Whether you are new to e-commerce or not, you might have heard of the term “dropshipping.”
Some hail it as the most effective distribution strategy if you want to start an online store. On the other hand, there are people who believe that it comes with a lot of risks.
If you still weigh whether to push through with dropshipping, this list of pros and cons might help you:
The Pros of Dropshipping
Before we begin listing down the advantages of dropshipping, let’s define what is dropshipping.
Shopify defines dropshipping as a “retail fulfillment method where a store doesn’t keep the products it sells in stock.”
What happens is that the online business owner will receive the orders from his customers, and then purchase the items from a third-party supplier. The supplier will then pack and ship the products to the customers.
In other words, the e-commerce business owner does not have to rent a warehouse to store and organize his items. Thus, making it a cost-effective way to start an online business.
If this sounds enticing to you, here are four more reasons dropshipping could be advantageous for you:
1. No Need for a Warehouse
Having a warehouse is important for retailers ‒ online or offline. That’s because this is where you store your products.
However, it can be expensive to maintain and expand your space in order to accommodate the fluctuating demand from your target market. And the last thing you want to do is to overstock your warehouse.
This is where dropshipping can help. You can increase your inventory levels without the need to have a warehouse because your supplier can handle it for you.
2. Choose What to Sell
Since you do not have a warehouse to maintain, it also means that dropshipping allows you to sell and ship products without the need to store them. More-so, if it is something unpopular to your customers.
This is ideal if you sell seasonal products (i.e., Christmas decor). You can keep on selling particular products when it is in demand, and then just stop it when you are seeing that the demand is dwindling.
Bonus: You do not need to store these unpopular items in a warehouse where they take up room.
3. Test New Products
The beauty of dropshipping is that you can test new products without the need to store items in a warehouse.
All you need to do is post the product on your e-commerce store, run an ad campaign on Facebook if you can, and monitor if it will rake in revenue for you. If it does not, you can simply stop the ad and remove the product from your online store.
4. Hasten Delivery Time
Aside from the cost, delivery time is an important factor that can sway a customer’s buying decision. In fact, an infographic from Milo Local Shopping revealed that 38% of online consumers would not proceed with buying a product if the shipping will take more than a week.
Dropshipping can help you retain your online buyers since you can partner with a lot of local suppliers.
Got a customer in China? You can drop ship an item to one of your third-party suppliers in the country. Thus, you are able to expand your business’s geographical footprint without the need to rent another warehouse.
The Cons Of Dropshipping
As mentioned earlier, drop shipping ‒ although a viable option if you are just starting ‒ comes with risks. Here are some of them:
1. Hassle in Customer Service
Since you are not the one responsible for storing, packaging, and shipping the item, dropshipping increases your risk of delivering sub-par customer service.
In case your customer received a damaged product, he will then connect with your customer support. But since you are not the one handling the e-commerce fulfillment, you are more likely unable to solve your customer’s concern.
The least you can do is coordinate with your supplier to replace the damaged product. In the end, it just complicates your online business’s customer service process and returns policy.
2. Razor Thin Profit Margin
Although you do not have to spend money on renting a warehouse, that does not mean that you can have a hefty profit margin with dropshipping.
E-commerce fulfillment can be costly. That’s because you need to spend on shipping fees on top of purchasing the item on your customer’s behalf. Sure, you can charge it from your customer, but that would risk your product being unreasonably priced.
There is also the need to refund the product in case it is damaged or lost. Not to mention that you also need to spend money on advertising and maintenance of your online store. This is where the majority of your profit margin will go.
3. Lack of Control
Again, you are not the one who will handle the storing, packing, and shipping of products. Which means that you do not control inventory management. Thus, you will need to look for a supplier that you can trust and have proven itself to provide a top-quality e-commerce fulfillment service.
So, if you are someone who likes to oversee every process in your business, dropshipping might not be the online business model for you.
4. High Competition
The fact that you need little capital to start a dropshipping business makes it very enticing for those who would like to start an online store. But this is also the reason that you will encounter a lot of competition in the market. Not to mention that you are likely to sell products that your competitors are selling.
So, before you start a dropshipping business, it is important that you first distinguish how you can stand out from the rest.
It is a no-brainer that dropshipping is a viable way for you to start a business. Moreso, if you only have very little capital to get started.
However, this kind of e-commerce model is not cut out for everybody. So, unless you are ready to take the risk, it is best that you first measure whether the pros outweigh the cons.
Featured image credit: unsplash.com
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