Top 13 Dropshipping Risks & How to Avoid Them [2024 Pro Tips]

Are you ready to uncover the hidden pitfalls of the dropshipping business? Dropshipping risks can make or break your success, but what if you could navigate them like a pro?

In this article, we reveal the top 13 dropshipping risks and offer expert tips on how to avoid them.

Dive in to protect your business and ensure smooth sailing!

What Are The Risks Of Dropshipping?

Although dropshipping is known to be a low-risk business model, when looking at its pros and cons, there is a certain amount of risk involved. This means that running a dropshipping business is not all roses. One of the primary concerns is the financial risk associated with fluctuating costs and potential losses.

First of all, let’s clarify something. There is no such thing as a business opportunity without risk.

To start out as a dropshipping entrepreneur, you need to consider the dropshipping risks involved and weigh them against the benefits. As a business owner, you must also know how to avoid the risks.

Let’s get started!

👉 Check out What Are The Most Common Pitfalls and Mistakes In Dropshipping?

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Top 13 Dropshipping Risks To Consider When Starting Your Dropshipping Business

It seems undeniable that most online store owners are risk-takers by nature.

However, with little to no experience, you are probably not totally aware of all the risks you must watch out for when committing yourself to business ownership.

Here are some of the most common risks you need to evaluate and minimize when starting a dropshipping business. Compared to other business models, dropshipping offers lower running costs, facilitating quicker

1. Intense Competition

Did you know that many dropshipping entrepreneurs are unsuccessful, as dropshipping is a highly competitive industry? They think that dropshipping is easy money.

If you are one of those people, we are sad to say that it will be hard to get your dropshipping business off the ground due to the intense competition. This is one of the biggest risks of dropshipping. Market saturation is a significant factor contributing to this intense competition, making it harder for new entrants to stand out. However, you can try to avoid it. Just read on…

How to minimize the risk:

➡ Be unique.

Sure, this is broad advice, but we will nudge you towards the right steps. You must do your best to stand out from other online stores selling the same items.

Let me give an example. Many dropshippers sell, let’s say, smartphone accessories. Still, their stores are not the same. Some have poorly designed websites, low-quality photos, terrible product descriptions, no dropshipping apps, low-quality products, long shipping times, only a few payment gateways, etc., whereas others are quite the opposite.

So, you need to be unique and go further than your competition! Also, you should provide exceptional customer service for dropshipping stores.

➡ Invest in marketing & advertising.

Your business must have a clear message to attract customers. People like to know what you can do for them that nobody else can, and that’s how you will attract customers. Be creative and invest in digital marketing.

For instance, before I dive into any niche, checking out the competition is a crucial step for me. So, I personally use keyword research tools like Semrush, which provides comprehensive information on competitors and their top-performing keywords.

Not only that but providing information about keyword difficulty speaks a lot about whether this is a competitive market. Thus, if the keyword difficulty is low, it is the competition. Let’s try this out for my next idea about dropshipping candles. 👇

Based on these results, it is a green light for me to proceed.

💡 Tip: Check out the 8 Most Profitable Niches With Low Competition For Dropshipping.

2. Low-Profit Margins

It is universally acknowledged that dropshipping profit margins are not very high. In fact, the average dropshipping profit margin is about 20%.

With dropshipping, you sell other people’s products and take a cut for yourself. You are actually a reseller, i.e., you sell premade items to your customers, meaning that the manufacturer and the dropshipping supplier have already built their profit margins.

Furthermore, as I have already said, entering the dropshipping industry means your business will face high competition, which is one of the common dropshipping risks.

As a result, when you add an item to your dropshipping store, you must ensure that your pricing is competitive compared to other stores selling the same item. This may also contribute to lower profit margins. Conducting a thorough profitability analysis can help you understand the potential returns and make informed pricing decisions.

How to minimize the risk:

Fortunately, there are several ways out there to increase your profit margins. But now, I will focus on the most effective ones:

• Increase your prices. Yeah, I know that this may sound counterintuitive. But the truth is that the lowest prices aren’t always the best. So, try elevating your brand and increasing the perceived value of your products. Then, try increasing your prices a little bit.
• Negotiate with your dropshipping suppliers. Another effective way to minimize this risk is to negotiate a better deal with your suppliers to get a bigger product discount.

