An Expert Guide on Overcoming Dropshipping Challenges (2024)

Dropshipping may be a low-risk business model, but it’s challenging. For one, dropshippers have no control over key aspects like product quality, shipping, and delivery timeframes. Sudden increases in supplier costs further compound these dropshipping challenges.

Since dropshipping businesses only have a 10% to 20% success rate, you need a plan to tackle these challenges head-on- one that can help you deliver a quality customer experience and generate sustainable growth.

In this blog post, we’ll discuss the key challenges of dropshipping and suggest ways to overcome them.

Table of Contents

Key Takeaways

Dropshippers may not directly control product quality; however, agreeing on minimum quality standards with suppliers and adding them to your contract document can make them more cognizant.
When evaluating suppliers, consider their quality certifications, licenses, and track records.
Integrate your order management system with your supplier for real-time shipping and delivery updates.
Maintain an updated FAQ page on your website with relevant terms and conditions as a self-service customer support option. Use an email autoresponder to advise customers of your standard response time.
Invest in building a brand to differentiate yourself from the competition. Diversify your marketing funnel with email marketing, content marketing, etc.

Understanding Dropshipping Challenges

The dropshipping business model outsources inventory, fulfillment, and returns management. This means that you cannot always guarantee a smooth customer experience.

Some short-term and long-term consequences arising from it include the following listed below.

High return rates

Dropshipping return rates can be as high as 40%, depending on the product category. If suppliers don’t provide real-time updates on processing, shipping, and delivery timeframes, you can’t give customers an estimated arrival time. If orders arrive too late, customers may no longer want them.

There’s a good chance they might leave negative reviews. You can cover return shipping costs as a goodwill gesture. However, that’ll eat into your profits.

Inventory management

Stock unavailability is a nightmare for any business, especially so for dropshippers. You cannot know if a supplier has enough inventory to meet unexpected spikes in demand. Depending on the type of product, lead times for a new batch could be high, too. This causes fulfillment delays that ultimately impact customer experience.

Poor product quality

As a dropshipper, you can’t physically verify product quality before orders are shipped. Incorrect specifications, poor performance, safety issues, etc., could all crop up over time. Suppliers may compromise on quality control to save money, and you have no way to contest that.

If customers complain about defects, you must assume responsibility for it.

Supplier reliability

Often, suppliers raise prices without notice, forcing you to pass them on to customers. As a consequence, you may lose out on sales. Finding backup suppliers can take time and add to your costs.

Customer service issues

Often, dropshippers cannot manage returns and refunds smoothly as they need to coordinate with suppliers. If outside the customer’s time zone, you may be unable to respond promptly. This can frustrate the customer, who may never return to your store.

Impact on dropshipping business operations

These dropshipping challenges can have a profound impact on the factors mentioned below.

Low profit margins

If stocks run out, you may be forced to pay suppliers higher prices or lose out on sales. Either way, this affects your profit margins and can result in losses – especially when considering the cost of return shipping.

Competitive disadvantage

Over time, inventory, shipping, and quality issues can put you at a disadvantage compared to other businesses. Without enough sales to cover returns and refunds, you may not have enough cash flow to add new products or offer better deals to customers. Low profit margins coupled with administrative costs may make your business unsustainable.

Negative customer experience

Without proper updates on delivery status, customers wary of online scams may quickly cancel orders. Negative reviews on social media could deter other customers, damaging the brand’s reputation.

Unlike branded eCommerce stores, dropshippers have fewer opportunities to make amends after a negative customer experience. Discounts cannot be a long-term strategy for customer retention. The key is having a Plan B for unexpected supply chain, fulfillment, and other disruptions.

That calls for mapping the customer journey, identifying key touchpoints, and leveraging automation at key points in your sales funnel to guide customers at every stage.

Inventory and Supplier Management Issues

Some of the biggest and most common dropshipping challenges related to inventory include the issues explained below.

Lack of real-time inventory data

The lack of visibility into inventory levels and the tendency of some suppliers to inflate actual stock levels can lead to fulfillment issues. If suppliers are not forthcoming about logistical problems or shipping delays, you may be unable to switch to other options or notify customers in time.

Communication gaps with suppliers

Depending on their location, there could be differences between your order management process and your suppliers. If they don’t have an escalation desk, there could be delays and misunderstandings. Language and cultural barriers may also affect communication.

Strategies for effective supplier management and inventory control

To avoid surprises, research supplier track records thoroughly before shortlisting. It would be best to get everything – quality, shipping timeframes, cost, inventory – written into the contract. Ask to speak with some of their existing clients to get independent confirmation of their capabilities.

Having backup suppliers is another key aspect of streamlining the supply chain. Use automation to receive updates regarding stock levels and shipping updates.

To stabilize inventory levels, ask if your supplier would be willing to reserve a minimum stock quantity. Consider using data analytics to analyze demand patterns to adjust inventory levels and save money on storage fees. This strategy can be particularly effective if you sell high-ticket items like furniture, electronics, etc.

Shipping and Logistics Complications

Suppliers overseas may take longer to ship orders due to different shipping routes. They may also have to go through customs and other checks on arrival. For these reasons, most dropshippers cannot offer expedited shipping to customers. This puts them at a disadvantage compared to branded eCommerce businesses.

To solve these problems, choose suppliers closer to your customers, preferably in the same country or continent.

