How to lose money in dropshipping

September 23, 2020

In this article we will discuss how you loose your money in Dropshipping

Become proactive to avoid these common mistakes encountered in your dropshipping business, and take your online store to the next level.

To Err Is Human!

Let me add – Understanding The Mistakes And Repeat Is Not Err But Stupidity!!

This applies to every human being across the world. Do not get demotivated! For your information, even the experienced stalwarts do make mistakes. To work on the mistakes encountered and overcome them is the strength of an optimistic businessman.

Currently, the best online business model is Dropshipping Business Model. And, if not handled efficiently can lead to severe loss.

Four Major Mistakes That You Make In Managing Dropshipping.Shopify Business Are:

1. IGNORANT ABOUT PROFIT MARGINS

Remember, the ultimate motto of your online store is to earn profits. It is not a charity show. But, for you to know the exact profits, you should be thoroughly aware of the concepts – Gross and Net Profit Margins. You can deduce Net Profit Margin by deducting all the costs involved in purchasing and selling the product.

What Are The Ignored Costs Involved In Calculating The Net Margins?

(A) Delivery Charges: Though the delivery is free to the end-users the expenses are to be accounted for in calculating the Net Margin for one single product. The average delivery cost should be determined to deduce the final price of the product.

(B) Bankers/Merchants Fees: These are your bankers who extend their facility to accept the debit and credit card from your online customers. But why will they do it free of charge? Approximately they charge in the range of 2.5% to 2.9% to your online store, which has to be determined in advance before calculating the final price of the product.

(C) Monthly Fixed Expenses: Certain monthly charges are usually ignored while calculating the Net Margin

for the product. Here is the list of a few fixed expenses:

Monthly Plan Subscription: Shopify plan! Is it monthly/bimonthly or yearly? Give due consideration to the Cost Per Month and in turn Cost Per Product. The widely used Shopify plan is $29/month. But, does your plan include the apps and other services? Or you pay extra for the same? Do keep a detailed account of the same.

Virtual Bots or Assistants: If you opt for 24/7 customer services, usually you will have to outsource the virtual assistants. They charge monthly fees. Do deduct the amount from your Gross Margin to deduce your Net Margin.

Whenever you are approaching the new supplier, always check for your Gross Margin.

Now you can easily calculate your Net Margins as follows:

Gross Margin = Your Purchase Price (PP) – The Selling (Advertised) Price (SP)

Net Margin = Gross Margin (-)

(A) Delivery Charges

(B) Bankers/Merchants Fees

(C) Monthly Fixed Expenses

Important Facts Concerning The Cost Of The Product:

· The thumb rule is the Selling Price (SP) should be 2 times the Purchase Price (PP).

Does it mean that your profit margin is 100%? Well, the answer is no. Remember this is the Gross Margin. This margin goes on decreasing as and when you deduct all the expenses incurred as mentioned above.

· Keep a respectable profit to sustain the Dropshipping Business Model.

· Offer your customers all types of marketing discounts but never go below a certain percentage.

· Avoiding notional profits and calculating all the expenses is the key-success to the Dropshipping Business Model.

Google Sheet: Once you receive your first order, tabulate your details in Google Sheet. Google Sheet is the latest version of Google’s Microsoft Excel.

The main advantage of tabulating the data is, at one glance you can know which are the products that are giving you better profits and which products are not fetching you the expected margins.

This helps you in deciding on which products to promote and remove those products from the online store that fetch you a loss.

2. WORKING WITH SUB-STANDARD SUPPLIERS

There are three types of suppliers – High Standard, Standard, and Sub-Standard suppliers.

Sub-Standard suppliers have the worst quality of services to their customers. It implies that YOU are blended with the worst quality of products and services.

Their drawbacks are:

· Very slow in delivery lead time

· Not bothered to respond to your queries like damage or loss.

Despite you getting good orders because of their worst service, your online store’s goodwill is deteriorated and in turn, the customer flow as well.

3. CHARGEBACKS

What Is The Exact Meaning Of Chargebacks?

It is the money, usually, returned to the customer on account of falling short in the expected services. It is an anti-money-transfer order issued by the bank to nullify the completed monetary transaction, wherein the supplier is at loss due to his inefficiency.

Your customer might feel that the product sold by you is not up to the mark. Either it is substandard or damaged. In this case, though your Sub-Standard supplier has supplied the product, as you have received the money, you are liable to return it.

Sometimes a few customers are fraudulent and you are not penalized for the sale. But if the customer is correct, it is you who will have to return the entire money to the customers, which is the net loss for your business.

Usually, the following are realistic situations wherein you might face such a situation: · Inferior products

· Costly articles but in damaged condition

· Physical product not matching the actual description on the website

· Neglecting Shopify’s Built-in risk protection warning: For every transaction or the order received, Shopify will confirm in advance the risk involved in the transaction. Sometimes Shopify determines that the order is at as high risk. It might think that the customer is fraudulent or the credit/debit card is stolen. Do Not Ignore this Warning!

Your responsibility is to terminate the transaction. But even if you proceed with the same, you might lose the money in Chargebacks.

In all these conditions, as you have received the money, you will be responsible to repay the same.

To avoid such situations concerning Sub-Standard suppliers, you have to do your research in advance before actually commencing the business deal with such suppliers.

Google their brand name and check for their reviews!

4. OUTSOURCING WORK TO THE WRONG COMPANIES

Sometimes you get an excellent presentation from those so-called stalwarts in their field, who claim to be the best outsourcing material. And, you will fall in the beauty of their presentation.

But, in reality, their services are not up to the mark. Or, their services are not worth the value you are paying for their services. The main reason is, in the initial phase of your business setup you are new and not aware of how exactly that particular task has to be handled. Or you are not aware of the lacunas involved in the service which you are expecting from others.

What is the solution?

You have to fully understand the entire procedure of what you are outsourcing. Become a novice and a student to learn from scratch for the services required.

For example, you want to outsource Paid Traffic Advertising Promotions. There are various sub-types involved like Pay Per Acquisition Advertising or Cost per Thousand Impressions, Banner Advertisements, etc.,

You need not be an expert in these terms and models, but you should have the basic knowledge of the entire Paid Traffic Advertisement Promotions. You should be able to differentiate between the better ad campaign and the worst ad campaign for your online store or products. This will help you on the negotiating table!

For example, you can dictate the number of leads in a month or the conversion rate, etc. This is possible only when you become a student and understand the basics of the entire service, which you are planning to outsource.

Conclusion:

To succeed in Shopify Dropshipping Business it is vital to know some basic calculations that will help you to get the actual cost of the product displayed on your online store. To conclude, work on the following FOUR basic (and ignored) expenses to make your online store profitable:

· Profit Margins

· Working With Sub-Standard Suppliers

· Chargebacks

· Outsourcing Work To The Wrong Companies

Some additional facts that are to be accounted for are as follows:

· Order Management Manually: Well, if you are a novice and just entering into the dropshipping business then manual order management is excused. But, when your online order reaches its peak, the auto-order- management-system has to be implemented.

Do not work with fear: go ahead and give justifiable time blended with deep study for your Dropshipping Business – and Sky is the limit for you!