October 11, 2017 8:11 am / by Allison J. Collins
With a laptop, wifi access and some knowledge of Dropshipping, you can possibly become a millionaire without needing a huge investment. A Dropshipper can sell products to their customers without actually stocking the items themselves. Drop shipping isn’t something new. Zappos started dropshipping back in 1999. Amazon and Sears use this business model, too. If big names don’t catch your attention, look at the regular guys making their way and sharing their stories as drop shippers on Reddit. Nowadays, up to 33% of the entire e-commerce industry uses drop shipping as a primary inventory management model.
By now we’re all convinced – dropshipping is one of the easiest ways to quickly build a profitable online business. Small-scale e-commerce entrepreneurs love dropshipping because there is no inventory to hold, which translates into a lower upfront investment. Not having to manage an inventory also lets you concentrate more on the most important thing – bringing in new customers. In this article, you’ll learn what dropshipping is, and why you should care about it.
The dropshipping model has a number of benefits and drawbacks:
- Less Capital Is Required: With the dropshipping model, you don’t have to purchase a product unless you already made the sale and have been paid by the customer. Without major up-front inventory investments, it’s possible to start a successful dropshipping business with very little money.
- Easy to Get Started: Running an e-commerce business is much easier when you don’t have to deal with physical products. With drop shipping, you don’t have to worry about:
Managing or paying for a warehouse
Packing and shipping your orders
Tracking inventory for accounting reasons
Handling returns and inbound shipments
Continually ordering products and managing stock level
- Low Overhead: Because you don’t have to deal with purchasing inventory or managing a warehouse, your overhead expenses are quite low. As you grow, these expenses will likely increase but will still be low compared to those of traditional brick-and-mortar businesses.
- Flexible Location: A drop shipping business can be run from just about anywhere with an internet connection. As long as you can communicate with suppliers and customers easily, you can run and manage your business even if in a home office with a laptop for less than $100 per month.
- Wide Selection of Products: Because you don’t have to pre-purchase the items you sell, you can offer an array of products to your potential customers. If suppliers stock an item, you can list if for sale on your website at no additional cost.
- Easy to Scale: By leveraging drop shipping suppliers, most of the work to process additional orders will be borne by the suppliers, allowing you to expand with fewer growing pains and less incremental work. Sales growth will always bring additional work, especially related to customer service. But the business that utilizes drop shipping scale particularly well relative to traditional e-commerce businesses.
All these benefits make drop shipping a very attractive model to both beginnings and established merchants. Unfortunately, dropshipping isn’t all roses and rainbows. All this convenience and flexibility comes at a price.
- Low Margins: Because it’s so easy to get started – and the overhead costs are so minimal – many merchants will set up shop and sell items at rock-bottom prices in an attempt to grow revenue. That makes drop shipping become a highly competitive niche.
True, If you have low-quality websites and poor (if any) customer service that will make customers compare other prices to yours. This increase in cutthroat competition will quickly destroy the profit margin in a niche. Fortunately, you can do a lot to mitigate this problem by selecting a niche that’s well suited for dropshipping.
- Inventory Issues: If you stock all your own items, it’s relatively simple to keep track of which items are in and out of stock. But when you’re sourcing from multiple warehouses, which are also fulfilling orders for other merchants, inventory changes on a daily basis. While there are ways you can better sync your store’s inventory with your suppliers’, these solutions don’t always work seamlessly, and suppliers don’t always support the technology required.
- Shipping Complexities: If you work with multiple suppliers, the products on your website will be sourced through a number of different drop shippers. This complicates your shipping costs.
Let’s say a customer places an order for three items, all of which are available only from separate suppliers. You’ll incur three separate shipping charges for sending each item to the customer. However, it’s probably not wise to pass this charge along to the customer, as they’ll think you’re grossly overcharging for shipping! And even if you did want to pass these charges along, automating these calculations can be difficult.
- Supplier Errors: Have you ever been blamed for something that wasn’t your fault, but you had to accept responsibility for the mistake anyway? Even the best drop shipping suppliers make mistakes fulfilling orders – mistakes for which you have to take responsibility and apologize. And mediocre or low-quality suppliers will cause endless frustration with missing items. Botched shipments and low-quality packing, which can damage your business’s reputation.
Although there are some drawbacks, dropshipping is still worth a try if you want to join in e-commerce. It is a tool you can use not only to power your business, but to drive its development as well. Use it as a convincing way to validate a new product idea.
Let us know your ideas of dropshipping to experiment with products and business endeavors!