Dropshipping success rates: how to create a sustainable business

Dropshipping is an ecommerce sector that has developed over the last decade. It provides opportunities for startups and entrepreneurs to make big profits. Stories of dropshipping millionaires abound. But there are infinitely more dropshipping casualties.

In this article we will outline the attractions of starting a dropshipping business, present data about dropshipping success rates, factors that influence success, how to mitigate risk to maximise success, how to build a long-term sustainable dropshipping business and illustrate how to overcome challenges in building a profitable dropshipping business.

What is dropshipping?

In a nutshell, it is an online business model that involves selling goods to customers without holding the stock. Instead, orders are fulfilled through a third-party supplier who handles customer fulfilment and delivery, leaving dropshippers to focus on marketing, market research, finding the right products and managing supplier relationships.

Get these elements right and you will dramatically increase the chances of building a lucrative and profitable dropshipping business.

Why is dropshipping an appealing side hustle?

A common view is that dropshipping is ‘easy money’ because it simply involves sourcing proucts at wholesale prices and selling them at a mark-up retail price.

This is not true. Dropshipping entrepreneurs face challenges with supplier relationships, staying compliant on legal issues and choosing the right product lines that will prove popular with customers and earn profits.

“Successful dropshipping includes balancing smart choices about what you sell, strong relationships with suppliers, and marketing,” said Clay Cary, a data expert and lead analyst at CouponFollow. “It demands work.”

However, it is true to say that dropshipping is enticing for entrepreneurs because it has low barriers of entry. It is easy to start a dropshipping business, usually as a side hustle, with the possibility of developing it into a full-time business with potentially high profit margins.

It also offers a flexible and scalable business model, with the option to add or switch between product lines as sales trends change.

“Due to lower startup costs and no inventory holding, dropshipping will remain viable in 2024,” said Andhi Ermawan, technology expert and founder of brand review website myprosandcons.com.

With global ecommerce sales estimated to reach $8 trillion by 2026, it’s no wonder many budding entrepreneurs are looking for a successful product niche with which to develop a dropshipping business.

What does the data reveal about dropshipping success rates?

Dropshipping revenue is growing and expected to continue doing so for years to come. However, reliable, up-to-date statistics for the UK market are hard to find. Like any business, it takes time to find a successful, profitable niche. The nature of dropshipping, whereby businesses follow trends and switch product lines means profits can fluctuate.

What isn’t in doubt is the UK has the most advanced ecommerce sector in Europe, with almost 60 million active ecommerce users in 2023, according to Statista. But, according to Shopify, the average success rate for dropshipping companies is between 10 and 20%.

Further data from Statista put total global revenue for dropshipping in 2020 at $128.6 billion,rising to $197 billion in 2022, $243.4 billion in 2023 and expected to reach $476.1 billion globally by 2026.

However, Tristan Broughton, an ecommerce expert, explains on his YouTube channel the reasons why around 90% of Shopify dropshippers businesses fail in the first few months. He cites three main reasons, customer conversion problems, lack of unique product descriptions and shipping issues.

Dropshipping is growing all over the world but the most successful businesses are in the US. According to data from Dodropshipping.com 80.9% of the top 1% of dropshipping stores mainly sell in the US, followed by Canada (5.2%) and the UK (4.1%). This would suggest that the UK is a good country to start a dropshipping ecommerce business.

What factors create a successful dropshipping business?

There are several areas pivotal to succeeding with a dropshipping business.

Knowing your audience

Firstly, you need to conduct insightful market research to decide which products to sell and who will buy them.

You may have detailed knowledge of a subject that could help you sell linked products successfully using the dropshipping model, but if there is no demand for those products or you can’t source them at a competitive price from which you can resell at a profit, avoid this area.

With any idea, identify the competition and then analyse as many competitors in that sector as possible. What do customers like about them? What do they sell most of? Check comments on social media and forums to see their strengths and weaknesses on customer service and other parts of their business.

Knowing what your audience want

Product selection is perhaps the biggest factor influencing success. “The first thing to do is choose a profitable niche. You want to offer something unique that people want,” said Cary.

There are many aspects to consider. Different products sell better in different countries, so you could operate a range of product lines targeting customers in different places.

Products trends come and go, but that is one advantage of dropshipping because you can easily switch products and amend your online shopfront to reflect this. “Watching what’s hot and finding unique things can edge out competitors,” says Ermawan.

One strategy is to identify a product niche and specialise. You will have less competition, it will be easier to build a good reputation and you will be able to communicate knowledgeably with potential customers. If you can find a niche that is growing, even better. Specialization enables you to differentiate the service you offer and potentially charge higher prices as there is less competition.

Sourcing the right suppliers

Supplier relationships can be the difference between success and failure. For dropshipping businesses it’s absolutely crucial because your supplier is your link to customer fulfilment and satisfaction. Dropshipping businesses outsource the actual supply and delivery of products they sell to a third-party supplier.

“The most important relationship is with your suppliers,” said Ermawan. “If they ship orders fast and the quality is good, customers will be pleased. But slow fulfilment or broken items will upset them.”

Therefore, research the efficiency, reliability and customer service qualities of any supplier you use to sell your product. When you vet suppliers pay close attention to what they offer in terms of shipping times and costs, check the reviews, ratings and comments customers make about them and make sure they have the same attitude as you regarding rectifying and owning customer complaints.

For deliveries make sure the supplier provides tracking numbers so customers can get real-time information. Remember, retain existing customers because they represent future repeat business.  

