Dropshipping side hustle may sound like a dream business model for a lot of aspiring entrepreneurs. It is a way to make money online without investing a lot of upfront capital. But is dropshipping a good choice for a side hustle in 2023?
Read on and find out why a dropshipping side hustle might work only for a small percentage of people (and if you are one of them)!
Is dropshipping dead?
Is dropshipping dead? Heck, no! The dropshipping business will never be obsolete. In fact, it’s growing year after year.
“Dropshipping is a retail fulfillment strategy among online retailers. In this business, you make use of a third-party vendor to send products. Unlike other retail businesses, you won’t have to keep inventory. Instead, you will be buying products from a third-party provider as your buyers order them.”
According to the most recent data, the global dropshipping market is expected to reach $196.78 billion in 2022. Is dropshipping a good business? Yes, indeed.
However, there is also a list of good reasons why it’s NOT a good side hustle. Let me explain.
A side hustle is something you do with a limited amount of time. While there are ways to make money without fully committing to a business, dropshipping is not it. It’s a lot harder than people selling courses make it out to be.
It is a good business model, just not a good side hustle.
However, there’s a segment of people who just might be in a position to pull it off. Keep reading to find out if you’re one of them.
You can make money through dropshipping by increasing the profit margin on items you choose to sell. It sounds like a great idea because it’s permanently scalable without requiring a large upfront investment but you should have a good product to sell and you should be a master at advertising your product to your potential customers.
Why Dropshipping sounds like a good side hustle
So let’s get into the essentials of dropshipping. Is dropshipping a good choice for a side hustle in 2023? Here are the reasons why it seems like it 👇
1. Anyone can get into dropshipping
One of the best things about dropshipping is its low barriers to entry.
What does "low entry barriers" mean? Low barriers to entry imply that there is little to prevent your business from entering the market.
One of the things you have to worry about when starting a business is the high investment cost. If you get into the restaurant business, for example, you’d have to worry about health regulations, rent, tax, and more.
These are stuff you don’t have to worry about with dropshipping. Since you don’t have to maintain an inventory, you don’t have to worry about where to get a loan just to buy products to sell.
2. It’s flexible and allows freedom
Dropshipping brings flexibility to many aspects of the retail business. First of all, your brand can operate from anywhere in the world.
You can work for as many hours as you want with just a laptop from the comfort of your own room, waiting for kids in the parking lot, or at a cafe.
You can offer different types of products, and change its offerings easily if market preferences change. So if your buyers’ tastes change, you can just change your product —no biggie!
If you have a lot of other things on your plate right now, or if you can’t work on a fixed schedule, then this business is for you.
3. One of the quickest ways to get rich
Dropshipping has a huge earning potential if you do everything right. You could start making money within a few weeks. Buuuuut— this is more like an exception rather than a rule.
So, is dropshipping a good side hustle?
According to Andreas Koenig and Alexander Pecka, your niche selection can make or break your business. In their case, they eventually settled on the pet niche because most pet owners have strong emotional attachments to their pets.
Their dropshipping business was already bringing in $500,000 per month in 2020. It has grown flourishingly since then and now generates $10 million per year.
Why Dropshipping is NOT a good side hustle in 2023
Dropshipping is not a waste of time or money even if you fail. This is because the experience allows you to gain lots of valuable skills.
These are skills such as time management, supply chain management, product research, marketing, copywriting, branding, and financial management.
But what is the dark side of a dropshipping side hustle? What makes it a bad idea? 👎
1. You are at the mercy of your suppliers
First of all, since you hand over the entire backend to your suppliers, they may end up sending crappy products to your customers. And what if you end up with a supplier who is notorious for slow shipping? Just your luck! 🤦♀️
The initial stages of finding and securing a good supplier are cited as the most difficult obstacle to start a business.
Messy suppliers may harm your brand's image in the long run. It can even cause your entire business to fail!
Choosing reputable and highly rated suppliers for your dropshipping side hustle is one solution to this problem. Even so, there is no guarantee that they will always meet your expectations.
If you want complete control over your business, dropshipping won’t be a good side hustle.
2. Compete or die
Well, not exactly. 😛
But the dropshipping business can be pre-tty cutthroat. You have to be really creative about advertising your product.
As I mentioned earlier, since a dropshipping business requires very little capital, the low barrier to entry means a lot of fierce competition. The most popular markets can be more competitive than others.
Dropshipping has been around for decades, but its popularity has skyrocketed in recent years. Nowadays more people are attempting to make a fortune through dropshipping. Knowing how to pick the right niche can be a big help to have a fighting chance.
It’s not that dropshipping is too saturated to be profitable. But if you're new to this business, it can be pretty challenging. Essentially, the larger a company is, the lower its markups can be in order to offer the lowest prices.
3. Low-profit margin
Speaking of offering the lowest prices, another reason dropshipping is a bad side hustle is that it usually has a low-profit margin.
