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Why Drop-shipping for Clothing Is a Bad Idea in 2024: A Better Way to Build a Profitable Clothing Brand in India
In recent years, dropshipping has become a buzzword, especially among young entrepreneurs looking to start a low-investment business. Influencers on social media often promote dropshipping as an easy route to earn money, but the reality is far from what they portray. When it comes to the clothing business, dropshipping can actually be a costly and inefficient choice, leaving young entrepreneurs bearing most of the risk and expense while suppliers profit. This article breaks down why dropshipping is overhyped, particularly for clothing, and explains how starting a manufacturing operation instead can lead to higher quality, better profits, and long-term success in India’s clothing industry.
The Problem with Dropshipping Clothing: Why It’s Overhyped and Risky
Many influencers push dropshipping as a great business model, but here’s the catch: influencers are often paid or incentivized by suppliers to promote these dropshipping programs. The suppliers make money whether or not the dropshippers succeed, and in many cases, the dropshippers themselves face high costs, poor quality control, and logistical headaches. Here are some of the key reasons dropshipping clothing often fails:
All Costs Are on the Dropshipper: While suppliers earn a consistent profit, the dropshipper is responsible for all marketing and shipping expenses. To attract customers, dropshippers typically invest heavily in social media ads, and if sales don’t meet expectations, the dropshipper incurs significant losses.
Poor Quality Control and Customer Satisfaction Issues: Since the dropshipper never physically handles the products, there’s no way to verify quality before items reach the customer. This leads to customer dissatisfaction, high return rates, and damage to the dropshipper’s reputation.
Suppliers Rarely Accept Returns or Replacements: One of the biggest downsides to dropshipping is the lack of returns and replacements. When customers aren’t satisfied, the cost of refunds or replacements comes directly from the dropshipper, adding to the financial burden.
Overpriced Inventory: Dropshippers often pay inflated prices for products. For example, an oversized French terry t-shirt through dropshipping might cost INR 240-280 per piece, which could be much cheaper if produced in-house.
A Smarter Way: Start Manufacturing Your Own Clothing Brand
Instead of relying on third-party suppliers, starting your own manufacturing operation offers greater control over quality, branding, and profitability. By directly sourcing fabric and hiring a small team, you can create premium products at a fraction of the dropshipping cost.
India is known for its affordable, high-quality fabric sources. For example:
- French Terry Fabric: Available for around INR 200-250 per kg. You can manufacture about three oversized t-shirts from one kg of French terry fabric.
- Regular T-shirt Fabric (180 GSM): Available for around INR 80-150 per kg. This quantity can yield four regular t-shirts per kg, allowing for a higher profit margin.
Let’s break down the cost of manufacturing these t-shirts.
Cost Breakdown of Manufacturing One T-Shirt
1. Oversized French Terry T-Shirt
Given:
- Cost of French terry fabric = INR 200 per kg
- 1 kg fabric yields three oversized t-shirts
Cost Calculation:
- Fabric cost per t-shirt = INR 200 / 3 = INR 66.67
Assuming the sewing cost per t-shirt (INR 50) based on hiring a tailor at a monthly salary of INR 15,000 who can sew around 10-12 t-shirts per day in a 9-hour shift:
- Labor cost per t-shirt = INR 50
Total cost of oversized French terry t-shirt = Fabric cost + Labor cost
= INR 66.67 + INR 50
= INR 116.67
2. Regular T-Shirt (180 GSM Cotton)
Given:
- Cost of 180 GSM cotton fabric = INR 80 per kg
- 1 kg fabric yields four regular t-shirts
Cost Calculation:
- Fabric cost per t-shirt = INR 80 / 4 = INR 20
Assuming the same labor cost per t-shirt (INR 50):
- Total cost of regular cotton t-shirt = Fabric cost + Labor cost
= INR 20 + INR 50
= INR 70
Comparing In-House Manufacturing Costs with Dropshipping
When purchasing an oversized t-shirt through a dropshipping supplier, you might pay around INR 240-280 per piece. By manufacturing directly, the total cost per oversized t-shirt comes to just INR 116.67, which is 50% less than dropshipping costs. Not only does in-house production save money, but it also provides more control over quality and consistency, essential factors for building a reputable brand.
Manufacturing Cost Breakdown for an Oversized French Terry T-Shirt
In our previous discussion, we estimated the direct manufacturing costs of a t-shirt, breaking down fabric, labor, and sewing costs. Here, we’ll take a closer look at additional operational costs, including salaries for designers, quality control, electricity, printing, and logistics, to determine the total cost of each t-shirt.
Direct Manufacturing Costs Recap
For reference:
Fabric Cost (French Terry, 1 kg): INR 200 (1 kg yields 3 t-shirts)
Cost per t-shirt = INR 200 / 3 = INR 66.67Labor Cost: Each tailor, hired at a monthly salary of INR 15,000, can produce around 300 t-shirts monthly.
Labor cost per t-shirt = INR 15,000 / 300 = INR 50Printing Cost: Large DTF or DTG print = INR 30-50 per t-shirt (assuming large full-length print).
