Everything you Need to Know About Dropshipping
Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. As a result, the merchant never sees or handles the product.
The biggest difference between dropshipping and the standard retail model is that the selling merchant doesn’t stock our own inventory. Instead, the merchant purchases inventory as needed from a third party usually a wholesaler or manufacturer to fulfil orders.
Less Capital is Required:
Probably the biggest advantage to drop shipping is that it’s possible to launch an e-commerce store without having to invest thousands of dollars in inventory up front. Traditionally, the retailer has to tie up huge amounts of capital purchasing inventory.
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
Handing returns and inbound shipments
Continually ordering products and managing the stock level
Because you don’t have to deal with purchasing inventory or managing a warehouse, your overhead expenses are quite low. In fact, many successful drop shipping businesses are run from a home office with a laptop for less than $100 per month. As you grow, these expenses will likely increase but will still be low compared to those of traditional brick-and-mortar business.
A dropshipping business can be run from just about anywhere with an internet connection. As long as communicate with suppliers and easily, you can run and manage your business.
Wide Selection of Products:
Because you don’t have to pre-purchase 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:
With a traditional business, if you receive three times as much business you’ll usually need to do three times as much work. By leveraging drop shipping suppliers, most of the work to process additional orders will be borne by 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 a business that utilize drop shipping scale particularly well relative to the traditional e-commerce business.
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 are the biggest disadvantage of operating in a highly competitive dropshipping niche. Because it’s so easy to get started and the rock bottom price in an attempt to grow revenue. They’ve invested so little in getting the business started so they can afford to operate on minuscule margins.
True, these merchants often have low-quality websites and poor if any customer service. But that won’t stop customers from comparing their 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.
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.
If you work with multiple suppliers as most drop shippers do 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 separated suppliers. You’ll incur three separate shipping charges for sending each item to the customer, but it’s probably not wise to pass this change 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.
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 dropshipping suppliers make mistakes fulfilling orders mistakes for which you have to take responsibility and apologize. And mediocre and low-quality suppliers will cause endless frustration with missing items. Botched shipments and low-quality packing, which can damage your business reputation.