Dropshipping is the store which does not keep the products in it but sells them in the stock, and it is the retail fulfilment method. They will purchase the products from the third party and sells them to the customers directly in stock. So in this procedure, the merchant did not see or handles the product.
1. Difference between the Dropshipping and Standard Retail Model
In dropshipping, the merchant did not possess the stock or own inventory near him. He will purchase them from the third party and sells them directly to the customers. His main work is to fulfil the requirement and to supply the stock as per the orders.
Here is the complete information regarding the Dropshipping. It is procedure through which we can get the products faster.
Meanwhile, it has various benefits and drawbacks:
2. Dropshipping Benefits
2.1 Requires Less Capital:
The biggest advantage is that it has the probability of setting the e-commerce store. To unveil it, they won’t need thousands of dollars inventory. For implementing this procedure, they have to partner with many capital purchasing inventory.
In this Dropshipping model, the merchants cannot purchase the products till they find the customer who is looking for the same product. It is not necessary to pay for the product soon after the completion of the sale commitment. They may pay after getting money from the people. So, we can start this business with very less amount.
2.2 Easy to Start:
It is effortless to run this e-commerce business as it is not essential to deal with the physical products directly. In this dropshipping deal, there is no need to worry about few things. They are:
- Warehouse management or regarding payment.
- There is no tension regarding the packing and shipping.
- No need to track the inventory for accounting.
- No need to handle the returns and to bound with the shipments.
- There is no issue of frequent ordering products and stock level management.
2.3 Low Overhead:
In dropshipping, it is not essential to deal with the inventory purchasing matters or in warehouse management. So our overhead expenses will be low. We can run these dropshipping businesses simply by staying at home. The only thing we need to continue this business is the laptop which costs less than $100 per month. With the firm implementation, the expenses will rise. Even though the rise of the investments are low when we compare it with the traditional brick and motor firm.
2.4 Flexible Location:
We can run this dropshipping business at anywhere just with an internet connection. The only requirement that we need to maintain this business correctly is maintaining the communication with the customers and suppliers. If our communication is good, then surely our management in the business will be excellent.
2.5 Wide Selection of Products:
There is no need for us to pre-purchase the items that the suppliers are offering for sale. Our work is to offer the products to our customers. We have to list out the products that the supplier has stocked out. It is essential to maintain that accurately without adding any additional price.
2.6 Easy to Scale:
In the traditional business, to earn the three times of the profit, we have to work by having three times more potential. We have to bring more order from the suppliers to draw more income and then supply them to users. Hence we can get more leverage and benefits. For this, the investments are fewer growing pains and less hard work but more leverages. If there is growth in the sales, then it will bring the additional work which is related to the customer service.
These benefits are making the Dropshipping model to look more attractive. Hence both the beginners and the established merchants are getting attracted towards it.
Unfortunately, this Dropshipping will not bring the advantages to us always. It is the one which is related to the convenience and flexibility.
3. Dropshipping Disadvantages
3.1 Low Margins:
It is the major disadvantage which we have to face in the competitive dropshipping niche. However, it is easy for us to start and the overhead costs are minimal. So many merchants will show their interest to shop here and to sell items at the low prices than the real price. Hence they will notice the growth in the revenue. We can initiate with less investment and hence they can operate it on the small margins.
The merchants will have the low-quality websites and maintain poor customer service. It will not stop customers from comparing the prices that we are offering with the others. This scenario may lead to the rise in competition. Meanwhile, it will destroy the profit margin.
3.2 Inventory Issues:
In this business, it is easy for the users to track the items which are in and out of stock. We are sourcing the resources from the various warehouses that are fulfilling the order for other merchants. On a daily basis, there are also modifications in the inventory. However, there are several ways to sync the store’s inventory with the suppliers. These may not work properly, and the suppliers won’t get the support from their required technologies.
3.3 Shipping Complexities:
If we work with various suppliers, then we will get many products from them. It may complicate the shipping prices.
If the customers want three items and if they get from the separate suppliers then the customers have to bear the three different shipping charges. In this scenario, we can’t charge them to the users as they think, the dropshopping persons are overcharging them. Instead of that, we can’t bear that loss, and hence these calculations will become difficult.
3.4 Supplier Errors:
Even though they are mistakes created by the suppliers, we have to bear them. We have to take responsibility for the supplier’s error.
The low-quality packing and shipments by the suppliers will affect our business reputation.
4. Is It Worth It?
Dropshipping is not the correct way, and it will not build the successful business for us. Even though it has some advantages, there is also the complexities and problems, and we have to address them.
Thanks for reading this article, and for further information comment us.