The Benefits & Disadvantages of Dropshipping

The idea of running a profitable ecommerce business is one that many entrepreneurs have pictured. Unfortunately, that picture can quickly become distorted by the sheer amount of time, money and effort it takes to achieve such a dream. From purchasing stock to managing storage space, shipping orders and bookkeeping, it’s a time-consuming and costly business to maintain.

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 and retailers.

In this article, I’ll reveal some of the biggest benefits of dropshipping, while also highlighting some of it’s more obvious disadvantages.

What’s covered? – The benefits of dropshipping, the disadvantages of dropshipping, how to get started with dropshipping

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:

  No buying stock upfront

One of the biggest benefits of dropshipping is not having to purchase inventory upfront. Instead, products are sourced directly from a supplier, only after they’ve been sold to an end 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.

Tip: 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.

  Very little start-up costs

Starting a traditional ecommerce business requires a large upfront investment on stock, storage space, packaging, fulfilment 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.

Tip: The only costs associated with starting a dropshipping business are for marketing and advertising purposes. Whether selling on eBay or your own website, you shouldn’t need more than $500 to get up and running.

  No holding any stock

Not having to hold stock comes with the additional benefit of not having to store it. The cost to rent a storage facility, as well as the expense of hiring staff to maintain it can be staggering. Furthermore, it takes a huge amount of time, work and effort to run a distribution centre efficiently. In some cases, streamlining the inner workings of a warehouse operation to make it profitable takes years. Thankfully, dropshipping eliminates the need to have a warehouse, as your supplier is in charge of order fulfilment. It’s a bit like having your own warehouse and team of staff members, but without having to deal with the costs and complex logistics associated with it.

Tip: An alternative option to dropshipping is purchasing inventory in bulk and hiring the assistance of a 3rd party fulfilment centre. Selling through Amazon’s FBA program is also a viable solution to not having your own storage space.

  Postage is done for you

From picking and packaging to postage and delivery, order fulfilment can be very costly and time-consuming. It’s not as simple as packaging a product and shipping it out. You need to calculate exact shipping costs based on the parcels weight and dimensions. You also need to arrange collections with couriers or make regular drop-offs throughout the day. As you begin to scale your business, this 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.

Tip: As your supplier is in control of dispatch times, it’s important to process customer orders as soon as possible. In general, you should aim to process orders the very same day they are received.

  Returns are easier to process

Returns are an unavoidable part of any ecommerce business. Whether the customer simply doesn’t like the product or it’s damaged during transit, accepting returns will become common practice. Unfortunately, when operating a traditional ecommerce business, customer returns can end up generating a loss on the sale, particularly after paying the original postage and return postage fees. Thankfully, dealing with returns is much simpler when using a 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 2 parties, forwarding the return information to the buyer.

Tip: Offering a 30 day return policy is often required when selling on platforms like eBay and Amazon. Make sure your supplier offers a similar return window or be prepared to accept returns directly back to your own location.

  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.

Tip: Finding a supplier, or multiple suppliers with a large range of products to choose from is the key to scaling your dropship business quickly. You don’t want to limit yourself by dealing with one supplier or category exclusively.

  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.

Tip: With literally thousands of dropshipping suppliers to choose from, many of which offer global shipping, you can sell products in any country you like. For more information, see our guide on 12 easy ways to find dropshipping suppliers.

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.

  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 the supplier is slow at processing or shipping orders, it could negatively effect your business, particularly when selling on eBay or Amazon.

Solution: The most effective way to ensure your customers receive their orders on time is by working with a reliable supplier, while also ensuring that you process customers orders as soon as possible, preferably the same day. Consider using automated software which can process orders on your behalf, as soon as they come in (more details below).

  No control over picking & packaging

Another downside to dropshipping is having no control over the picking, prepping and packaging process. Sending promotional materials such as flyers, feedback requests or coupons with the order is not possible, while packaging adequacy and quality control checks are at the discretion of the supplier.

Solution: Once you’ve gained some sales history and established a relationship with your supplier, enquire about including promotional materials or company branding with the orders. Regularly place test orders with your supplier, and have the items shipped directly to you for inspection of packaging adequacy.

  Profit margins are lower than bulk buying

Profit margins can be considerably 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 quantity purchases. However, it’s important to remember that bulk purchasing comes with a lot more risk and requires a large upfront investment, as well as the additional cost of storage space.

Solution: Find a supplier with genuine wholesale prices and unique products. Set a higher selling price than your competitors, but run promoted or sponsored listings when selling on marketplaces. Consider building your own online store to minimise competition and gain more flexibility for higher profit margins.

  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 need to cancel the customers order. If you’re selling on a platform like eBay, this could lead to a negative feedback or performance defect. Thankfully, there is an effective way to manage inventory by using dropshipping automation software. Not only will software automatically monitor your suppliers inventory and make any necessary adjustments to your listings, but in most cases you’ll also be able to create new listings and automate order processing. Refer to our list of the best dropshipping software solutions for more information.

  Reliable suppliers are hard to find

The most effective way to avoid most of the disadvantages attached to dropshipping is by finding a reliable supplier with quality products, low prices, quick shipping times and a fair returns policy. Unfortunately, finding such a supplier can often be a challenging and time-consuming task which requires a lot of manual studying and research.

Solution: Try our free to use directory which is packed full of reliable, verified and trustworthy suppliers, or read our comprehensive guide on 12 easy ways to find dropshipping suppliers.

Final Word

It’s safe to say the benefits of dropshipping far 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.