Dropshipping is a retail fulfillment method in which a store does not hold stock of the items it sells. When a store uses dropshipping concept to sell products, it buys the product from a third party and directly sells it to the client. As a result, the seller is relieved of product managing.
The most significant difference between traditional retails and dropshipping is that the selling products do not own or stock inventory. Instead, that a seller fulfills his/her orders by purchasing products from a third party—usually a manufacturer or wholesaler —as needed.
Benefits of dropshipping
As Dropshipping is an excellent and simple business model, it helps ambitious entrepreneurs to start a business with fewer worries. Dropshipping allows you to easily test several business ideas with low risk, allowing you to learn a lot about how to select and promote on-demand products. Here are some more reasons why dropshipping has become so popular.
1. Less capital is required
The most significant benefit of dropshipping is that it allows you to open an eCommerce store without having to invest thousands of dollars in inventory upfront. Previously, sellers have had to use large sums of money in order to get inventory.
In dropshipping model, when a transaction is made between you and the consumer, then you don’t have to buy the product you can directly ship the product from a third party to your customer. It’s possible to start sourcing products and create a successful dropshipping business with very little money if you don’t have a lot of inventory upfront. And, unlike a traditional retail firm, there’s less risk involved in opening a dropshipping store or testing a product line extension because you’re not committed to selling through any inventory purchased upfront.
2. Easy to get started
When you don’t have to deal with real things, running an eCommerce business is considerably easier. You don’t have to be worried about the following points when dropshipping:
Managing a warehouse or paying for one
Taking care of the packing and shipment of your orders
Inventory tracking for accounting purposes
Returns and inbound shipments are handled separately.
Keeping track of stock levels and ordering products on a regular basis
3. Low overhead
Your overhead expenses are cheap because you don’t have to worry about procuring goods or keeping a warehouse. In reality, dropshipping businesses are been successfully managed from home, requiring a laptop and a few expenses to run. These costs will undoubtedly rise as your firm grows, but they will still be affordable as compared to typical brick-and-mortar businesses.
4. Flexible location
A dropshipping business can be run from almost any place that has access to the internet. You can easily manage and run your business as long as you can interact effectively with suppliers and consumers.
5. Wide selection of products to sell
You can offer a wide range of trending products to your potential customers because you don’t have to pre-purchase the stuff you sell. If your suppliers have an item in stock, you can list it for free in your online store.
6. Easier to test
Dropshipping is an effective fulfillment technique for both launching a new store and testing the hunger of customers for new product categories, such as accessories or entirely new product lines. The key advantage of dropshipping is the ability to list and potentially sell products before making a large investment in inventory.
7. Easier to scale
If you receive three times the number of orders in a traditional retail operation, you’ll need to complete three times the effort. The majority of the work to handle extra orders will be carried out by dropshipping providers, allowing you to expand with fewer growing pains and less incremental effort.
Sales growth will always need more work—especially in terms of customer service—but dropshipping firms scale better than regular eCommerce businesses.
Disadvantages of dropshipping
1. Low margins
The biggest difficulty of operating in a highly competitive dropshipping niche is the low margins. Many rival stores may set up shop and sell things at rock-bottom prices in an attempt to increase income because it is so easy to get started and the overhead costs are so low. They can afford to operate on microscopic margins since they put so little money into the business, to begin with. If you start dropshipping on Amazon in addition to your Shopify store, your profit margin on that sales channel will be significantly reduced.
These retailers usually have low-quality websites and little (if any) customer support, which you can leverage to set yourself apart. Customers will still compare their pricing to yours, though. The potential profit margins in a specialty will be harmed fast as a result of the increasingly tough competition. Fortunately, you can have a lot of this problem by choosing a dropshipping-friendly.
2. Inventory issues
It’s quite easy to maintain track of which items are in and out of stock if you carry all of your own products. However, inventory might fluctuate on a regular basis when you’re sourcing from various warehouses that are simultaneously fulfilling orders for other merchants. Fortunately, there are a few programs that allow you to sync with suppliers these days. Dropshippers should be able to “pass along” orders to suppliers with a few clicks and should be able to monitor how much inventory the supplier has in real-time.
3. Shipping complexities
The products on your online store will be sourced from a variety of dropshippers if you work with many suppliers, as most dropshippers do. This increases to the cost of shipping.
Assume a consumer orders three things, each of which is available only from a different source. For sending each item to the buyer, you’ll incur three distinct shipping expenses, but it’s generally not a good idea to pass these costs on to the client. Even when including these charges makes sense, automating the calculations might be tricky.
4. Supplier errors
Have you ever been accused of something that wasn’t your fault, but you had no choice but to accept responsibility?
Even the best dropshipping suppliers make mistakes during completing the orders, which you must accept your responsibility and apologize. And mediocre and low-quality suppliers can frustrate you endlessly with missing things, botched delivery, and poor packaging, all of which can harm your company’s reputation.
5. Limited customization and branding
Dropshipping, unlike custom-made or print-on-demand products, gives you little control over the product itself. Typically, the manufacturer designs and brands the dropshipped product.
Although some Alibaba dropshipping suppliers can adapt your company’s product adjustments, the supplier retains the most control over the product itself. Any adjustments or additions to the product itself normally necessitate a minimum order number in order for the manufacturer to be feasible and economical.