eCommerce Lifestyle
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3 Reasons Dropshipping Will Fail In 2022

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Episode 313

Podcast Description

In today’s episode of the eCommerce Lifestyle Podcast, Anton shares 3 reasons why many dropshippers will fail in 2022, and what to do to avoid them.

If you liked today’s show, please subscribe on iTunes to The eCommerce Lifestyle Podcast! The podcast is also available on all major podcast players including, Stitcher and Spotify.
Transcripts

What's up everybody? Anton Kraly here from dropshiplifestyle.com. And in this video, I'm going to share three reasons why I believe many drop shippers will fail in 2022? And obviously I know this topic isn't as exciting or sexy as when I give you a bunch of products to sell that you can make a bunch of money with, or when I show you an amazing new trick to run ads that can get you a ton of traffic and a ton of sales. But the truth is, at least for all established business owners out there, I fully believe that you should spend almost as much time on your growth as you do protecting your downside.

What I mean by that is, once you're established, you're making revenue, you're making profits. Maybe you quit your job and you're living this new lifestyle, maybe a dropship lifestyle, and you have that and it's secured, or at least you think it is, you need to think about what is changing. You need to iterate. You need to pivot. You need to make sure you stay ahead of what's going to happen so you don't get caught when things change and trust me, things do change.

And again, I'm going to share three things that I think will be changing in this next year. Some of them that already are taking place. Things you can do to prevent them so that if you already have a store, you can remain in business and profitable. And if you don't have a store yet, you can at least keep these in consideration as you build so you're not doing something that used to work five years ago or even a year ago. And just know, I'm not coming to you with this as somebody who's saying, "I can see the future and I know more than every, and this is gospel." I'm just coming to you as somebody who has been in this business for well over a decade and who iterates what they do every year based on what is happening in the market. So just know, again, these aren't guarantees, but these are things that I'm actively thinking about and things that we are already taking into account now as we build and maintain our current store.

So the first reason I believe many dropshippers will fail as we go into 2022 is them not selling for enough suppliers. To put it simply, they don't have enough to offer on their stores. At the extremes of both ends of the spectrum here, you can build a dropshipping store where you sell one product from one supplier and that's it. That's your store. That's your product. On the other extreme of the spectrum, you can be wayfair.com and work with tens of thousands of suppliers and have millions of products. Both dropshipping, but very, very different.

Now for us, we typically want at least 20 suppliers, usually anywhere between 100 and maybe 5,000 products. Again, I know it's a range, but we need it to be diversified. And this is more true than ever as we move into 2022. Main reason being, and you probably heard about this, there are inventory issues in certain industries, and more specifically with certain suppliers.

Now, if you are a business owner right now, if you're dropshipping, let's say you have a store where maybe you sell for two different brands. You have two different suppliers. Maybe you have 20 products on your site. That's not great. You could probably still get traffic, make some money. But what happens if supplier A sends you an email and says, "Hey, I'm so sorry. Our container, our newest one coming in is stuck." Like everything else we've seen on the news, we don't know when it's finally get to port and everything on there is pre-sold already. Next shipment might come in in four months. We don't know yet. What happens? You're going to cut your inventory in half, advertise for one supplier. Then what happens if that supplier runs into inventory issues? You can't run ads, you can't make money. Again,

Your lifestyle business is now nothing. Now you're back to zero. So don't fall for this. Don't be the person, the guy or the girl that builds a store gets one, two, three suppliers gets a few products, starts making money and thinks you're set. You figured it all out. You're good for life. So we've always, again, wanted at least 20 suppliers per niche store. In my opinion, that is still the minimum, but the more, the better. And if you're already running a store and you're watching this and you have suppliers that you haven't been approved with yet, this is a great time to circle back, increase the amount of brands you sell for, increase your product offerings, your inventory issues will become less of a factor. And if you've been running a store for a while and you haven't done market research lately, jump back into module two of the Dropship Blueprint, go out there, redo your research. I promise you there's going to be many more brands you find that have most likely popped up since you've done the research historically.

The second reason I believe many dropshippers will fail as we go into 2022 is inflation. This is probably more of a thing in the states than it is in most parts of the world right now. I know there's inflation everywhere, but here it seems to be going at a much higher rate. And this is something that's going to affect the industry and really retail as a whole, in my opinion, in a couple different ways. The first way is that obviously the brands that we sell for, the companies that we list products for, they are having their product costs increased already. This is happening by different suppliers, charging them more for materials. This is just happening because expenses in general to run any type of business are going up due to inflation. And once prices get to a certain point, this is already happening with certain suppliers, that means that now our wholesale costs go up. So we're paying more for our costs of good sold.

I'm at a desk right now. I'm sitting at it, but it's a stand up desk. And let's just say last year, the wholesale cost of this was $400. Well, maybe next year it's $500. So what does that mean? Well, at face value, it sounds like we're going to make less every time we sell it. Ideally, you're doing what I teach over at dropshiplifestyle.com, more specifically in my Drop Ship Blueprint. And you're selling for suppliers that enforce minimum advertised price policies because what I believe will happen over time is that as wholesale costs go up, minimum advertise price will go up with it.

So again, if this desk was $400 wholesale last year, let's say minimum advertised price, the price I would sell to a customer for was $800. So two times MAP. I believe next year, the cost might be $500 wholesale, but minimum advertised price, again, MAP what I would sell to a customer for would now be $1,000. So profit margins stay, but costs go up across the board. So how can this hurt you? how can this cause dropshippers to fail? Couple ways. One of them would be if the majority of suppliers you sell for do not enforce pricing controls, and if they raise prices and none of the competition raises prices as well, meaning your profit margins start to get squeezed, something I would definitely pay attention to if I sold for many non-MAP suppliers.

