The idea of running a profitable ecommerce business is one that many entrepreneurs have pictured. Unfortunately, that picture can become blurred by the sheer amount of time and investment it requires to achieve such a dream.
From purchasing stock to managing storage space and shipping orders, it’s a time-consuming and costly business. Thankfully, there is an easier way for the average Joe to build a successful e-commerce business without breaking the bank.
It’s called dropshipping and it’s growing increasingly popular amongst online sellers.
The Benefits of Dropshipping
Dropshipping has an extensive list of exclusive benefits, particularly when compared to the old-school method of running a retail or ecommerce business, which typically involves buying inventory in mass quantities and reselling them individually for profits.
Here’s a breakdown of the most prominent advantages of using a dropshipping business model:
1. No Buying Inventory Upfront
The biggest benefit of dropshipping is not having to purchase inventory upfront. Instead, products are sourced directly from a supplier, only after they’ve been sold to a consumer.
Therefore, you won’t have to spend thousands of dollars on stock, while also avoiding the common issue of being stuck with unsold products.
Not having to purchase stock upfront comes with significantly less risk and allows for more flexibility to test products and performance. Sometimes the only way to determine if a product will become a hot seller is by listing it for sale.
2. Very little start-up costs
Starting a traditional ecommerce business requires a large upfront investment on stock, storage space, packaging and distribution, as well as general marketing and advertising costs.
With dropshipping however, you can instantly launch your ecommerce business and start selling an entire range of products, without having to spend a single cent on the order fulfilment side of the business. It’s by far the most cost-effective way to launch an ecommerce business.
3. No holding any stock
Not having to hold stock comes with the benefit of not having to store it. The cost to rent storage space, as well as the expense of hiring staff to maintain it can be staggering.
Furthermore, it takes a huge amount of time and effort to run a warehouse efficiently. In some cases, streamlining the operations of a warehouse takes years. Thankfully, dropshipping eliminates the need to have a warehouse, as your supplier handles that for you.
4. Postage is done for you
From picking and packaging to postage and delivery, order fulfilment can be very costly. It’s not as simple as packaging a product and shipping it out.
You need to calculate shipping costs based on weight and dimensions. You also need to arrange courier collections or make regular drop-offs throughout the day. As you begin to scale your business, the shipping process becomes increasingly complex.
With dropshipping however, the supplier handles the entire order fulfilment process, giving you more time to focus on marketing, generating sales and managing customer service.
5. Returns are easier to process
Returns are a necessary part of any ecommerce business. Whether the customer doesn’t like the product or it arrives damaged, accepting returns will become common practice.
When running a traditional ecommerce business, customer returns typically generating a loss on the sale, particularly after paying the postage fees. Thankfully, dealing with returns is much easier when using the dropshipping model.
In most cases, the item can be returned directly to your supplier in exchange for a refund or replacement. You simply act as the bridge between the two parties, forwarding the return information and any return postage labels to the buyer.
6. Expand the business rapidly
Most start-up retailers are restricted to growing their business at a gradual rate due to ongoing investments in stock, storage space and order fulfilment. It can therefore take a significant period of time to start generating profits.
Harnessing the dropship model however cuts out the most costly aspects of running an ecommerce business, allowing you to grow it at a much faster rate.
You’re not limited by cash flow, stock or storage space, meaning you can quickly and constantly expand your product range. The savings gained by dropshipping can be invested in advertising and marketing to generate more sales rapidly.
7. Run the business from anywhere
A dropshipping business can be managed from anywhere in the world. Whether you’re sitting on a beach in Barbados or travelling the world, your physical location is irrelevant as your supplier will be preparing and dispatching the orders.
All that’s required to run a profitable dropshipping business is a PC, internet connection and desire to succeed. The help of some useful guides and tutorials on succeeding with dropshipping, as well as automation software would be a bonus.
The Disadvantages of Dropshipping
While dropshipping has a long list of benefits, it also has it’s fair share of disadvantages which need to be considered. It’s certainly not a get-rich-quick scheme or flawless business model which guarantees success in ecommerce.
Here’s a breakdown of the most common challenges with dropshipping, along with some practical ways to overcome them.
1. No control over dispatch times
Having no control over dispatch times is the biggest disadvantage with dropshipping. Naturally, customers want to receive their orders in a timely manner.
If your supplier is slow to process and dispatch orders, it could negatively impact your business, particularly when selling on marketplaces such as eBay or Amazon.
The most effective way to ensure your customers receive their orders on time is by working with a reliable supplier and ensuring that customer orders are processed the same day.
2. No control over picking & packaging
Another downside to dropshipping is having no control over the picking and packaging process. Sending promotional materials such as flyers or coupons with the order is not possible, while quality control checks are at the discretion of the supplier.
However, once you’ve gained some sales and established a relationship with your supplier, you could always ask about including promotional materials with the orders.
3. Profit margins are lower than bulk buying
Profit margins can be much lower with dropshipping when compared to bulk buying. Naturally, wholesalers cannot offer the same price for a single-piece order as they do for mass quantities.
However, it’s important to remember that bulk buying comes with more risk and requires a large upfront investment, as well as the necessary storage space.
4. Items running out of stock or changing in price
Items running out of stock or changing in price is another common issue dropshippers face. Selling an item which is no longer available means you’ll have to cancel the order.
If you’re selling on a third party marketplace such as eBay, cancelling an order could lead to a negative feedback or performance defect. Thankfully, there is an effective way to manage inventory by using dropshipping automation software.
Please refer to our list of the best dropshipping software solutions for more information.
5. Reliable suppliers are hard to find
The most effective way to avoid the most common issues with dropshipping is by finding a reliable supplier with high-quality products, low prices and fast shipping times.
Unfortunately, finding such a supplier can often be a challenging task which requires a lot of manual studying, research and due diligence.
Thankfully, you can browse our dropshipping suppliers category where you will find a ton of free articles on the best dropshipping suppliers for eBay, Amazon and more. Whether you want to sell clothing or electronics, we have many guides that will help you to find suppliers for anything.
The benefits of dropshipping outweigh the disadvantages. It’s a perfect business model for those who have limited time or start-up money.
It’s also ideal for existing business owners who want to expand their range quicker and without heavy investment.
However, dropshipping does have a small but very real list of disadvantages, including the lack of control over dispatch times and inventory.
Thankfully, all of these disadvantages can be overcome by finding a good supplier, processing orders quickly and implementing an effective stock/price management system.