Drop shipping is a fulfillment method in which, rather than sending the customer an item from your own inventory stores, you send the order or shipment as a request to a vendor or manufacturer. They will ship the item to the customer on your behalf, usually with your branding (so the customer has no idea it didn’t come from your shelves!), and then bill you directly.
When it comes to drop shipping, there are two ways to get started. You could be the retailer, passing the order on to your supplier for shipping, or you could be the drop shipper, holding the stock, receiving orders, and shipping the items on behalf of another retailer. For the purposes of this article, I’ll assume you’re a retailer who uses a drop shipper to get your products in front of customers.
Drop shipping is becoming more popular as retailers seek more automated business models, whether it’s used as your company’s primary fulfillment method, a lifeline for when stock runs low, or a way to test a new product line. In this post, our main focus will be on the ups and downs of drop shipping and to determine if drop shipping is for you.
PROS OF DROP SHIPPING
Many of the benefits of drop shipping revolve around how simple it is to set up and the ability to save money in certain areas of your retail business. Consider the following advantages of drop shipping:
There’s no need to buy inventory up front or store it
As a result of drop shipping, you never touch the product, which means you don’t have to buy inventory up front, store it, package it, or ship it. As a result, you could use it to test out new products that you aren’t sure about yet, or as a backup in case you accidentally sell more than you have stored in the warehouse.
2. Easy to get setup
Many businesses begin with a pure drop shipping model because it is easier to get up and running and eliminates the need to worry about where to store your goods. Once you’ve determined your niche, you’ll need to find a supplier who can provide you with a promising drop shipping service. You can start your search on Alibaba.com or Google, or you may already know someone who can provide this service. Following that, you must agree on pricing, ensuring that you are not undercutting the retail side of your business (if applicable) while still making a profit despite the wholesaler’s fees. Now comes the exciting part: advertising and promoting your new business! Drop shipping is extremely simple to set up, especially when compared to selling solely through retail sales channels.
3. Low overhead costs
Your overhead expenses can be quite low because you are not purchasing inventory or managing a warehouse. These costs are likely to rise as you expand, but they will remain very low in comparison to a more traditional brick and mortar or online store.
4. Flexibility and wide array of products
Of course, a dropship business can be managed from anywhere in the world, giving you flexibility in where you work or where your team is based. This is useful if you want to outsource your labor to a foreign market. You also have some leeway in terms of the products you can sell. You’re simply listing what other suppliers have to offer, allowing you to test out what works and what doesn’t with your customers.
5. Easier to grow your business
In traditional businesses, doubling your sales requires you and your team to work twice as hard. In a drop shipping business, however, it is your suppliers who bear the brunt of increased volumes and order processing. As a result, there is no impediment to business growth because you do not need to hire ten more employees. Instead, you can carry on as usual as a business while your suppliers do the grunt work behind the scenes.
CONS OF DROPSHIPPING
Drop shipping can be a simple and effective way to start or grow a business, but as with anything, there are drawbacks:
1. Can be more expensive than traditional retail
What’s not to love about this? All of this, however, comes at a cost. The biggest financial disadvantage of drop shipping is the lower margins, as suppliers frequently charge a premium to brand up their packages with your desired branding. This is something you must seriously consider when planning: do you raise your prices, potentially scaring away new or loyal customers? Should your margins suffer at first in order to build a loyal following that will allow you to gradually increase your prices over time?
Limited control over quality and branding
Aside from the costs, the real killer for some merchants is damage control, which I define as acting as a go-between when it comes to product or shipment quality issues. Running between your company and another supplier (or multiple suppliers) not only adds to your and your team’s workload, but it can also lead to customer satisfaction issues, which brings us nicely onto…
3. Satisfying customers becomes harder than it needs to be
Trying to handle customer service issues as an intermediary can be stressful because you don’t have complete control. Shipping updates can be difficult to provide, especially if the supplier has several warehouses spread out, each shipping a portion of the order and arriving at different times and via different couriers.
4.Tracking inventory can be tough
Tracking inventory is extremely simple when you stock your own products (especially with an integrated retail management platform, like Brightpearl). However, once multiple warehouses (managed by other companies) are introduced, keeping an eye on stock can become difficult. It is possible to use EDI to connect with the systems of other suppliers, but this is not always possible – what if your supplier does not have this technology? In these cases, it’s best to have a strong relationship with your supplier and receive regular updates from them so you know how many items you can sell to your customers and whether they need to wait for more stock to arrive with your suppliers before receiving their deliveries.
5. Complexities with shipping can occur
We’ve already talked about one complication: the possibility of a single customer order being shipped from multiple suppliers, at different times, and via different couriers. But what about the cost of shipping? Working with multiple suppliers can make it difficult to keep track of how much shipping each company charges you, and thus how much you should charge your customers (without scaring them off). Keep an eye on this – either raise your shipping prices accordingly, or include some of the costs in the product price so that your margins don’t suffer too much.
The following three websites can be used to launch an online drop shipping business:
AliExpress
One of the most well-known dropshipping platforms, AliExpress provides a variety of goods at affordable costs. Its user-friendly interface and buyer protection program help to guarantee the security of your transactions. AliExpress – https://www.aliexpress.com/
Oberlo
Oberlo is a website that serves as a platform for simple product importation into your online store from AliExpress and other vendors. It provides a variety of tools and services, like product customization and order tracking, to assist you in managing your dropshipping business. Oberlo – https://www.oberlo.com/
SaleHoo
SaleHoo is a database of wholesale manufacturers and suppliers, offering a selection of goods in various markets. Additionally, it offers resources and tools to aid in your search for the appropriate goods. SaleHoo – https://www.salehoo.com/
