Dropshipping is a supply chain management system where a store doesn’t need to keep the products it sells in stock. Rather, when an online store sells a product, it purchases or directly orders the item from a third party and it shipped to the customer. Thus, the seller never sees or handles the item.
The greatest difference between the standard retail model and dropshipping model is that the seller doesn’t stock or possess stock. Rather, the merchant buys stock/purchases inventory as required from an outsider – typically a wholesaler or manufacturer – to fulfill orders.
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The dropshipping model has a number of benefits and drawbacks:
Benefits of Dropshipping
Easy to Get Started – If you don’t want to deal with the physical products, It’s much easier to start an eCommerce dropshipping business. With dropshipping, you don’t have to worry about:
- Paying for a warehouse or managing products.
- Handling returns and inbound shipments
- Packing & shipping your orders
- Accounting and Tracking inventory
- Managing stock level and continuously ordering products
Less Capital Is Required – With the dropshipping model, you don’t want to invest in a product unless you already made the sale and have been paid by the customer. It is possible to start a successful dropshipping business with very little money and without major up-front inventory investments.
Unfortunately, the biggest advantage of dropshipping is that it’s possible to launch an online store without having to invest thousands of dollars in inventory up front. Traditionally, retailers need to tie up and huge amounts of capital purchasing inventory.
Low Overhead – Just because you don’t have to deal with managing a warehouse and purchasing inventory, your overhead expenses are quite low. In fact, most of the successful dropshipping businesses are run from a home office with a laptop. As you grow, these expenses will likely increase but still, it’s low as compared to the traditional brick-and-mortar businesses.
Wide Selection of Products – In dropshipping, suppliers stock an item, you can list if for sale on your website at no additional cost. As you don’t have to pre-purchase the items you sell, you can offer a wide range of products to your potential customers.
Flexible Location – A dropshipping business can be run from anywhere with a laptop/desktop and an internet connection. As long as you can communicate with suppliers and customers easily, you can easily run and manage your business from any location.
Easy to Scale – By leveraging dropshipping suppliers, almost all of the work to process additional orders will be borne by the suppliers or manufacturers, allowing you to expand with less growing pains and fewer incremental work. Sales growth will always bring additional work – especially related to customer service – but business that utilize dropshipping scale particularly well relative to traditional e-commerce businesses. Rather, In a traditional business, if you receive three times as much business you’ll usually need to do three times as much work.
All these benefits make drop shipping an extremely attractive and profitable business model to both beginning and established sellers. Unfortunately, dropshipping isn’t all roses and rainbows. All this comfort and adaptability includes some significant downfalls.
Disadvantages of Dropshipping
Inventory Issues – It’s relatively simple to keep track of which items are in and out of stock if you stock all your own items. But when you’re sourcing from multiple warehouses, which are also fulfilling orders for other merchants, inventory changes on a daily basis. While there are ways you can better sync your store’s inventory with your suppliers’, these solutions don’t always work seamlessly, and suppliers don’t always support the technology required. Check out this best solution of Inventory Issue.
Low Margins – Since it’s so natural to begin and the overhead costs are so minimal, many merchants will set up shop and sell items at absolute bottom prices in an attempt to grow revenue. That is the reason, a Low margin is the biggest disadvantage of operating in a highly competitive dropshipping niche. They’ve invested so little in getting the business started so they can afford to operate on extremely small margins.
Genuine, these dealers frequently have low-quality websites and (if any) customer service. But that won’t stop customers from comparing their prices to yours. This increase in cutthroat competition will quickly destroy the profit margin in a niche. Fortunately, you can do a lot to mitigate this problem by selecting a niche that’s well suited for dropshipping.
Shipping Complexities – Let’s say a customer places an order for three items, all of these are available only from separate suppliers. You’ll bring about three separate shipping charges for sending each item to the customer, but it’s probably not wise to pass this charge along to the customer, as the customer will think you’re grossly overcharging for shipping! And even if you did want to pass these charges along, automating these figurings can be troublesome.
If you work with numerous suppliers, the products on your website will be sourced through a number of different drop shippers. This complicates your shipping costs.
Supplier Errors – Sometimes you have been blamed for something that wasn’t your fault, but you had to accept responsibility for the mistake anyway?
Even the best dropshipping suppliers make mistakes in fulfilling orders and for these mistakes, you have to take responsibility and apologize. What’s more, fair and low-quality suppliers will cause endless frustration with missing items, botched shipments and low-quality packing, which can damage your business’s reputation.
Is It Worth It?
As per the above article, we mention all the benefits and disadvantages of dropshipping. Dropshipping isn’t a perfect, stress-free way to build a successful business. The model has some definite advantages but comes with a number of built-in complexities and issue, you’ll have the capacity to address.
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We have examined these problems and found how to best address them. The good news is that with some careful planning and consideration, most of these problems can be resolved and need not prevent you from building a thriving, profitable dropshipping business.