The sustainability of the Cheap dropshipping model to start-ups depends on cost management, competitive barriers and customer loyalty. According to Statista data, the 2023 global delivery market size was 243 billion, while the average lifespan of new operators is only 14 months owing mainly to profit margin compression through the low-cost policy (810 unit average of the company sale of mobile phone accessories (price 3.5+ freights 2.5), 40% gross profit margin). But the 15% return rate (quality complaints) and advertising cost (ROAS 2.5) pushed the net margin to 4%, and the 500,000 yuan annual revenue was only 20,000 yuan.
The initial cost and cash flow pressure are tremendous. Low-cost dropshipping has a minimum cost of 500−2000 (site setup + selection tool), but the acquisition cost (CAC) is as much as 25−50/ order (Facebook AD CPM 10−15). If the volume of orders on a daily basis is less than 20, the turnover cycle of the cash flow will be 45-60 days (30 days supplier account period + 15 days platform settlement) and 80% start-ups within 6 months can overcome the breaking of the fund. In 2023, a British domestic furniture seller closed down due to TikTok marketing expenses exceeding the limit (12,000 yuan per month) and 80,000 yuan of debts.
Uncertainty is worsened due to supply chain risk. Startups with cheap Chinese suppliers such as 1688 are under a 12-20% out-of-stock rate (production cycle mistake ±7 days). A Shenzhen data line factory was shut down in 2022 because of the epidemic and resulted in 30% order cancellation rate of 50 Cheap dropshipping startups with a loss of 1.5 million yuan. Additionally, the logistics cost occupies 251.8/kg of revenue, the age cycle is 15-30 days), if overseas warehouses (e.g., Amazon FBA) are utilized, the storage fee of 0.5/ cubic feet/month +3.5/ single processing fee, further consuming profits.
The absence of competitive entry barriers leads to price wars. AliExpress has 200+ identical sellers of the same product, with a price standard deviation of ±2.5, compeling start-ups to drive gross margins to 101.2, yet conversion rates are 1.5% (industry average is 3%), and traffic costs are 40% of revenue. In 2024, one of the German suppliers withdrew the platform because they couldn’t afford Temu’s “price guarantee lowest” policy (requiring prices 5% lower than competitors), and orders fell 90%.
Low loyalty of customer restricts re-purchase. Average LTV of Cheap dropshipping customers is 45, but re-purchase is only 830,000 the next month, but due to DSR score 4.2 (minimum requirement on platform ≥4.5), traffic reduces by 70%.
Compliance and legal risks should not be underestimated. The EU’s Digital Services Act, making platforms responsible for product safety, resulted in 15% of Cheap dropshipping sellers being fined for not having CE certification in 2023 (average fine of €5,000 per visit). Under the US CPSC spot check, 30% of inexpensive electronic items shipped from China had too much lead and were removed from the market, with the seller bearing the recall expense of $50,000 +/ time. Additionally, PayPal accounts that have more than a 5% dispute rate May be frozen for up to 90 days, worsening cash flow.
Some success cases reveal the trajectory of breakout. Polish startup Vivida achieved an annual profit of $500,000 within three years through differentiated product selection (niche pet products, gross margin of 35%), self-built logistics (Europe 3 days, cost saving of 20%) and private domain business (re-purchase rate of 25%). However, its initial investment was 100,000 yuan (supply chain +IT system), which was far beyond the industry average.
Finally, Cheap dropshipping relies heavily on optimized operation (return rate ≤5%, CAC≤$15) and differentiation strategy in order to achieve the long-term survival of start-ups. McKinsey predicts that only 10% of sellers will survive three years, and 90% of them will need to become a branded (premium ≥30%) or vertically integrated supply chain. Unless the net interest rate can be boosted above 10% within 12 months, the low-price model will eventually become unsustainable.