden fees, such as transaction fees from payment gateways, which add up quickly and eat into already thin margins.
While it’s possible to start for free, scaling a dropshipping store requires careful financial planning and often a substantial initial investment.
3. Finding a Reliable Supplier
One of the biggest challenges in dropshipping is finding a trustworthy supplier.
A reliable supplier can make or break a business and many entrepreneurs find it difficult to tackle this important component of a startup. Those starting out in this space face difficulties in ensuring product quality, timely shipments, and inventory availability, especially when working with suppliers in countries like China.
In the dropshipping model, you most often don’t have direct control over your supplier’s inventory or shipping processes. This can lead to issues such as long delivery times, incorrect orders, and product defects, all of which impact customer satisfaction. With customer reviews playing such an important part of marketing today, this can have a significantly detrimental impact on a brand’s credibility.
Establishing a strong relationship with a supplier is critical, but it’s also time-consuming and takes constant vetting. In 2024, with customer expectations rising, these supply chain issues can seriously harm a dropshipping business.
4. Thin Profit Margins
Despite the low barriers to entry, a dropshipping store operates on razor-thin profit margins. Depending on who you ask, the average profit margin in this business model ranges from 10% to 30%, which is relatively low compared to other ecommerce models like wholesale or private labeling, which can yield up to 50% margins.
High-ticket dropshipping—selling more expensive items—does offer higher potential profit but comes with increased risks. It requires a more significant upfront investment, longer sales cycles, and greater customer service efforts. Returns and chargebacks can further reduce profit, especially with high-ticket items, which tend to have higher refund rates.
Many dropshippers find it difficult to maintain profitability as rising costs in advertising, shipping, and supplier prices continue to squeeze margins. Maximizing profits requires careful pricing strategies, upselling, and consistently finding high-demand, low-cost products—no easy feat in a crowded market.
5. Regulatory and Legal Issues
Then there are the regulatory and legal issues that surround dropshipping.
Different countries have different tax laws, product safety regulations, and import restrictions, making it tricky for international dropshippers to stay compliant. For instance, selling products in Europe might require compliance with specific environmental and safety regulations, while the U.S. imposes its own sets of standards, especially for certain product categories like electronics or toys.
Dropshippers who don’t comply with these laws risk heavy fines or having their online stores shut down. Also, many countries are cracking down on dropshipping due to customer complaints about fraud and poor service, adding another layer of risk for entrepreneurs.
You only have to do a quick Google search to find a plethora of press articles that talk about this issue.
6. Rising Customer Expectations
Customer expectations have never been higher, and in 2024, they continue to rise.
Consumers now expect fast, reliable shipping, often within 2 to 3 days, even for international orders. They also demand easy returns, transparent communication, and excellent customer service. With giants like Amazon offering next-day or same-day delivery, customers are less forgiving when dropshipping businesses fail to meet these high standards. Unfortunately, the bar has been set and if you want to succeed in this space, you had better know what you are up against.
According to surveys, around 90% of customers are less likely to buy from a brand again after experiencing poor service or shipping delays. This means that one bad experience can result in lost customers and negative reviews, which can damage the reputation of a dropshipping business.
Meeting these expectations often requires working with more expensive suppliers or investing in faster, costlier shipping methods, both of which impact profit margins.
Don’t ever underestimate the power of a negative review.
7. Difficulty Scaling
Scaling a dropshipping business is often more complicated than it appears. While automation tools and software can help streamline operations, they can’t solve every problem. Managing multiple suppliers, dealing with customer complaints, and handling logistics become increasingly complex as a business grows, especially in 2024.
We already mentioned how advertising costs rise as a business scales. The reality is that attracting new customers becomes more expensive. Paid advertising, a primary source of traffic for many dropshipping stores, takes continual investment. It’s not only about the money you spend on the actual advertising but also the team behind the scenes who has to know exactly what they are doing.
Dropshippers also have to invest in building a brand and developing customer loyalty—both key for scaling but time-consuming and costly.
Managing inventory across several suppliers is another challenge. As you scale, you might find that your supplier can’t keep up with demand, leading to stock shortages or delays. This is a major red flag.
These factors make scaling a dropshipping business much more difficult than many realize.
Final Thoughts: Tips for New Dropshippers in 2024
Despite the challenges, it’s still possible to succeed in dropshipping in 2024 with the right strategies, mindset, and partners. New dropshippers should focus on niche markets with less competition and invest time in finding reliable suppliers and make sure that they have the research and data to enable them to make calculated and low-risk decisions.
The biggest tip we can offer is that you arm yourself with data.
That’s what we do at Koala Inspector. We’ve helped thousands of businesses reduce their risk and make informed decisions, all thanks to competitive insights and analysis.
Try Koala Inspector for free to take your dropping venture to the next level.