Profit margin is the amount by which revenue from sales exceeds costs in a business.
While inventory may be inexpensive to purchase, profit margins can be quite low. This is due to the fact that both your supplier and you must make a profit.
This means you'll have to sell the products for more than you paid for them. But then if you mark them up too much to make more money for yourself, your buyers will be looking elsewhere.
Most of your buyers already have an idea of how much a product is so you can’t overcharge. Or else, nobody would buy from your dropshipping store for being a rip-off. 🙄
Dropshipping on eBay has lower profit margins than other types of e-commerce. You can only make around 3.6% as of June 30, 2022, on this platform. On the other hand, the typical profit margin for Shopify is 40%.
A Shopify side hustle will give you a better chance at making money.
It is determined by the factors such as the ones below:
- nature of business
- type of business
- level of competition.
Striking the right balance between income and pleasing your buyers can be difficult which frequently results in low-profit margins.
The average profit margin for dropshipping is between 15-20%. Anything above 20% is considered a good profit margin whatever industry you’re in or product you have!
4. Risk of getting banned
Yes, you can sell almost anything you want through dropshipping. But did you know that advertising products that seem medical in nature can get ads for your dropshipping side hustle banned?
For example, ads targeting patients with messages based on their health conditions can get you banned on Facebook. They also regularly ban dropshippers for advertising fake or defective items.
You’ve got to double-check your suppliers always.
Another risk is getting banned by Paypal and other payment services. Plenty of disputes and chargebacks can get your accounts banned at any time.
Stripe is okay if your company is located outside of the Asia-Pacific or EMEA regions. It will provide you with its services if it considers your business to be relatively low-risk. They have no problem with dropshipping companies as long as it is based in the United States.
5. Legal stuff
Ugh. The legal stuff. Annoying but necessary.
Again, since you are at the mercy of your suppliers, they can also drag you through the mud. Some suppliers violate intellectual rights or are just plain shady. This is something you should be prepared for.
I cannot stress enough that some suppliers are not as trustworthy as they claim. And you never know where the merchandise comes from. A supplier could use a trademarked logo or another company's intellectual property without permission (which happens more often than not).
You can protect yourself and your e-commerce side hustle with a dropshipping agreement.
The smarter way to make money dropshipping
A much smarter way to get into dropshipping is private label dropshipping.
Private label dropshipping means that your brand name will be appearing on a product. This is a product sold by you as a retailer but made by a supplier.
This also helps in building a brand. And building a brand helps build trust which brings more loyal customers.
A few of the advantages of private label dropshipping include:
1. Improved product ownership
It can be such a bummer when your supplier decides to withdraw a product that happens to be popular among your clients.
But you can count on a lot of private-label manufacturers to keep the best ingredients in stock. Being dependent on suppliers can really complicate things.
On the other hand, private label dropshipping can make it feel like you really own the product you selling. You get much more control over the packaging and even the ingredients.
But the arrangement remains, you don’t have to keep your own inventory it’s almost like getting the best of both worlds.
2. Increased profits
With private label dropshipping, manufacturing and distribution costs can go as low as 40%-50%. This makes private-label dropshipping more profitable because it is easier to keep prices down.
The huge advantage of private-label dropshipping lies in the power it gives you as a retailer. You can control production, pricing, and branding.
Also, it is much easier to market your own brand. People trust you more because you can build a better relationship with your customers!
3. You gain exclusivity
Numerous businesses end up failing because they can't compete with competitors’ prices.
But when you sell your own label, you won't have to worry about a competitor undercutting your sales. You have better opportunities with those who can sell your product or if you choose to be a wholesale distributor.
Buyers won’t accuse you of being a rip-off selling the same products as John and Mary. No sir! Your products are better because they are customized and they have a brand. Your brand!
4. Building your brand
Private label products can be more profitable with your own brand. It helps you stand out from a lot of your competitors.
You will appear more impressive to buyers if you sell trendy items under your own brand. In fact, they will remember you more!
There's a lot you can accomplish with a lot of research and, of course, a lot of effort on your part. Continue to grow your brand getting your audience involved. Listen to what they have to say.
You can’t do this with regular dropshipping. Like what the adage says: “what you see is what you get.”
Fortunately, private label dropshipping lets you advertise your brand/product in your own way, which makes it stand out.
Check out Dripshipper for example. 👇
You aren’t selling just any coffee. You have a say in which coffee to sell and how they look when your buyer gets them! Dripshipper is a lucrative Shopify side hustle.
You can sell speciality coffee without having to talk to anyone at all.
Who should start a dropshipping side hustle?
We can all agree that dropshipping is a pretty good opportunity. However, it might not be the best choice for everyone.
So when is it a good side hustle? A dropshipping side hustle is a good idea if:
- you are an experienced dropshipper;
- you have time and money to lose, to learn this e-commerce side hustle; or
- you want to start private label dropshipping with specific niche knowledge.