Do you want to start a profitable ecommerce company with low overhead and no warehouse?
If that’s the case, dropshipping is the business model for you.
However, not every entrepreneur is a good fit for a dropshipping company. Between dropshipping and conventional wholesaling, there are major tradeoffs.
Let’s take a look at the benefits and drawbacks of dropshipping so you can make an informed decision.
What is dropshipping?
Dropshipping is a business model in which you can sell and ship goods that you don’t own or stock.
Dropshipping is an appealing choice for many new small business owners who don’t have the space or budget to hold a large amount of inventory.
Your wholesalers or distributors produce the products, store them, and ship them to your customers on your behalf.
Here is how the dropshiping business model works
· You advertise the products on your e-ecommerce platform
· You receive orders from customers
· You give the order to your suppliers.
· Your suppliers complete the orders
We’ll go through the benefits and drawbacks of dropshipping so you can make the best decision for your company right now.
Benefit #1. Low startup costs
Stocking a warehouse necessitates a significant amount of money. By using dropshipping, you can avoid the risk of going into debt to start your company.
Dropshipping relieves you of the pressure of potentially accumulating dead stock, which would have otherwise cost you money and space. Increasing your net income while reducing your expenses is a win-win situation.
Rather than buying a large inventory and hoping it sells, you can start a dropshipping company with no inventory and make money right away.
Key takeaway? You don’t have to think about storing inventory, packing boxes, or mailing orders, keeping your startup costs low.
Benefit #2. More product variety is possible
You can give your consumers a wider variety of product choices, since you don’t have to invest in the product up front with a dropshipping business. This ensures that if you’re providing a professional service.
For example, if a product on the platform isn’t selling, you aren’t losing money because the inventory hasn’t been paid for. This advantage appeals to many businesses because it helps them to have more product varieties for their customers.
Key takeaway? When you have to buy inventory before accepting customer orders, you usually choose fewer products that you are sure would sell to avoid losing money on unsold inventory.
Benefit #3. Eliminates burden of fulfilling customer purchases
If you have ever managed a business, by now you know how business can be such a stressful endeavor, particularly if you don’t have many workers. Some business owners attempt to juggle too many responsibilities at once and burn out easily.
Delegating tasks to others wherever possible is the appropriate way. Decide how to divide the responsibilities whether you have an employee or a business partner, and then outsource when necessary.
Key takeaway? Dropshipping is a sure way to relieve the stress that comes with running a business. It’s no longer necessary to be concerned with inventory storage or having the time to prepare packages for delivery.
Benefit #4. Improves the Efficiency of Your Fulfillment Process
When you choose dropshipping as your method of doing business, you’ll have more time to spend on managing your business and less time on planning orders.
You won’t need to buy inventory up front, which will save you money in the long run.
Key takeaway? You’ll also be able to sell a wider range of goods to your clients, which can help you stand out from the crowd.
Benefit #5. Low cost of inventory
If you own and warehouse stock, inventory is one of the most expensive costs you’ll incur.
You can end up with outdated inventory, requiring you to find ways to reduce your stock, or you may end up with insufficient inventory, resulting in stock outs and revenue loss.
Dropshipping helps you to escape these problems and concentrate on expanding your customer base and developing your brand.
Drawbacks of dropshipping
1. Not Responsible for supplier mistakes
Putting the fulfillment needs in the hands of someone else can be a relief, but it can also lead to mistakes. You should take responsibility for your mistakes when you’re fully in control of your supply process. Most of the operation is delegated to a third-party firm when using dropshipping. If a supplier makes a mistake, it will reflect poorly on your business and can result in negative consequences.
Key takeaway: Make sure you work with high-quality partners if you start a dropshipping company.
2. Dependence on stock from suppliers
One of the biggest advantages of dropshipping is the ability to deliver new goods right away or avoid selling slow-moving items.
The disadvantage of this benefit is that you have no leverage over your supplier’s inventory. You’re out of stock if they’re out of stock.
As a result, lead times will be extended and clients will be lost.
3. Low profits margins
The lack of bulk pricing is the secret “cost” of dropshipping.
You would almost certainly pay more for each item you sell than you would for a large inventory of goods, resulting in lower profits.
You’ll need to sell more goods than you would if you owned and warehoused them yourself if you want to make a lot of money with dropshipping.
4. Minimal customer service
You won’t be able to offer the personalized service that retailers who handle their own inventory do.
Your customer will blame you if your supplier delivers goods late, damages them, delivers the wrong things, or otherwise messes up your customer’s order.
You won’t be able to easily resolve customer issues unless you manage the inventory yourself; you’ll have to work with your suppliers to resolve customer issues.
You’ll need an inventory tracking system that monitors your stock levels in real-time if you want to minimize some of the drawbacks of dropshipping and make it more worthwhile.
Where are you going to look for support?
Wholesale2B is the place to be.
Visit wholesale2bto find out more about Dropshipping?