Moreover, it is always a good idea to check a product’s profitability and potential sales before investing. Therefore, by setting your filters, you can use various tools like AutoDS to check a product’s profitability.

For example, let’s look at my product directory, where you can compare supplier prices to market prices. Thus, fitness products have profit margins between 50% and 60%, and some of them are even higher.

Also, here’s a tip for beginners:

Initially, set your prices lower than your competition to get a foothold in the market and increase your sales. Once you’ve built up a good number of customers, you can slowly start to raise your prices.

Moreover, if you’re ready to invest, high-ticket products are always the most profitable ones. Hence, imagine reselling luxury sneakers.

Thus, if you set a 20% profit margin on a sneaker with $20 supplier prices, you will earn around $4. But there are other related expenses, so your earnings maybe $2 per pair.

Let’s say you are selling shoes with a supplier price of 200. Thus, you will earn $40 per pair. As you can see, the higher the price, the higher the profit.

3. Lack Of Control

In standard e-commerce, if a customer complains about fulfillment speed and product quality, you can address the problem yourself because you have total control over the supply chain.

On the other hand, when operating a dropshipping business, you will be at the mercy of your suppliers—but you will be the one who will have to communicate with your customers directly. This means that you have no control over the supply chain and fulfillment process. Implementing stringent quality control measures with your suppliers can help mitigate this risk.

As a dropshipper, you must contact your supplier and ask them to address the problem. At the same time, you must also reassure your customers about something that is out of your control. And this is also one of the biggest risks of dropshipping. But there is a way to minimize it.

How to minimize the risk:

• Partner with trustworthy suppliers. You do not physically hold your dropshipping products. Still, you need to make sure that products get to your customers in the same way you advertised them. Therefore, it is imperative to find and work with trustworthy suppliers. Here are some of the best dropshipping suppliers – they are also the best alternatives to AliExpress for your dropshipping business.

• Communicate with your suppliers. Be ready to ask your suppliers many questions about product quality, materials used, shipping methods, processing and shipping times, packaging, dropshipping refunds & returns

Thus, you can use an all-in-one dropshipping platform and have more control over things. AutoDS is a great example. Here, you can have full access to trustworthy suppliers, establish relationships with them, track your orders, inventory, shipping times, and more.

4. Scammers

Well, let me tell you this – dropshipping itself is not a scam. It is actually a legitimate business model.

The problem is that while engaging in your daily business activities, you can encounter various scammers, including dropshipping agents and suppliers. They may fool even the savvy dropshipper. Unfortunately, this is one of the risks of dropshipping. Implementing robust fraud prevention strategies can help you avoid falling victim to scams.

So, you must stay vigilant when choosing new dropshipping partners to collaborate with. And do not just partner with any supplier you find on Google.

How to minimize the risk:

• Use wholesale supplier directories to find suppliers. These directories list some of the industry’s best wholesalers and dropshipping suppliers. And all these suppliers are certified. Sure, you still need to do your own research to evaluate the reliability of each supplier.
• Beware of any business that says profits will come with little or no work involved. Remember that any business that promises you that you will make a lot of money fast may not be legitimate. They may just want to hook you in and make you pay their upfront fees.
• Avoid dropshipping suppliers or agents without all contact information clearly listed on their websites. It’s no more complicated than that!

For example, I never go in this step blindly. So, I personally use reliable supplier directories like Dropshipping.com to assist me in my suppliers’ research.

It offers a directory of more than 2000 dropshipping suppliers. You can organize the suppliers by category or niche or use filters such as shipping costs, location, and product prices.

Plus, you can get useful details about each supplier, including pricing, how long it takes to process orders, minimum order quantity (MOQ), where their warehouse is located, the variety of products they offer, and more

The great thing? It doesn’t cost anything!

Additionally, you can ask the Dropshipping.com team to contact the suppliers on your behalf.

