Why Many Fail to Scale Dropshipping Business Sustainably - 4 Guiding Steps to Avoid Those Pitfalls
Updated: Jul 8, 2021
The most common issue that experienced dropshippers face when running their store is inconsistency. For instance, they hit the jackpot with certain winning products and manage to scale their store to the point of earning 6 and 7 figures. However, at some point, the trends die down, and they start witnessing loss in profit and even struggle to break even. In many cases, people blame this on luck, which usually has little to do with success (although it does play a small role). However, what they should do instead is to reassess their business to see whether it is ‘scale ready’ yet.
First, let us give you some situations signaling that your business is not fully ready for scaling.
1. The list of products that you need to test out is too short
If you scale your store too fast, your team would not have enough time to do research and add new products to the list. This leads to fewer product launches, possibly resulting in decreased income.
2. You do not prepare enough creative materials and collaterals
Creative burnout happens to everyone and every business. It is not possible to produce many creatives in a short amount of time, and this is the case for many who have troubles when they are scaling. High variability in creatives is crucial because it would prevent ad fatigue, which occurs when individuals are exposed to certain ads at a high frequency. Not having enough collaterals for advertisements and other marketing efforts would not only result in you burning your cash but also cause your profitability level to drop.
3. Your team could not cope with the increased inquiries and requests from customers
Scaling your business means you would get many more customers visiting your store and purchasing your goods. It is unavoidable that they would have questions and/or complaints about the products as well as requests for returns and exchanges. If you do not prepare your team in advance to deal with the surge in demand for customer service, your business will take the hit. For example, you might not provide them with sufficient training on how to respond to common inquiries and FAQs or they do not have enough background knowledge about your products and services to advise the customers. As a result, your customers might leave you for your competitors.
Next, we will discuss the benefits that you would enjoy once you get your business operations optimised.
Consistent increase in sales, revenue, profit, and overall growth
More launches of high quality and well-received products
More effective marketing efforts such as advertising campaigns, thus higher return on your spending (e.g., with higher conversion rate)
More productive teams with better performance, delivering satisfactory results
Most importantly, you would have everything under control. For instance, you would better understand what part of your operations should receive more attention and investments or which strategies do not work well with your business models and operations.
Now that you have a better idea about scale readiness and its benefits, we will then discuss how you can get started on preparing your team and your store for further growth.
In this article, we will focus on a concept called ‘Key Scaling Driver’ (KSD). More specifically, we would provide you with a step-to-step guide on how to leverage KSDs to rapidly scale your ecommerce store.
1. Identify your goals
This step does not require much external research. You more or less need to set certain priorities for your business. When it comes to goal setting, it is important that you describe the goals as specifically as possible, preferably with numbers and timeframes. For instance, you could say something like:
I would like to raise my average profit margin by 15% within the next 6 month.
2. Determining your KSDs
Once you fixate on certain goals, you should next identify your KSDs, which are the tasks that you need to embark on in order to achieve the goals. Let’s now go back to the example provided in the previous step. Among the numerous things that you can implement, some examples include:
Introduce 5 new products every week into your store for testing
Create at least 5 more bundles in the next month to increase average order value
Launch more targeting/retargeting ad campaigns, which focus on certain winning products rather than your store as a whole
Expand your store to more countries and regions and offer multiple language options
*The numbers above are just for illustration purposes. You should conduct your own research and make decisions based on the current market and your priorities.
3. Find out the tactics and steps that you need to implement to achieve the KSDs
Once you have your KSDs listed down, you can draft a detailed course of action. For instance, to increase profit margins, you might also consider switching to value-based pricing if you are currently competing on price and earn a profit solely based on your cost. Nonetheless, product testing usually remains the utmost important thing for a dropshipping business, especially if you are expecting to set a higher mark-up rate. You should describe the process in as many details as possible. It could look like the following.
Research and create a list of new products to test in the next 3 months. The list should consist of at least 60 items.
Creating testing ideas: how the products are introduced into your store (e.g., images, descriptions on your website or store page) and marketed to your customers (e.g., via social media or email)
Produce the necessary materials for implementation of the tests (e.g., marketing collaterals, copywriting content)
Run the test
Collect data and analyse whether you are on the right track. If you are, continue with other products. If something is wrong, reassess and find out the causes and how the procedures could be improved
4. Execute and standardise the process
Once you have figured out what does and doesn’t work for your products and store, you should create a standardised workflow on how to achieve certain goals and KSDs. This would save you time because the entire process can later be replicated and implemented without your close supervision, allowing you to spend more time on other management level decisions and matters. You should encourage your employees to treat those processes as ‘protocols’ to maximise their efficiency and effectiveness.
However, you should be mindful that the market is constantly evolving, so divergence from original plans is unavoidable. Hence, you should encourage and empower your team to speak up when there is any major issue and discuss with the rest. Afterwards, you can make the calls and create other versions on how certain goals can be fulfilled.
If you are planning to scale your dropshipping business, besides following the guide above, you are also encouraged to work with a reliable dropshipping agent. This is because they would be able to provide your significant support and resources when it comes to back-end issues. These range from product & supplier sourcing to warehouse storage and ecommerce order fulfillment, or branded packaging & private labelling to quality inspection & product certification. With 30+ years of experience in logistics industry and 5+ years in dropshipping sector, Xianchao Logistics could help to bring your ecommerce store to a new horizon. Contact us today to find out more!
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