Managing delivery times

Shipping and deliveries can be slow for a dropshipping business of they sell products sourced cheaply from China or other countries where goods cost less. On the one hand, sourcing cheaply helps profit margins, but because goods take longer to arrive you need to manage customer expectations and sell goods cheaper (still with a decent mark-up) to retain a competitive advantage.

Getting returns right

Prioritising customer service for returns is important. Don’t focus solely on how a return impacts your profit margins. With a successful dropshipping business there will always be returns linked to faulty goods or other errors. Hopefully these will be rare, but when they occur take time to resolve the issue fairly as your business will benefit over time.

Choosing the right dropshipping platform

Marketing strategies are important for building a successful dropshipping business because they help you reach your target audience. 

Social media platforms like Facebook and Instagram help you attract customers, market your products and receive useful feedback from customers. Choosing the right marketplaces and platforms to advertise or sell on is part of this. Certain platforms specialise in some types of products and are more likely to attract your target audience. 

Amazon, eBay and others all have their own rules that you need to be aware of and tips to help you utilise each marketplace effectively.

Use technology and analytics to monitor which sources bring in views, interactions and, most importantly, sales.

How to mitigate risk to maximize dropshipping success

With dropshipping, the old adage “fail to prepare, prepare to fail” is true. As well as the legalities of dropshipping, you need to get several other your ducks in a row to give your business the best chance of survival.

Managing order fulfilment

One of the biggest risk factors for a dropshipping business is being unable to fulfil orders. You take orders from customers and pass them onto external suppliers to fulfil. So, another crucial element of managing supplier relationships is for suppliers to inform you if they are out of stock. Then you can remove the product line from your online store, or at least add a note that the product is temporarily unavailable.

Excellent post purchase customer service

The other main risk is linked to shipping and deliveries. Again, this is handled by the external supplier, so there can be a delay in hearing about delivery errors as the customer will inform you and you then check with the supplier before responding to the customer. An efficient complaints process, where all parties are linked, to quickly resolve issues will mitigate this risk, otherwise you risk losing sales and customers.

“Struggling stores usually falter through poor selection, misguided advertising, and disregarding service needs,” said Ermawan.

Getting the price right

Pricing is a risk factor for any business and dropshipping is no different. The price at which you sell is linked to the price you source products for from suppliers, so find the cheapest supplier but not at the expense of quality, reliability, shipping nous and excellent customer service credentials.

Regularly check what rival businesses are charging to remain competitive. Check other suppliers too, not just to see if you can source products cheaper but also to find alternatives if your main supplier can’t source stock or goes out of business.

Quality control

When dealing with international suppliers, there is the possibility of counterfeit goods entering the supply chain. It won’t take long to discover if your suppliers are selling counterfeit or fraudulent goods on behalf of your business but it’s a risk to avoid at all costs. It damages your businesses reputation and could open you up to legal action. Due diligence in checking your suppliers carefully will reduce this risk.

Buy an item from potential suppliers and decide yourself on the quality, reliability and efficiency of the supplier. Check their terms and conditions and payments system and find out what quality control processes they have. Ensure contracts are in place and communicate regularly with your suppliers about problems and how to resolve them.

By doing so, you maximize the chances of success and becoming a profitable business by building a reputation with your customers, which means they will return and recommend you to other potential customers.

5 tips to creating a sustainable dropshipping business

Tip 1: you’re in it for the long haul

Try and focus on the business over the long term. Remember, an estimated 90% of dropshipping businesses fail in the first few months, often because they have not prepared themselves for the inevitable difficulties that come with running any business.

Tip 2: expect and plan for startup issues

Have resources in place to cover poor sales or minimal profit margins as you establish your business. Initially, you will operate on a trial-and-error basis in some areas. Even the most successful dropshipping businesses usually admit to some teething problems.

Tip 3: experiment with marketing strategies

A common problem is not being able to get the best out of advertising on platforms like Facebook Marketplace. Persevere and try different strategies for separate products until you find the right balance.

Tip 4: data is your friend

Another key factor in creating a sustainable dropshipping business is diversification. Use data to stay on top of sales trends and new products. Be flexible. There may come a time when one product stops selling and you need to branch out. However, be careful not to have too many product lines or you may lose your unique SP.

Tip 5: don’t run before you can walk

Similarly, don’t try and scale your business too quickly or you may lose focus on vital factors like supplier relationships, product selection and managing customer experience. Optimize all parts of your business before moving onto create new revenue streams or services.

Remember, creating a long-term sustainable dropshipping business takes time and each entrepreneur needs to focus on their specific learning curve to build their business and learn from their mistakes and then apply that learning to create winning strategies to build a successful dropshipping business.

Conclusion

Following the strategies outlined in this article will help you create a long-term sustainable dropshipping business.

Dropshipping is a dynamic ecommerce business sector. What constitutes winning strategies constantly changes so you need to stay on top of trends and all aspects of your business. 

“To thrive, you must constantly improve, adapt, and push through tough patches,” said Ermawan. “Finding fresh niches, supplier relationships and digital marketing methods hold the answers for entrepreneurial success.”

Be flexible and willing to adapt if required by switching product selection. Pay particular attention to selecting the right suppliers who you can communicate effectively with and who have reliable customer service.

If you approach dropshipping with realistic expectations of the chances of success, having undertaken market research to find the right products and suppliers to partner with and you take time to resolve problems and learn from mistakes, there is an excellent opportunity to build a successful and profitable dropshipping business.

Benjamin Salisbury - business journalist

Benjamin Salisbury is an experienced writer, editor and journalist who has worked for national newspapers, leading consumer websites like This Is Money and MoneySavingExpert.com, business analysts including Environment Analyst, AIM Group and written articles for professional bodies and financial companies. He covers news, personal finance, business, startups and property.