5. Sudden Stock Shortages from Dropshipping Suppliers

Dropshipping risks like sudden stock shortages are some of the most common problems dropshipping store owners have with their suppliers.

Simply imagine that your customers suddenly want to buy a certain item from your store, but your supplier has sold all their supplies. This will put you in a situation where you will be “out of stock” of that particular item, resulting in unhappy customers. Effective inventory management can help you anticipate and prevent stock shortages.

How to minimize the risk:

• Ask the supplier upfront how much stock they usually have on hand. Perhaps this is the best solution to the problem. Also, ask them how fast they can have the right products in the right quantity on hand when inventory runs out.

• Consider working with more than one supplier. Though this may add complexity to the supply chain, it can reduce the risk of running out of stock.

For instance, if you want to track your inventory and have more control over stock availability, I recommend you try Inventory Source. 👇

6. Picking the Wrong Niche

Unfortunately, many dropshipping entrepreneurs take dropshipping risks like this and face failure by choosing the wrong niche. To avoid this, consider a few things when selecting a niche for your dropshipping business. Conducting thorough market research can help you identify profitable niches and avoid common pitfalls.

My advice: Avoid going for a niche that’s too broad.

Some entrepreneurs opt for broad niches, thinking they will attract a large market. However, a more specific niche tends to work better.

By narrowing down your niche, you can identify your target audience and focus on meeting their specific needs.

Furthermore, when choosing a niche, you must ensure it is in demand. Thus, you can use Google Trends to check on customers’ interest in any particular product or niche.

So, let’s say I want to dropship wall art. Hence, I will simply type in the keyword “wall art” on Google Trends and check the results.

Also, product research tools are a gold mine! I personally use Minea, and it helps me find the winning products thanks to its insights.

So, I get data like product profitability, revenue, prices, customer engagement, competitors, demand over time, and more.

7. Choosing the Wrong Platform

Next, sometimes is healthy to take dropshipping risks, but not with this one! The dropshipping platform is crucial for running your business. Ensuring platform reliability is essential for maintaining smooth operations and customer satisfaction.

And, with numerous e-commerce platforms available, how do you choose the right one and avoid the wrong one?

Fortunately, there are essential features for selecting an e-commerce platform. So, here’s my advice:

• Opt for a platform that’s easy to navigate and user-friendly if you’re not tech-savvy.
• Choose a platform with multiple payment gateways for processing payments.
• Select a platform with flexible pricing that fits your budget.
• Ensure that the chosen platform easily integrates all the necessary plugins for a smooth online shopping experience.

For instance, Shopify is a no.1 platform for me because it has all of the above. It is user-friendly, it offers multiple payment methods, and you can start at only $32/month.

Moreover, the platform has excellent website builder with numerous customizable templates. And, it seamlessly integrates with various dropshipping apps.

So, you can ensure your business will be completely automated in its supply chain processes.

8. Lengthy Checkout Process in Your Ecommerce Store

A lengthy and complex checkout process is also a risk for dropshippers. It can lead to customers abandoning their carts, posing challenges for drop shippers reliant on high sales volumes.

Additionally, poor website navigation can frustrate customers and lead to lost sales.

The reasons behind these issues include customer frustration, time consumption, and potential technical glitches.

To prevent such problems, focus on creating a simple and streamlined checkout process with fewer steps. Offer multiple payment options to enhance customer convenience. A simplified checkout process can significantly improve your conversion rate and reduce cart abandonment.

For example, the Taylor Stitch checkout process is a great example of a single-page process with a few easy steps. Check it out. 👇

9. Neglecting a Proper Marketing Strategy

Intense competition is a significant challenge in dropshipping, making it crucial to have a proper marketing strategy.

Many dropshippers overlook the importance of a robust marketing plan, underestimating its significance in the industry.

Hence, developing a proper marketing strategy is essential to stand out and thrive amid tough competition. Effective marketing strategies are crucial for customer acquisition and long-term business growth.

