Dropshipping can definitely be pointed out to be one of the man-made miracles of this century. As a result of Dropshipping services, many retailers are now able to build their eCommerce business with a minimal budget, with minimal or no inventory management hassles, with immense scaling opportunities.
However, Dropshipping has its own set of shortcomings.
Let us discuss in detail the pros of cons of including drop-shipping as part of your eCommerce strategy.
What are the benefits of Dropshipping?
- The capital requirement is less: Two things which are eliminated with Dropshipping are the production costs and the inventory cost. This considerably brings down the start-up and operating costs. The only investment you have to make is in establishing the E-commerce store and on advertising to drive traffic.
Both these investments are very minuscule when compared to having an inventory or a production house. Also, with this model, you can operate with a minimum number of employees. There are instances where the stores are being run by a single person and raking in more than $100K in sales a month.
- Getting started is easy: When you are following a Dropshipping model, there are many processes that are eliminated. This makes it one of the easiest businesses to get started with. Here are the things you do not need to worry about:
- Warehouse rent and management
- No hassle of packaging and shipping the orders as it is being fulfilled by the suppliers.
Accounting is a lot easier with the absence of inventory
- No hassle of handling returns
- Do not have to manage and maintain the stock level
- Location independent: You do not need an office to run a Dropshipping business. You can work from anywhere, and your success doesn’t depend on where you hail from. However, you may face some minor issues while receiving payments. These issues can be addressed as there are enough payment options available these days. In short, all you need is a computing device with an internet connection, and an eCommerce store to easily run this business.
- Variety of products: There is no limit to the number of products you can list in your shop. The key is to plan and find suppliers for the products you have decided to sell. With millions of products online, it isn’t a task to find suppliers for the products you have planned to sell.
- Scaling the business is easy: Scaling is a problem faced by most small-scale businesses. With other businesses, when you start making more money, you will have to hire more resources to match the demand. In Dropshipping, this issue doesn’t exist at all. You can simply have a pool of suppliers to match the demand for your products.
What are the disadvantages of Dropshipping
- Low-Profit Margins: The fact that this model of business is easy to get started and requires minimum initial investments is well known. This lures in many marketers to set up shops and sell products online. All this leads to an overly competitive and saturated market.
Customers compare across different shops and tend to go with the cheapest at least for their first purchase. They aren’t bothered by the credibility and customer support being offered for their first purchase. This is why many sellers price their products at the lowest profit margins. Their main aim is to lure the first time buyers.
However, you can stay ahead of the competition by entering a niche that is less saturated and tailor-made for Dropshipping. I will discuss this in the latter half of the article.
- Issues related to Inventory: While not having to maintain an inventory is a huge positive, it has a small disadvantage attached to it. When you have your inventory, you will have a count of the total number of products available. In this case, when you are sourcing through multiple warehouses keeping track of the numbers of products available becomes complex.
- Shipping: As your suppliers come from different countries, it adds a small complexity to the calculation of shipping costs. You will be in a dilemma regarding the handling of shipping costs. The critical question you will have to answer is, should I pass on the cost to the customer or include within the MRP of the product?
Passing it on to the customer may not be a wise move. Adding it to the product can work out if you manage to get a good deal with the suppliers. Your aim should be to make it easy for the customer. Also, inform the customers of the days it will take to process and ship the order.
- Errors from Suppliers: This is a major disadvantage in this model. You will have to be prepared to take responsibility for possible errors by the suppliers even though it is not your fault. You cannot say to your customers that – ‘Hey it is my supplier’s fault.
For them, you are the business, and product owner and they expect an answer from you. Be ready to face issues related to improper packaging, wrong products, delayed shipping, etc. If a customer emails you about any of these issues, take ownership and act accordingly with a suitable solution.
Everything in life comes with its own set of challenges, small or big. Similarly dropshipping too has its own set of disadvantages. But hands down their effect on your business can be mitigated by selecting a dropshipping partner with good records, by implementing right customer management strategies, by the inclusion of technologies, etc.
Many retailers and eCommerce owners continue to build their eCommerce business with dropshipping and proving its benefits with profits. If they can, you can too.