Is Dropshipping a High Risk Business?

Dropshipping is a simple business model that has become the entryway to business ownership for many. The recent uptick in dropshipping has been met with excitement, as well as skepticism.

The low barrier to starting a dropshipping business is attractive. At the same time, dropshipping merchants face more challenges than other eCommerce merchants.

Is Dropshipping High Risk?

Banks and payment processors coin high risk businesses as those that are the most likely to incur chargebacks. A high rate of chargebacks leads to financial loss that account providers have to work with.

Certain businesses and industries incur more chargebacks than others if they attract more fraud, dissatisfied clients, or other faults.

Dropshipping relies on third-party suppliers to carry out product handling. Dropshippers outsource manufacturing, packaging, and shipping. This results in a business model where owners are held responsible for any errors suppliers make in delivering to customers.

What is Dropshipping?

Dropshipping takes manual labor out of the hands of business owners. Inventory, packaging, and delivery are managed by suppliers and wholesalers. This order fulfillment has become an inexpensive venture.

Dropshipping merchants’ work is in maintaining online storefronts. This includes customer service, dispute resolution, and anything else that doesn’t involve physical product handling

The majority of work for dropshipping merchants is gaining exposure in order to sell.

What Makes Dropshipping a High Risk Business?

1. Saturated Market

Dropshipping reins some of the top eCommerce niches, including clothing and health products. The ease of starting a dropshipping business leads to much competition, especially in certain niches.

Standing out in a saturated dropshipping market means excelling in marketing and customer experience. Dropshippers are also competing against traditional eCommerce stores.

2. Outsourced Quality Control

Dropshippers never see their products in person. They give up all quality control to the suppliers they work with. Additionally, they may be using several suppliers to run their business. This can lead to a discrepancy in quality between products.

When quality control is outsourced, the risk of dissatisfaction and chargebacks becomes high. Inventory availability can change at a moment’s notice before merchants can update their store.

3. Delivery and Shipping Trouble

Low Profitability

Dropshippers make about 10-15% profit. The majority of the cost goes to the supplier and shipper. This creates a slippery slope for dropshippers, especially those in top niches or are beginners.

As easy as it is to get into dropshipping, maintaining a successful dropshipping business takes work that other eCommerce merchants have less trouble with. These factors make chargebacks a high probability and in turn makes financial institutions wary of working with dropshippers.

As a high risk business, your dropshipping store would best operate by working with payment processors and banks specializing in high risk merchant services.

How to Reduce Risk as a Dropshipping Merchant

1. Ramp Up Customer Service

Problems with your supply chain are often out of your hands. Unexpected situations leave your business dwindling as customers turn away.

Stellar customer service not only retains customers but is a huge factor in preventing chargebacks. Make sure that your service team is timely, knowledgeable, and willing to put clients first.

2. Use the Internet to Your Advantage

Dropshippers have access to more inventory than other businesses. They’re not limited to a single warehouse or inventory space since they use suppliers.

You can use a dynamic inventory to your advantage. You’re able to market a wide range of demographics while keeping costs low.

Additionally, skills such as SEO are crucial in showing up in internet searches. The right SEO and web formatting opens your business up to more visitors.

3. Use a High Risk Payment Processor

Dropshipping merchants are high risk merchants. High risk payment processors such as Revitpay understand the struggle in getting payment processing and banking together. Our knowledge and experience helps high risk businesses achieve low chargeback rates and success. Contact us today to find out how Revitpay can compliment your dropshipping business.

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