However, here’s my advice:

• Using Google ads.
• Social media ads on TikTok, Facebook, Instagram, or Pinterest to narrow down your target audience and reach them in real-time.
• Influencer marketing
• Video marketing can effectively highlight your products, showcasing their features, functionality, benefits, and usage instructions.
• Search Engine Optimization, so you can rank higher in Google SERPs.
• Consistent Email Marketing strategy so you can stay in touch with your consumers, encourage repeat purchases, and increase brand recognition.
• Content Marketing, like writing blog posts and helping with your Google Rank.

10. Payment Gateway Issues and How to Solve Them

Dropshipping businesses often face challenges with payment gateways, especially if the gateway deems the business high-risk.

This can result in frozen accounts and delayed payments, disrupting cash flow and operations. For instance, if a payment processor flags your account for unusual activity, it can hold your funds.

What should you do?

The solution is to diversify your payment options by integrating multiple payment gateways such as PayPal, Stripe, and Square.

This reduces the risk of account freezes impacting your entire business. Reliable payment processing is essential for maintaining cash flow and customer trust. Additionally, regularly monitor your transactions for any unusual activity and ensure compliance with the payment processor’s policies.

Consider using a service like Payoneer to manage international payments smoothly and reduce the risk of account issues.

11. Customer Trust and Reputation and How to Maintain Them

Building customer trust is essential for any dropshipping store, but it can be particularly challenging due to potential issues like long shipping times and inconsistent product quality.

Negative reviews and poor customer service can quickly tarnish your brand’s reputation. Building brand loyalty through excellent customer service can lead to repeat business and positive word-of-mouth.

For example, if customers receive items that don’t match the product descriptions, they may leave bad reviews and discourage future sales.

What should you do?

To counter this, ensure clear and honest communication with your customers about shipping times, product quality, and return policies.

Also, offer responsive customer support through multiple channels such as email, live chat, and social media.

Moreover, it encourages satisfied customers to leave positive reviews and address negative feedback constructively. Believe me, customers listen to customers; it’s just how the client base works.

Imagine you’re looking for a specific item on a big marketplace like Amazon or AliExpress. What’s the first thing you do?

I check out the product photos and read the descriptions, but my next stop is always the customer reviews. They give honest feedback about whether people are happy or not with the product.

Your customers do the same thing. So, write engaging descriptions, highlight what makes your products or services special, and you’ll see your sales go up. Ready to harness the power of great copywriting?

Also, here’s an inspiration. It works for me!

Startup Institute presents these customer testimonials as heartfelt “love letters.”

These “Love Letters” act as sincere testimonials, highlighting the true experiences of students.

Implementing a customer feedback system like Trustpilot can help you gather reviews and improve your service.

12. Scalability Challenges and How to Overcome Them

As your dropshipping business grows, managing a larger volume of customer orders, inquiries, and supplier relationships can become overwhelming.

Without the right systems in place, scaling up can lead to operational inefficiencies and increased errors. Improving operational efficiency is key to managing growth and maintaining service quality.

For instance, manually handling a high volume of orders can result in shipping delays and inventory issues.

How to overcome this?

In my opinion, you must invest in automation tools to streamline order processing, inventory management, and customer service to overcome these challenges.

So, platforms like SaleHoo, Inventory Source, or DSers can help automate your dropshipping operations, making it easier to handle a larger volume of orders.

For example, I use AutoDS, which helps enable product research and importation with ease, automate order processing, including price and stock monitoring, and provide a centralized platform for order fulfillment and inventory management.

Additionally, consider outsourcing tasks such as customer support to third-party services to ensure timely and efficient responses.

By leveraging automation and outsourcing, you can scale your business smoothly without compromising on quality or customer satisfaction.

13. Tax Compliance and How to Manage It

One of the biggest risks in the dropshipping business model is dealing with taxes, which can be complex and varied depending on your business location and your customers’ locations.

Navigating sales tax, VAT, and other tax obligations can be overwhelming and can lead to legal issues if not handled correctly. For instance, different states or countries may have varying tax rates and filing requirements, making compliance challenging.

What Should You Do?

To manage this risk, specialized accounting software like QuickBooks or Xero can be used to track income and expenses and handle tax filings.

