You’re a part of the ecommerce industry, trying to make a living by selling products online, as so many other businesses are right now. You’ve probably figured out some of the things that work best for your business – some through research, and most through trial and error. If you currently sell a lot of different products, or if you want to expand your business to do so, you may want to consider dropshipping as a way to lessen inventory and shipping concerns. As with everything, there are dropshipping pros and cons to think about. Let’s take a look at dropshipping pros and cons, but first, we have to understand what dropshipping is and how it works.
What is Dropshipping?
Dropshipping is a way of selling products that allows business owners to have their customer orders fulfilled directly by a wholesaler or manufacturer. Here is what happens: when a product is sold to a customer, the seller purchases the item from a third party (the wholesaler or manufacturer) and has it shipped to the customer directly. So, the seller never actually sees or touches the product.
Prior to dropshipping, we saw two major online selling models:
- Sellers sold unique products made from scratch, fulfilled orders, packaged, and shipped items themselves
- Sellers purchased inventory in bulk, stored inventory, fulfilled orders, packaged, and shipped items themselves
With dropshipping you have a third party who handles all of the inventory and shipping for you. All you have to do is market and sell the products – but that may be easier said than done, because there are a lot of ecommerce sellers out there who already use dropshipping.
The Benefits of Dropshipping
No Startup Capital – Probably one of the most appealing aspects to sellers new to dropshipping is that it requires little or no upfront investment. There is no huge inventory that needs to be purchased and there is very little overhead.
Easy to Get Started – When you have no inventory to deal with, running an online business is much easier. Without inventory you don’t have to worry about obtaining and paying for a warehouse, packaging and shipping orders, tracking inventory, receiving inventory, or returns. Make your business plan and get started quickly.
Location Flexibility – Dropshipping allows you to conduct business anywhere you have a laptop and Wi-Fi. You are not tied to one location or office, you can stay updated wherever you are, especially when you utilize the right ecommerce automation tools like ours here at ecomdash.
Wider Selection of Products – Because you don’t have to pre-buy all of the products you are selling, you can offer your customers a much wider selection of products. If your supplier has an item you want to sell, you can list it for sale on your website at no additional cost.
Totally Scalable – Many ecommerce businesses struggle with the concept of scalability. Dropshipping is easily adjusted to your business’ growth. With more traditional models, when you increase your inventory and customer base, you also increase your workload. Not so with dropshipping. Of course there is more to manage, but relative to what it could be, it’s a very small change in workload. Learn more about how to make your business scalable.
The Drawbacks of Dropshipping
Tighter Margins – This is probably the biggest drawback of having a business that uses dropshipping. As a result of the ease to get started and the low overhead, there are many, many merchants selling items at low prices. In order to compete, your prices have to be low as well, decreasing your profit margin. You can overcome this by finding a niche that is well-suited for dropshipping, like MMA athletic wear. You could also go the opposite route and sell a product so universally needed, such as phone chargers or tumblers, you’d always have enough sales to make a profit.
Managing Logistics – When you are working with multiple dropship suppliers, and they are working with other vendors, the inventory of products you sell can change in a heartbeat. There are some ways that you can better sync your inventory with your supply chain, like using a multi-warehouse dropship software solution. They will connect directly to your supplier’s API, essentially giving you direct access to the inventory of your supplier, and managing hands-off communication between yourself, your buyers, and the manufacturer.
No Control Over Packaging – The first impression your customers get of your business is from your packaging. You will not be able to include business cards, thank you notes, or sales flyers in packaging when you have a third party doing your shipping.
Supplier Mistakes – Everyone makes mistakes, and your suppliers are not exempt. So you have to be prepared to own the errors of others when it comes to dealing with upset or dissatisfied customers. You have no real control regarding inventory, packaging, and shipping, and sometimes that is difficult to deal with.
Is Dropshipping Worth It?
Starting or moving your ecommerce business to there are some dropshipping pros and cons along the way. Dropshipping doesn’t come without some stress and some challenges to overcome down the road. That said, most of those challenges can be remedied to some degree, if not completely, and that can definitely make dropshipping worth it. Finding the right products, reading these dropshipping pros and cons, the right suppliers and the right software solutions, will help you make your dropshipping business a success.