Diving into the e-commerce industry can be scary. You are trying to make a living by selling products via the internet, but you must compete with tons of other businesses doing the same thing. Making things worse is the fact that you can likely find a business selling the same products you are selling. If you sell a ton of products or you want to expand your business to other products, it might be time to think about dropshipping. Could a dropshipper be right for your business? Here’s everything you need to know.
What Is Dropshipping?
Dropshipping is a process that eliminates the need for inventory. Your customers buy products, and then a manufacturer or wholesaler fulfills the orders. Here’s how the process works: the customer buys the item, you take the customers’ payment and buy the item from a third party (a wholesaler or manufacturer in most cases), and you have the third party ship the item directly to the buyer. With this method, you never touch or see the item.
Before dropshipping was an option, businesses had two big selling models to choose from. The first involved selling unique and hand-made items. The seller made the items to order, packaged them, and shipped them. The second involved purchasing items in bulk. The seller still packaged and shipped the item in-house.
With dropshipping, the seller does not have to deal with the product, the packaging, or the shipping. A third party takes care of everything. You market and sell the products, then you pass the torch off to someone else. Seems easy enough, right? Before diving into the dropshipping industry, it is in your best interest to explore the pros and cons of adding it to your business-selling model.
The Benefits of Dropshipping
No Startup Capital: Arguably one of the more appealing aspects of dropshipping is not needing startup capital. With dropshipping, the customer buys the items, and you use the customer’s payment to purchase the item from a third party. As long as you never make the mistake of selling a product for less than the third party sells it, you should never run into a problem.
Simple Startup: Going into business with dropshipping as your selling model makes things simple. You do not have to deal with inventory storage, you do not have to deal with shipping, and you do not have to deal with packaging. The only thing you have to figure out is your storefront. It is not uncommon for some business owners to use eBay or Amazon as a storefront for their dropshipping business.
Flexible Location: The beauty of a dropshipping business is that you can manage your business from anywhere. You are not dealing with inventory, so you do not have to stay with your products. You can travel the world as long as you have your computer and the internet to continue running your business.
Product Choices: No startup capital and no inventory storage mean you do not have to pre-buy any products. This opens the door to offer a wider variety of items to your customers. Basically, you can list anything you want to sell your customers. You just have to check the price on the supplier’s item from time to time to make sure the supplier’s inventory is not running low.
Business Growth: Droppshipping makes scaling your business to a larger or smaller size much easier. You can run the business by yourself or you can hire other people to assist in running your business. You can have a shop with 20 items or you can have a shop with 200 items. Dropshipping opens a lot of doors.
The Cons of Dropshipping
Smaller Profit Margins: You cannot price your items too much higher than the supplier, or you run the risk of your customers just going to the supplier – or another dropshipping business with lower prices than you. There are a few solutions to this problem though. For starters, you can sell items everyone needs, such as phone chargers. Even with a small profit margin, you sell so many that it adds up. Another option is just to list a lot of items on your business. A small profit margin does not matter if you are selling hundreds of items every week.
No Control Over the Item: Not dealing with inventory is a perk, but it is also a problem. You do not have any control over the item from the time it leaves the wholesaler to the time it gets to your customer. This means you cannot add any marketing material to the packaging. It also means you deal with the suppliers’ mistakes. If the supplier sends the wrong item or a broken item, you may end up eating a bit of the cost. As long as you research your supplier, you will not run into this problem too often.
Is Dropshipping Worth It?
As you can see, there are both pros and cons to using dropshipping as your e-commerce business model. While it offers a lot to a business owner, it is not a stress-free process. The biggest questions are: do you want to deal with inventory? And are you willing to eat the cost if the supplier makes a mistake? Only you can decide if dropshipping is right for you.