We’ll average this to INR 40 for calculation purposes.
Thus, the direct manufacturing cost per oversized French Terry t-shirt is:
Fabric + Labor + Printing = INR 66.67 + INR 50 + INR 40 = INR 156.67
Operational Costs Beyond Manufacturing
To ensure brand quality and unique designs, operational expenses over and above manufacturing costs need to be considered:
Design and Quality Control Salaries:
- Fashion Designers: 2 designers at INR 40,000/month each = INR 80,000
- Lead Designer: 1 at INR 70,000/month = INR 70,000
- Quality Control Lead: 1 at INR 60,000/month = INR 60,000
Total monthly designer and quality control cost = INR 80,000 + 70,000 + 60,000 = INR 210,000
Electricity Cost:
- Monthly electricity cost ranges between INR 15,000 and INR 25,000. We’ll average this to INR 20,000.
Logistics Cost:
- Per t-shirt shipping cost = INR 70
Monthly Production Output:
- 20 tailors producing 300 t-shirts per month = 20 x 300 = 6,000 t-shirts/month
Operational Cost per T-Shirt
Now, let’s calculate the per-t-shirt cost for each of these operational expenses.
Design & Quality Control Cost per T-Shirt:
Total design and quality salaries (INR 210,000) / Monthly production (6,000 t-shirts)
= INR 35 per t-shirtElectricity Cost per T-Shirt:
Total electricity cost (INR 20,000) / Monthly production (6,000 t-shirts)
= INR 3.33 per t-shirtLogistics Cost per T-Shirt:
INR 70 per shipment
Total Cost of Manufacturing and Shipping One Oversized T-Shirt
Combining these costs, we get the total cost for manufacturing and shipping one oversized French Terry t-shirt:
Direct Manufacturing Cost + Design & Quality Control + Electricity + Logistics
= INR 156.67 + INR 35 + INR 3.33 + INR 70
= INR 265 per t-shirt
Selling on Amazon and Flipkart: Including Marketplace Commissions
Selling through marketplaces like Amazon and Flipkart adds an additional cost, as they typically charge a commission of around INR 120-150 per t-shirt.
Assuming an average commission of INR 135:
- Total Cost for Marketplace Sales = Manufacturing and Shipping Cost + Marketplace Commission
= INR 265 + INR 135
= INR 400 per t-shirt
With a selling price between INR 599-699, you’ll still earn a margin of INR 199-299 per t-shirt, even after accounting for high marketplace fees.
Advantages of In-House Manufacturing Over Dropshipping: A Detailed Comparison
When comparing the cost of dropshipping with the benefits of in-house manufacturing, the differences are striking. Let's break down the key parameters for both methods and see how in-house production not only saves you money but also gives you greater control over your brand's success.
Cost Comparison: Supplier Charges vs In-House Manufacturing
Dropshipping Supplier Charges:
- Cost of French Terry Oversized T-Shirt: A dropshipping supplier typically charges between INR 240-280 for a single French Terry oversized t-shirt.
- Printing Cost: For large prints, a supplier will charge INR 180-250 for a print. This can vary based on design size and complexity.
- Shipping Charges: Dropshipping suppliers add an extra shipping charge of INR 70, including GST.
Total Dropshipping Cost per T-Shirt (without considering marketplace fees):
- French Terry T-Shirt: INR 240-280
- Printing: INR 180-250
- Shipping: INR 70
Total Dropshipping Cost: INR 490-600 per t-shirt (depending on print and shipping charges)
In-House Manufacturing Costs:
- Fabric Cost: INR 66.67 for French Terry fabric (for 1 t-shirt per 1/3 kg of fabric)
- Labor Cost: INR 50 for sewing (based on a tailor’s salary of INR 15,000/month)
- Printing Cost: INR 30-50 (for large DTF or DTG print)
- Electricity, Design, and Quality Control: INR 38.33 per t-shirt (calculated from total monthly operational costs)
Total In-House Manufacturing Cost: INR 265 per t-shirt
Profit Margins: Why In-House Manufacturing Wins
When selling on marketplaces like Amazon or Flipkart, the fees and commissions can significantly impact profitability, especially in the dropshipping model, where you’re already paying a premium to suppliers. Let’s break down the costs to see why dropshipping t-shirts on marketplaces often results in lower profits, even when priced higher.
In a marketplace setting, you will have to price a French Terry oversized t-shirt at INR 999 to cover all dropshipping and marketplace fees. It significantly limit the potential for high sales volumes. Most consumers are hesitant to purchase basic or mid-range t-shirts at such a high price point, especially when many comparable options are available at a more attractive range of INR 599 to 699. Lower price points tend to drive greater purchase volumes, both on marketplaces and in direct-to-consumer (D2C) models, as they align better with consumer expectations for affordability.