Secondly, integrate your order tracking system with the suppliers for real-time updates on delivery status and shipping times. As far as possible, communicate with a single point of contact on the supplier’s end. This can help you coordinate shipping and logistics better.

Navigating customer service obstacles

Dropshippers risk losing business due to high response times, unclear terms and conditions, and the inability to provide accurate shipping timeframes.

Since you’re completely dependent on the suppliers for information, you may be unable to resolve customer complaints. Ultimately, customers might choose to cancel and request a refund.

To streamline customer support:

Update your FAQ page with shipping and delivery terms and conditions. This allows customers to make informed decisions when placing orders and can help avoid escalations later
Regularly update your refund policy, particularly shipping costs and delivery timeframes. This sets the right expectations with customers
Consider time zones when setting customer support response times. Set up an email autoresponder to provide a confirmation when a customer email is received
Implement a chatbot to answer support queries beyond office hours

Marketing and Sales Challenges

In 2024, branded dropshipping is making waves. As more people get into dropshipping, it’s the only way to differentiate yourself from the competition. The problem is that most dropshippers don’t define their value proposition clearly, so they lose out on engagement and loyalty.

Here are a few strategies to communicate your brand and create a connection with customers.

Start by identifying your customers’ pain points and unmet needs
Next, identify what’s unique about your products and how they solve those problems. This could include features, pricing strategies, free shipping, etc. Leverage those insights to create a brand name and logo that positions you as the ideal solution
Develop a content calendar with specific goals for each channel, such as social media, paid ads, and email marketing. Define your goals for each channel, whether it’s brand awareness, nurturing, conversion, etc
Use a consistent style of communication and visual identity across all campaigns to reinforce your brand messaging
Diversify your marketing beyond Facebook ads, which have been a go-to customer acquisition channel for dropshippers. Consider using email campaigns to retarget customers purchasing through Facebook ads
Use targeted offers to upsell and cross-sell existing customers who may not have purchased in a while

Legal and Regulatory Challenges

The US market may be the biggest market for dropshippers, but it also has the toughest health and safety regulations. Some rules impose unlimited liability on sellers of third-party products. That means you could be held legally responsible for defects even if you didn’t directly manufacture the products.

There may also be restrictions on selling certain products from specific countries in the USA. Research the legal requirements related to the products you sell to avoid violations. This includes keeping up-to-date with changes to existing laws applicable to them.

Secondly, comprehensive legal disclaimers regarding service terms and conditions should be provided to address liability risks. Remove any products or marketing claims that may have been flagged if you receive any complaints regarding copyright violations or product safety issues.

Local tax laws apply to each sale you make. Make sure you understand how they apply to the products you sell and ensure you meet all requirements.

Technological Risks

Taking cues from eCommerce brands, dropshippers are adopting specialized software for marketing, inventory management, order tracking, etc. However, they often lack the resources to integrate these tools into a proper workflow. This deprives them of the operational efficiency and customer experience benefits they’d hoped for.

To overcome dropshipping challenges like these:

Check for integration support and compatibility with existing tools before buying new software
If you’re from a non-technical background, consider hiring a professional to help you consolidate business data from multiple sources and make informed decisions

Real-life Case Studies of Brands Using Data Analytics for Dropshipping

JAXXON, a branded dropshipping store selling men’s jewelry, struggled with processing refunds manually. Slow turnaround times and manual errors were impacting customer satisfaction. The business was growing quickly and needed visibility over the entire refund process.

After much research, they created an eCommerce returns management tool that automated their returns process and integrated seamlessly with their existing order management workflows. Their efforts paid off handsomely, increasing processing efficiency and customer satisfaction.

Conclusion

Small businesses can adapt faster to challenges than larger ones, helping them build better customer relationships. They lack the resources to automate key workflows or provide round-the-clock support.

EngageBay is a comprehensive sales, marketing, and customer support CRM that helps you keep customer promises. It integrates all these functions into one proven solution to help you:

Build rich customer profiles with demographic, transactional, and engagement data
Nurture existing customers with personalized email sequences and triggered emails
Track and resolve customer tickets within a defined timeframe
Connect a variety of eCommerce platforms like Shopify and other business analytics tools to make informed business decisions and get a complete picture of the customer journey

EngageBay can form the core of a comprehensive solution that creates the kind of predictability and all-around visibility that dropshipping businesses deserve.

Don’t take our word for it.

FAQ

What is the biggest challenge in dropshipping?

Dropshipping challenges vary from business to business. If you’re starting, you may struggle with product selection, inventory management, finding suppliers, order tracking, or managing returns and refunds.

The key to solving these dropshipping challenges is to integrate data from all internal and external sources and run analytics to find opportunities for optimization and growth.

How can I improve my relationship with suppliers to mitigate inventory issues?

The first step to overcoming inventory issues is to have minimum inventory levels and shipping timeframes written into the supplier contracts. This creates clarity and accountability, as well as improves communication.

Work with a single point of contact and agree upon an acceptable turnaround time for different requests.

Network with other suppliers if you need backup options. More importantly, consider your suppliers as partners and not as mere vendors.

What strategies can I use to reduce shipping delays in dropshipping?

The key to minimizing shipping delays is to forecast sales demand accurately at different times of the year. This allows your suppliers to maintain the right inventory levels. Secondly, work with reliable shipping providers with a proven track record.

Integrate shipping tracking data from your supplier into your order management system so you get real-time updates on orders in transit. This gives you time to contact other suppliers if a shipment is delayed.