Now the other way, this will affect everybody, whether all your suppliers have MAP policies and enforce them or not is when it starts to actually hurt the consumer to the point where actual sales go down, actual units sold. So let's just say right now, the market you're in, I'm making this up, I have no idea the actual data here, but let's say for standup desks, there were 100,000 people a month that were searching for them. And let's say, I don't know, 20,000 people a month that were buying them. Okay. Well, maybe next year the price goes up. The price goes up 20% to the consumer. Now maybe you have 100,000 people still searching for them, but then when they see the price, instead of having 20,000 people buying them every month, not from your store, but in general from every store that sells them, maybe now that number is 18,000. Maybe it's 15,000, maybe it's 12,000 because they don't want to spend that extra money.

Now again, I don't know what that number is going to look like. I don't know how many less people are going to buy. My belief is that the market will offset because the prices will be higher. I believe the people that do buy at the higher costs will still maintain our revenue levels, but I believe units sold will go down in. Any industry that you're in if your dropsshipping, if you see your wholesale price go up, followed by minimum advertised price going up, again, what I believe is going to happen is units sold will decrease, but revenue will maintain or possibly go up because products will be more expensive to the consumer.

So how can you counter this so you don't fail? Well, one way is obviously the more minimum advertised price suppliers you have better, meaning the more suppliers with pricing controls, the better. Another thing you could do is make sure on your product catalog, meaning the products you sell on your store, you have a good variety of products in different price ranges. Because again, going back to this desk example, let's say, again, last year it was 400 and it was 800 to the consumer. Now this year it's going to be a thousand to the consumer. Well, is there another desk we can sell at 800 that is comparable where the margin is still there? Is there something for that customer that doesn't want to spend that extra amount of money that many goods will see?

Now I will say this sucks for the consumer obviously because they're going to end up spending the same amount and getting a lower quality product for the most part. But it is what it is. People have their budgets just like they do now. So make sure you're offering products in obviously your set price range, nothing under $200, but make sure you're offering something for everybody when you start to see prices increase from your suppliers and of course, on your own store for what you're selling at.

The third reason I believe many drop shippers will fail in 2022 is because of Tim Cook. Thank you, sir. You know this is obviously it's not directly on him, but Apple changed how tracking works with iPhones and iOS devices, even within Safari on computers. And since seems like six months maybe, maybe a little bit less than that now, tracking within Facebook ads has been night and day compared to what it used to be. What this means is, it's now harder for advertisers to track what's actually making money and what's not.

Now, I do have workarounds for this. I've been able to get our accounts working to where we're profitable, to where we have a good return on ad spend, but this is not what worked six months ago. This is not the same at all. It's a different beast. Yeah, it's more manual work involved and it still is much harder to know exactly what's profitable and what's not, again, because of how tracking now works on iOS devices.

Now for us is this a huge thing. Well, again, we've solved it with more manual work. So we're still able to run Facebook ads profitably, but the dropshippers who this is really going to affect and to be quite honest, it's already put a bunch of them out of business are the ones that rely on Facebook as their primary source of traffic. Think low ticket stores, dropshipping products from China. The people that run these ads that show a product, quick product demo, have a link, people go buy it. And the way those people advertise on Facebook or I should say the way they advertised is by bidding on Facebook telling Facebook, "Hey, this is my ad. The goal, what I want as a conversion is a sale." And then Facebook goes out there and they try to get sales. They see who is buying and then they show it to more people like that.

And the cycle continues because tracking is, again, not what it used to be. The people that did that at scale are not able to do that profitably right now. I see people still talking about it every day. I see many of them saying they just gave up already on Facebook ads and they're basically spinning their wheels, trying to figure out a different platform. So if you are an advertiser that relies solely on Facebook, my advice is, you should have started yesterday, but diversifying your traffic.

Now, I will say at Drop Ship Lifestyle, again, we have the workarounds for it that they're enough to be profitable. Again, it's not going to bring it back to what it used to be, but they're enough to make ads profitable. They're enough to make Facebook work. But even with that being said, the only way we've really leveraged Facebook in the past anyway is for remarketing ads, not for bringing in the majority of our new customers, our new website visitors. They come from Google ads set up a very specific way and that still all works great.

So really no issue there. If you're member of a Drop Ship Lifestyle, you should be all good. But I know many people that watch these videos and listen to my podcast are not members of Drop Ship Lifestyle. So if that's you, yeah, get off Facebook sooner rather than later as your primary source of traffic or I believe many of you, I hate to say it, but will simply exhaust your funds and not be able to advertise profitably, again, if it hasn't happened already.

Now, I know that was three things that are all, again, in my opinion, very real. Some of them are already in motion. Some of them will be seen more in the early months of 2022. It does not mean that dropshipping is dead. It doesn't mean all dropshippers are going to fail. It just means that you should be aware so you can pivot, you can make changes, many of them that I recommended in this video so that when the changes come, you're not one of the people spitting your wheels last second, grasping for straws like what am I going to do? What can I make work? No, just think about it. Take a step back, look at your business and think, "Okay, this is the reality. This is what I foresee coming. Let me start to put these things in place so when the changes really start to hit, I'm fine. I'm still good. It's not a last minute thing. I don't have three months go by where my income disappears."

So as always guys, I hope this was helpful. If it was, leave a like on the video. If you're not subscribed, most people that watch these aren't, I have no idea why, click the Subscription button, click the bell, you'll get notified every single Monday and Thursday every time a new episode goes live. And if you want to know how to build a dropshipping store the right way, drop shipping high ticket products for domestic suppliers that ship fast, that have great return policies, that actually care about the products they make, be sure to go to dropshipwebinar.com for a free training for me. I will link that up in the description. So thank you everybody. I appreciate you. And I'll talk to you on Monday for the next episode. See you.
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