The whole idea behind dropshipping is that the store never has to keep stock of products. The retailer will list a product with a supplier who will ship directly to the customer’s door whenever they purchase it. Retailers can start selling online products without having to invest in inventory.
According to the survey, almost half of the online retailers do not have products in stock but still offer on-the-spot order fulfillment. These retailers are called dropshippers.
If you haven’t heard about dropshipping or are confused about it, then this blog post is for you. We will discuss dropshipping, how it works, and the pros and cons of starting a dropshipping business. So, let’s get started.
What is Dropshipping?
Dropshipping is a business model where retailers do not keep products in stock. When a customer places an order, the retailer passes that order to the supplier, who then ships the product directly to the customer’s door.
Essential Facts About Dropshipping
- Dropshippers never handle, stock, or ship the products they sell.
- Dropshipping works best for those making a full-time income from home and who are looking to keep their overhead low.
- With dropshipping, you can sell a wide range of products without being an expert in any industry.
- Dropshipping allows retailers to become their suppliers and manufacturers by connecting with distributors or other wholesalers online. In short, the retailer becomes the middleman but doesn’t need to carry any inventory.
If you don’t have a product of your own to sell, you can always use one from another retailer.
How Does Dropshipping Work?
There are two main types of dropshipping businesses:
- The store owner finds a supplier who will dropship products. They build a relationship with the supplier and order products as needed.
- The store owner finds a product they want to sell and then finds a supplier who will dropship that product for them.
In both cases, the process is very simple which is mentioned below.
- The store owner lists a product on their site.
- The customer orders the product from the store owner’s site.
- The store owner contacts the supplier, then ships the product directly to the customer.
1. Low Overhead Costs
Because you don’t need to invest in inventory, your overhead costs are pretty low. You can run a dropshipping business from your home without renting office space.
2. No Shipping or Packaging Costs
Since the supplier ships the products directly to the customer, you don’t have to worry about packaging or shipping costs.
3. Wide Product Selection
Since you’re not limited to selling products that you carry in stock, you can sell a much more comprehensive range of products. It gives you greater flexibility in choosing what to sell in your store.
4. No Inventory Risks
When you’re dropshipping, you don’t have to worry about overstocking products or running out of stock. The supplier will always ship the products directly to the customer’s door.
5. You Can Offer Full-time Service
You can provide full-time service in your dropshipping store. It means that you can receive orders 24/7 without worrying about shipping out the products.
6. Low Start-up Costs
It’s effortless to start a dropshipping business. You can create one with just a few hundred dollars.
1. Limited Control Over the Quality of Products
Since you’re relying on a third-party supplier to ship products to your customers, you don’t have as much control over the quality of products.
2. Limited Customer Support
When you’re dropshipping, it’s challenging to offer highly personalized customer service.
3. No Control Over Shipping Times
Since you don’t handle the order fulfillment process, you have no control over when orders are shipped out or delivered. So, customers can receive their packages only when the supplier feels like shipping them out.
4. Potentially Low Margins
Since you’re not handling the order fulfillment process, you’re not going to make as much money on each sale as you would if you were doing it yourself. This means that your profits may be lower than if you were running a traditional eCommerce store.
5. Difficulty Building A Brand
It can be challenging to build a brand when you’re dropshipping. Since you’re not controlling the product quality or shipping times, it’s hard for customers to trust your store. This makes it challenging to establish customer loyalty and encourages them to shop elsewhere.
6. Limited Scalability
It can be challenging to scale a dropshipping business up to a larger size. Since you’re relying on a third-party supplier to fulfill orders, you may find that you hit a bottleneck at some point.
The eCommerce industry is highly competitive, and it can be challenging to differentiate your store from the competition. This makes it tough to attract customers and generate sales.
8. Difficult to Stand Out
Because of the competition, making your store stand out from the rest can be challenging. This makes it tough to attract customers and generate sales.
9. Requires Technical Knowledge
It can be challenging to set up and run a dropshipping business without any technical knowledge. If you don’t know how to set up a store and integrate with suppliers, you may find it challenging to sell products.
Dropshipping is an inexpensive way to build your own eCommerce business. However, there are quite a few challenges that you’ll need to overcome when starting this kind of business. The biggest challenge is the low margins due to having other people fulfilling orders for you. You’ll also need to find a supplier that you can trust and make sure that you can offer good customer service. If you can overcome these challenges, then dropshipping can be a very profitable business.
When starting a business, it’s essential to weigh the pros and cons of each option to make an informed decision. In this article, we’ve explored all the major pros and cons of dropshipping that can help you decide if it’s a suitable business model for you.