Do you want
to create a profitable ecommerce business with cheap overhead and no warehouse?
Then
dropshipping is the business model for you.
However,
beginning a dropshipping business is not for every entrepreneur. Dropshipping
and traditional wholesaling have substantial tradeoffs.
We\’ll look
at the benefits and drawbacks of dropshipping to help you make the best
decision for your business today.
Dropshipping: What Is It and How Does
It Work?
Dropshipping
is a business strategy in which you sell and ship things that you do not own or
stock.
Your
suppliers — wholesalers or manufacturers – create the goods, store them, and
ship them to your clients on your behalf.
The procedure is straightforward:
·
You
get an order
·
You
pass the order on to your supplier.
·
Your
supplier completes the order
While
dropshipping has numerous advantages, it also has several disadvantages. Both
will be covered in the parts that follow.
What Are the Benefits and Drawbacks
of Dropshipping?
Many people
start a dropshipping business because they believe it will be simple to manage.
They exclaim,
\”No inventory, no issue!\”
The truth is
that it isn\’t \”easy.\” It brings with it its own set of issues.
Dropshipping,
on the other hand, addresses several problems for retailers and wholesalers.
Let\’s look
at the advantages and cons of dropshipping to see if it will solve or
exacerbate your business challenges.
The Benefits of Dropshipping
1. Low Startup Costs
Stocking a warehouse
takes a lot of money. By adopting dropshipping, you can avoid going into debt
to start your business.
Instead than
purchasing a large inventory and hoping it sells, you can start a dropshipping
business with no inventory and make money right away.
2. Low inventory costs
Inventory is
one of the most expensive charges you\’ll face if you own and warehouse stock.
You could
wind up with obsolete inventory, requiring you to lower your stock, or you
could end up with too little inventory, resulting in stock outs and lost
income.
Dropshipping
helps you to bypass these hassles and concentrate on expanding your customer base
and developing your brand.
3. Low Costs of Order Fulfillment
Order
fulfillment often entails warehouseing, organizing, tracking, labeling, picking
and packing, and shipping your merchandise.
Dropshipping
allows a third party to handle everything.
Your only
responsibility in this arrangement is to ensure that your customers\’ orders are
delivered. They will manage everything else.
4. Sell and test more products while
assuming less risk.
Dropshipping
allows you to update your inventory fast, easily, and cheaply because it
removes the limits of physical inventory and the costs connected with it.
If you know
a product is selling well for another retailer or reseller, you can offer it to
your customers right away without having to wait for it to arrive in your
warehouse.
Dropshipping
allows you to experiment with new products without the risk of carrying
outmoded inventory. You are only charged for what you sell.
1. Less control over order fulfillment and
lead times when dropshipping
You will pay
for disappointed customers even if you do not bear the cost of keeping items.
The
manufacturers and distributors with whom you do business are in charge of handling
and shipping your inventory. If they make a mistake, the customer complains to
you or purchases from your competition.
Make sure
you work with high-quality partners if you establish a dropshipping firm.
2. Reliance on the Stocks of Others
A significant
advantage of dropshipping is the ability to provide new products immediately or
discontinue selling slow-moving products.
The
disadvantage of this benefit is that you have no control over your supplier\’s
inventory. If they run out of supply, so will you.
As a result,
lead times will be extended and clients will be lost.
3. Lower Profit
The lack of
bulk pricing is the hidden \”cost\” of dropshipping.
You will
most certainly pay more for each thing you sell than you would for a huge
inventory of items, resulting in a lower profit.
If you want
to make a lot of money through dropshipping, you must sell more products than
you would if you owned and warehoused them yourself.
4. Inadequate Customer Service
If your
supplier fails to deliver products on time, breaks them, sends the wrong items,
or otherwise messes up your customer\’s purchase, the consumer will blame you.
When it
comes to order fulfillment and lead times, we\’ve already discussed this issue.
But it goes far beyond than that.
You won\’t be
able to deliver the personalized service that retailers who manage their own
inventory can. You won\’t be able to swiftly resolve customer complaints unless
you manage the inventory yourself — you\’ll have to engage with your suppliers
to resolve difficulties for your customers.
This
\”man-in-the-middle\” approach to customer service can cause problems
with your suppliers, who may take a long time to do what you ask them to do,
and with your customers, who will rapidly grow tired of waiting for their
problems to be resolved.
What You\’ll Need to Make Dropshipping
Easier?
Now that you
understand the benefits and drawbacks of dropshipping, you should be aware of a
tool that can help you make dropshipping operate better for you.
One of the
disadvantages of dropshipping is not having control over the inventory you
sell, which might lead to stock outs.
However, you
can utilize cloud-based inventory management software that interfaces with your
supplier\’s software so that you and your supplier always know how much
inventory is in stock.
This allows
you, as a dropshipper, to synchronize your marketing and sales activities with
the stock of your supplier.
As a result,
whenever one of your supplier\’s client’s makes a purchase (including you), the
amount of inventory in your supplier\’s warehouse is instantly updated.
If you want
to reduce some of the drawbacks of dropshipping and make it more profitable,
you\’ll need an inventory management system that tracks your stock levels in
real time.