If you’ve been holding off on starting your e-commerce business due to insufficient funds or infrastructural challenges, dropshipping offers an opportunity for you to become an entrepreneur with minimal investment. This article discusses the pros and cons of dropshipping.
What is Dropshipping?
Dropshipping is a retail fulfillment method that allows merchants to satisfy orders using third-party suppliers. Instead of keeping a warehouse inventory, dropshipping involves forwarding a customer’s order to a supplier. The supplier then sends the item to the customer on your behalf (typically with your branding) and bills you directly. It is a process where the products are shipped directly to the customers without the retailer having to handle them. This fulfillment method eliminates the stress of managing inventory and sorting logistics. This allows you to focus on promoting your brand and acquiring customers.
Dropshipping holds numerous benefits for entrepreneurs, including:
- Low startup costs: One of the biggest advantages of dropshipping is that it saves you the costs of acquiring inventory and managing a warehouse. A traditional business model that involves significant upfront inventory investments, dropshipping allows entrepreneurs to launch an e-commerce store with zero stock.
- Low Order Fulfillment Costs: Order fulfillment refers to all the processes involved in responding to customer orders. ou won’t have to worry about the costs of paying for a warehouse, tracking inventory, packaging and shipping orders, and handling returns.
- Wide product offerings: With drop shipping, you can offer your customers a wide array of products since you don’t have to pre-purchase and store the items you sell. It also provides a risk-free approach to testing new products and understanding what resonates with your customers and doesn’t.
Is dropshipping scalable?
Dropshipping is highly scalable and can easily be adjusted to accommodate your growth. You’re good to go if your suppliers have enough inventory to cater to a wider customer base. With traditional businesses, scalability involves taking on a higher workload and spending more on business expenses. For example, managing a larger warehouse, paying more wages, etc. Dropshipping removes these barriers, allowing you to grow your business at your preferred pace without shoulder additional responsibilities.
Cons to Drop Shipping?
As much as dropshipping sounds like an excellent idea, the business model is not without its downsides. Here are a few cons to consider before starting a dropshipping business:
- Dependence on third-party suppliers: Dropshippers rely on third-party suppliers to execute orders and satisfy their customers. The business model relegates control over key areas like product availability, quality control, and delivery speed to suppliers. So, if a supplier fails to deliver orders as expected, the retailer’s business operations will be massively disrupted.
- High level of competition: Unless you agree with a supplier as the sole retailer that dropships their products, nothing stops other retailers from selling the exact products you do. Many retailers launch the business and sell at incredibly low prices to attract customers. To compete with these retailers, you’d have to lower your prices, which will take a huge chunk of your potential profit margin.
How do you find the right products to sell?
The success of a dropshipping business largely depends on the products the retailer chooses to sell. The first step is to identify a consumer audience that does not already cater to by other drop shippers. An excellent approach is to find products that meet specific needs but are difficult for them to obtain. Such products guarantee a high sales volume, and with little to no competition, you’d be able to price your products as you wish and rake in huge profits. While it may seem like a great idea to dropship trending items, the competitiveness in the market will force you to cheaply price your products, reducing your sales revenue and profitability.
Getting your products from factory to customer
After deciding on the products you want to sell, the next step is to contact the supplier and enter a dropshipping agreement with them. Then, you can list their products on your online store and start taking orders from customers. Once a customer places an order, you communicate the order to your supplier, who picks, packs, and ships the order to the buyer’s address. Depending on your agreement with the supplier, they can also include elements of your brand on the products, so your customer has no idea that the items didn’t come from your store.
Dropship with GoShip
Dropshipping offers an easier and cheaper route to entrepreneurship than the traditional business model. Although it takes the process of order fulfillment out of your hands, you can ask your supplier to employ the services of a freight marketplace like GoShip when fulfilling your orders. This ensures that your customer’s orders arrive quickly and at the most affordable rates. What will you do next now that you’ve evaluated the pros and cons of dropshipping?