These tools can integrate with your ecommerce store to simplify tax calculations and ensure compliance with local tax laws.

Additionally, consider consulting with a tax professional to get tailored advice for your business. They can help you understand your tax obligations, file necessary returns, and keep your business compliant with all relevant tax regulations.

Mistakes Of Dropshippers Avoiding Dropshipping Risks

Emma Reid – Delegate Before You Accelerate

The time I took a week off and went to Bali, hands down. The universe must have wanted to teach me a lesson. Because the moment I landed, my ads started going bananas, and my sales were climbing to all-time highs. I was so unprepared for it. This was my first time scaling. I had no virtual assistant to answer the emails. So here I was sitting by the pool, Bintang beer in hand, trying to mash buttons on my laptop and fulfill all these orders. But it just wasn’t happening – the wifi was terrible and my laptop was one of those thinkbook bricks that looked straight out of the 90s. 

Making $8,000 a day sounds great until you realize your system can’t handle it. I got so overwhelmed that I just deleted the Shopify app for the rest of the trip and pretended I didn’t have a business. Once I was home, the damages were assessed and I spent five mind-numbing days in clean up mode. It drove me insane, fulfilling all the orders one-by-one, and answering all those customers. 

If I could go back, I’d tell myself to phone a friend or maybe borrow someone’s trained virtual assistant to handle it, or pay for my family to click the buttons. Hell, I’d even try to train my cat – that would be easy, he likes touching the keyboard already. Anything but doing it myself. Ideally though, I’d make sure the proper systems were in place before I even tried to scale. Lesson learned: Delegate before you accelerate.

Chris Wane – Spending Doesn’t Always Mean Earning

Not long after I’d started making a decent amount of profit, but before I really truly understood Facebook ads completely, I decided to launch a brand new product first thing on a Saturday morning. I had 50x £50 a day ad sets, so I was spending a total of £2,500 per day in a test phase. Idiot!

My thought behind it was, “I know what I’m doing now, this product will be a winner. I just need to spend more and I will make more.” How wrong I was…

To make matters worse, I was going on an all day bender for a friend’s birthday so my plan was just check into it every now and then just to make sure it was going well and if it wasn’t then I would just turn off the ad sets, no biggie!

Problem was that I got so carried away with the day (there was lots of beer), that I completely forgot to check my ads. The next day, when I woke up hungover and realized that I hadn’t checked the account I felt sick.

In total I had spent over £3,100 on ads and I had only made 10 sales… a loss over £2,900.

I quickly learnt that spending more doesn’t always equate to earning more. Luckily I had other products that were profitable but it still stung, a lot!

Moral of the story: don’t launch expensive campaigns if you’re going out drinking.

What Is Dropshipping & How Does It Work?

Dropshipping is a business model where you, as a store owner, sell products without having to stock inventory.

Imagine a library where you don’t keep any books on your shelves, but when someone requests a book, you order it directly from the publisher, and they send it to the reader. This is how a dropshipping store works.

Let’s say you run a dropshipping store selling trendy phone cases. A customer, Jane, visits your online store and orders a phone case for $20.

You then contact your dropshipping supplier, who sells you the case for $10 and handles the shipping costs. The supplier sends the case directly to Jane, and you keep the $10 profit.

How Does Dropshipping Work?

1. Set Up an Online Store: You create an ecommerce store showcasing products from various dropshipping suppliers.
2. Customer Orders: When a customer orders in your store, you don’t have the product in stock.
3. Order to Supplier: You forward the customer’s order to the dropshipping supplier.
4. Supplier Ships: The supplier then ships the product directly to the customer.
5. Profit: You earn the difference between what the customer paid and what you paid the supplier.

Final thoughts on the risks of dropshipping

Dropshipping business failure happens when online store owners act too late.

So, as you are a new dropshipper, it is important to be aware of and avoid the risks of dropshipping to ensure that you are on the right track for success.

Luckily, you can minimize the chance of business failure if you take the above-mentioned simple, risk-reducing steps.

Also, learn how to start a dropshipping business the right way and a few things before you launch your store