What is Drop Shipping?
First off, dropshipping is a third-party fulfillment alternative so online businesses do not have to stock their inventory. Instead, the store or business purchases items, as needed, and have the items shipped directly from the dropshipping operation to the customers. The merchant does not see, handle or ship the products because it’s done for them by the supplier’s. Dropshipping operations are usually wholesalers and/or manufacturers moving their own products.
The advantage to using dropshipping, the merchant does not have to stock or own their inventory. The wholesaler or manufacturer ships out the product in order to fulfill the order. Basically, you are a merchant selling someone else’ products and getting paid for it.
There are both pros and cons to using a dropshipping method that should be carefully understood before making your decision.
The Pros of Drop Shipping:
Probably one of the leading advantages to dropshipping is “Less Capital Costs”. A merchant can launch an e-commerce store without having to invest thousands of dollars for inventory. In the past, merchants had to purchase all their inventory and pay for it up-front.
Dropshipping has removed those hurdles, allowing owners to place orders with a supplier or wholesaler as the customer purchases the item. There is absolutely no up-front inventory, so it’s very possible you can start a successful dropshipping business with very little money involved.
An excellent example of an e-commerce business using dropshipping are numerous sellers now on eBay. Many of these merchants have a wholesaler and/or supplier, they will choose pictures of items they want to sell, place the images in their stores and wait for buyers. They are only buying the products when a customer wants it.
It is so much easier to start up an e-commerce business because you never have to deal with the actual products; either storing or shipping.
With dropshipping, what you do not have to do:
You do not have to run or have your own warehouse.
Shipping and handling; it’s done elsewhere.
You do not have to track inventory
Never worry about returns, they go back to the dropship supplier
Continually add new products without paying up-front costs for stock
Overhead Expenses Are Extremely Low:
Many e-commerce businesses are operated out of the owners homes for very little money each month. As a business takes off and grows, this amount will increase, but so will your sales. Brick & mortar businesses have to pay up-front for their inventory and have some place to store the merchandise. This calls for a great deal more money going into the business.
Dropshipping Businesses Can Operate From Anywhere:
As long as you have an internet connection and an ecommerce platform, you can use dropshipping anywhere in the world. You must be able to communicate with your suppliers and customers, in order for everyone to be on the same page. As long as you have that ability, you can very easily run an e-commerce business or store.
An Unlimited Array Of Products:
Because you do not purchase items you are selling, ahead of time, you can offer an unlimited variety of products to your customers. As long as your supplier stocks the item, you can list it on your website or store and it doesn’t cost you anything.
Unlimited Product Selections:
By using your dropshipping suppliers properly, the majority of the work is placed on them. If you had a standard brick & mortar store and received twice the business you had two weeks ago, you are working twice as hard. With dropshippers, those added orders are taken care of by your suppler, allowing your business to experience expanded growth without burning the midnight oils.
Continued sales growth will always bring about more work on your part, especially as your customer service base grows. Businesses that utilize dropshipping seem to fare much better than traditional businesses when it comes to inventory. Customer service will always be a part of your business and your responsibility because it’s your name.
The benefits of dropshipping is very appealing to most merchants, whether beginners or experienced owners. That said, it’s not all that it’s cracked up to be; there are downsides to dropshipping that should be considered.
Low Incoming Sales:
You are running an e-commerce business in a very high competitive niche using dropshipping. Many new merchants are seeing how easy it is to get started, with little overhead costs, then shooting themselves in the foot. They will set up there store and sell the products for practically nothing in hopes of growing their revenue.
Many of these merchants have low quality sites, low or absolutely no customer service and overall poor appeal for consumers to visit. Even so, consumers are always looking for the best quality at the lowest price. They might not like the customer service or even like the product, when it is shipped to them, but they’ll just send it back and look someone else to do business with.
Unfortunately, this mentality, from some merchants, causes a cut-throat atmosphere that will eventually destroy any profit whatsoever. There are steps you can take to get around this problem, by choosing a niche that works really well with dropshipping. We’ll discuss that avenue later on.
If you are a traditional business, you have access to your inventory so you know what you have and what you are running out of. When you are sourcing your merchandise out to many warehouses, this can become a problem. These warehouses are probably sourcing your orders out to other merchants and you can easily get lost tracking your inventory supplies on a daily basis. There are a number of ways that your suppliers and your business can be on the same page. Unfortunately many of these suppliers do not have, nor do they support, the technology required to make this happen.
You have a customer who has ordered three different items from you, but each item is only available from three different suppliers. Now you have three separate shipping charges for each item being sent out. In the world of customer service, it’s not a really good idea to charge three separate shipping costs onto your customer. Your customer is going to become quite angry with you, believing you are overcharging them in shipping rates. Even if you wanted to charge them, automatically calculating this amount is going to be very difficult. Chances are, you are going to eat some of the shipping charges unless you want to lose customers.
Mistakes Made By The Supplier:
Everyone makes mistakes, everyone has been blamed for mistakes (even if it wasn’t their fault). Unfortunately, we all put in these situations and must accept the responsibility for the mistake. Dropshipping suppliers make mistakes with fulfilling orders, the mistakes lands in your lap, you’re left holding the bag and making the apologies to the customer. There are excellent suppliers out there, but there are also low-end suppliers that can give you a bigger headache then they are worth. Lost shipments, poor packaging and missing items are just a few nightmares that you might encounter. If you are not careful in choosing your dropshippers, you could end up with suppliers that can damage your business’ reputation very quickly.
Is Dropshipping The Right Avenue?
Dropshipping is not always a perfect solution for building a successful business. There are many advantages, that we have gone over, but there are also pitfalls with many complex situations and problems. As a business owner, you are the one who will have to address each one of these situations.
Later on, we will look into these various situations and problems and how you can address them. On A High Note: If you do your homework and look into the reputations and longevity of different merchants and suppliers, you might end up on the right side of your business after all. Plan ahead of time, understand what problems might arise, (even with excellent dropshippers) then you will know how to deal with different situations as they arise and discover a successful business.
Dropshipping can be an excellent avenue for starting a profitable online business. Using common sense, choosing your dropshippers carefully and understanding there will be times when communications will get messed up, just know how to deal with it. Whether you are new to retail or have been involved for years, dropshipping can reap some wonderful rewards.