Dropshipping Cost Breakdown for a French Terry T-Shirt on Marketplaces
To understand why achieving profitability through dropshipping at lower prices is difficult, let’s examine the costs involved when selling at INR 999—the higher price needed just to maintain some profit in this model:
Assumptions:
- Selling Price: INR 999 (the minimum high price needed to cover costs)
- Marketplace Commission: 10-15% of selling price
- Closing Fee: INR 25-50
- FBA (Fulfilled by Amazon) Fee: INR 20
- Supplier Charges (including t-shirt, print, and shipping): INR 490-600
1. Calculating Marketplace Fees
For a selling price of INR 999:
- Commission (10-15%): INR 100-150
- Closing Fee: INR 25-50
- FBA Fee: INR 20
Total Marketplace Fees: INR (100-150) + (25-50) + 20 = INR 145-220
2. Total Cost Including Dropshipping and Marketplace Fees
- Supplier Charges: INR 490-600
- Marketplace Fees: INR 145-220
Total Cost per T-Shirt: INR (490-600) + (145-220) = INR 635-820
3. Profit Calculation at INR 999 Selling Price
- Selling Price: INR 999
- Total Cost (including all fees): INR 635-820
Estimated Profit per T-Shirt: INR 999 - (635 to 820) = INR 179-364
Considering above breakup even if you price higher, the profit margins are relatively lower and non-scalable.
Analysis: Limited Profitability in the Dropshipping Model
With the high selling price of INR 999 per t-shirt, your profit margin remains relatively low, between INR 179 and INR 364 per sale, after all marketplace and dropshipping costs are accounted for. These profits are slim, considering the premium price required just to break even.
In-House Manufacturing: A Profitable Alternative
In comparison, with in-house manufacturing, you can produce the same French Terry oversized t-shirt for approximately INR 265. Selling at even discounted rate of INR 699 would then yield a much higher profit margin, allowing you to offer competitive prices and still maintain profitability.
Why INR 999 Limits Sales Volume
This INR 999 price is high for most buyers, especially in the t-shirt category. Consumers are far more inclined to buy when t-shirts are priced at INR 599 or INR 699. However, at these lower prices, the profit margins in a dropshipping model diminish drastically and you might even incur loss in this model with these prices because the fees and supplier costs remain the same.
In-House Manufacturing: A Competitive Alternative
With in-house manufacturing, you can produce a French Terry t-shirt at an all-inclusive cost of around INR 265. This allows you to set a retail price of INR 599 or 699 comfortably, while still maintaining a profitable margin. Selling at a more competitive price point increases purchase volumes and brand reach on both marketplaces and your own D2C platform.
Conclusion
The dropshipping model requires you to set high prices just to maintain small profits, significantly reducing the number of potential buyers. By manufacturing in-house, you can sell the same high-quality t-shirt at INR 599 or INR 699, leading to increased purchase volume, customer satisfaction, and sustainable profit margins—making it the better long-term strategy for a successful apparel brand.
By choosing to manufacture in-house, you can produce a t-shirt at nearly half the cost of dropshipping, leaving more room for profit, even when selling on marketplaces like Amazon and Flipkart.
Quality Control: Maintain Consistency and Build Loyalty
One of the major drawbacks of dropshipping is the lack of control over product quality. Since you’re not directly handling the goods, there’s no way to ensure consistent quality, which can lead to dissatisfaction, returns, and damage to your brand’s reputation. On the other hand, in-house manufacturing allows you to oversee the entire production process—from fabric sourcing to final quality checks. This ensures each t-shirt meets your standards and increases customer satisfaction, fostering brand loyalty and reducing returns.
Brand Control and Unique Designs
In-house manufacturing allows you to have full control over your designs, materials, and prints. You can create custom prints, experiment with different fabrics, and produce limited-edition collections—all of which help build a unique brand identity. Dropshipping, however, offers limited options and a lack of personalization, as you're selling mass-produced items that might not resonate with your target audience.
Scalability and Long-Term Growth
In-house manufacturing offers the flexibility to scale your production as your business grows. You can hire more tailors, expand your product range, and adjust your designs to meet market demands. In contrast, dropshipping businesses often struggle with scalability due to dependency on third-party suppliers who may not be able to keep up with increased order volume or special design requests.
In-house manufacturing also fosters sustainable growth. By building your own production facility, you’re not only creating a product but a brand that can grow independently without relying on third-party suppliers. In contrast, dropshipping relies on external suppliers whose business decisions and supply chains are beyond your control, making long-term brand-building more challenging.
Final Thought: Choosing in-house manufacturing over dropshipping not only maximizes your profits but also makes you a true entrepreneur. By building your own clothing brand, you’re not just creating a profitable business for yourself—you’re employing a dedicated team of around 25 people, providing jobs and supporting livelihoods. This approach contributes to the local economy and boosts GDP, making your business an integral part of economic growth. In-house manufacturing allows you to grow sustainably, earn more than you would through dropshipping, and leave a lasting, positive impact.
By choosing in-house manufacturing, you gain a competitive edge in the market, enjoy higher profit margins, and create a brand that can thrive in the long run—whether you sell directly to consumers or through major marketplaces. Make the smart move and start building your own clothing brand today!
In our next blog, we’ll explore how to leverage government subsidies to launch your own manufacturing setup.
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