Do you want to start an eCommerce business with little overhead and no warehouse and still make a profit?
Then Dropshipping is the business model you are looking for.
But starting a dropshipping business is not the right choice for all entrepreneurs. There are significant trade-offs between drop shipping and traditional wholesale.
We’ll break down the pros and cons of dropshipping and help you make the right decision for your business today.
What is Dropshipping and how does it work?
Dropshipping is a business model that allows you to sell and ship products that you do not own and do not stock.
Your suppliers, wholesalers, or manufacturers produce the products, store them, and ship them to your customers for you.
The process is simple:
- Receive an order
- Forward the order to your supplier
- Your supplier fulfills the order.
While drop shipping has many benefits, it also has many drawbacks. We will explore both in the following sections.
What are the pros and cons of Dropshipping?
Many people start a dropshipping business because they think it will be easy to manage.
“No inventory, no problem!” they say.
The truth is that it is not “easy”. It comes with its own set of problems.
That said, drop shipping also solves a lot of problems for retailers and wholesalers.
Let’s take a look at the pros and cons of drop shipping to see if it will solve your business problems or add to them.
Advantages of Dropshipping
1. Low startup costs
A lot of capital is required to stock a warehouse. You can eliminate the risk of going into debt to start your business by dropshipping.
Instead of buying extensive inventory and hoping it sells, you can start a drop shipping business with zero inventory and start making money right away.
2. Low inventory cost
The cost of inventory is one of the highest costs you will have if you own and store stock.
You may end up with obsolete inventory, forcing you to find ways to reduce your stock, or you may end up with too little inventory, leading to stockouts and lost revenue.
Dropshipping allows you to avoid these problems and focus on growing your customer base and building your brand.
3. Low order fulfillment costs
Order fulfillment typically requires you to store, organize, track, label, select, pack, and ship your inventory.
Dropshipping allows a third party to take care of all of that.
Your only job in this arrangement is to make sure that you get orders from your customers. Everything else will be handled by them.
4. Sell and test more products with less risk
Without the limitations of physical inventory and the costs associated with it, dropshipping allows you to quickly, easily and affordably update your inventory.
If you know a product is working well for another retailer or reseller, you can immediately offer it to your customers without waiting for it to arrive in your warehouse.
Dropshipping allows you to try new items without the risk of having outdated inventory. You only pay for what you sell.
Cons of Dropshipping
1. Less control over order fulfillment and delivery times
Even if you don’t bear the cost of stocking, you will pay for dissatisfied customers.
The manufacturers and wholesalers you do business with are responsible for managing and shipping their stock. If they are wrong, the customer complains or buys from your competitor.
If you start a drop shipping business, make sure you work with high-quality partners.
2. Dependence on other people’s actions
Being able to offer new products right away or stop selling slow-moving products is a major benefit of Dropshipping.
The downside of this advantage is that you do not control your supplier’s inventory. If they run out, YOU are out of stock.
This will result in longer delivery times and lost customers.
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3. Less earnings
The hidden “cost” of dropshipping is the lack of wholesale pricing.
You are likely to pay more for each item you sell compared to paying less for a large inventory of items, which will lead to less profit.
If you want to make a lot of money from drop shipping, you will have to sell more products than you would if you had them and stock them yourself.
4. Poorer customer service
If your supplier delivers the products late, damages them, delivers the wrong items, or messes up your customer’s order, the customer will send it back to you.
We already mentioned this issue when it comes to order fulfillment and delivery times. But it extends further.
You won’t be able to maintain the personal touch that retailers who manage their own inventory can give customers. You won’t be able to quickly resolve customer issues without monitoring inventory yourself; You will have to deal with your suppliers to solve your customers’ problems.
This “middle man” way of helping your customers can lead to problems with your vendors, who may take a long time to do what you ask them to do, and with your customers, who will quickly tire of waiting a long time for their issues to be resolved problems.
As you have seen, Dropshipping is not perfect and it always takes a lot of work to start a business and be successful. But the model is definitely a low-cost opportunity to join the world of e-commerce with plenty of opportunities waiting for you to discover it.
This article exists to help you early on when things are new and unfamiliar, so you can make your Dropshipping business less complicated with better insights.