Dropshipping is a business model that allows you to sell products online without ever having them in your hand. This may sound appealing especially if you are starting out in the e-commerce world however there are several factors to bear in mind before beginning this exciting venture.
To begin you need an understanding of this business model, put simply your customer will place the order on your site, you will automatically or manually send this order to your dropship supplier, your chosen supplier then picks, packs, and ships the order to your customer.
Benefits of this business model:
1) It’s fast and easy to get started. You don’t need to worry about setting up your warehouse, choosing your shipping couriers, or even managing your own stock! Taking all of these responsibilities out of your hand gives you time to really focus on setting up a unique and engaging site and establishing your brand. An appealing site and strong brand help to build confidence in your business and are a key part of generating sales.
2) You have access to thousands of products instantly. Meaning you can list a wide range of products on your site boosting your sales and making your site more appealing to consumers, giving you the product range of a much larger business model while keeping costs down.
3) Lower start-up costs. You don’t have to invest any capital in purchasing your products or setting up your warehouses. There is no need to hire staff to fulfil orders again keeping the costs down. Making this a much cheaper business model than traditional e-commerce start-ups, keeping your initial costs down while you grow your business.
4) Easy to scale. This business model is not dependent on warehouse location, size, or even the number of staff you have. Making this model especially beneficial for sellers that have fluctuating sales. It also reduces the pressure of expansion, at no extra cost.
Points to bear in mind:
1) It is a competitive field. Your suppliers are likely providing the same service to many sellers meaning there are many people listing the same products as you. Making your site and brand even more crucial in helping you stand out from the crowd. Ensuring you offer exceptional customer service can also give you an edge over your competitors.
2) Supplier errors and mistakes do happen. An order can go missing or an incorrect product can be shipped from time to time. As you don’t stock the items yourself it can take time to resolve these issues with a 3rd party, and as the seller, you will pay the price for any customer complaints. Making your own customer service even more important in keeping your customers happy and returning.
3) There can be longer shipping times. Long shipping times can sometimes deter a potential customer from purchasing or can lead to customer complaints. However, making sure you are upfront with delivery times and managing your customers’ expectations can help to negate this negative.
4) Lower profit margins. Many dropshippers are not wholesalers, so you may find that your profit margins are less than they would be if you purchased your inventory directly from the wholesaler. Rather than selling you products in bulk, the dropshipper will sell you a single unit for each order placed, resulting in higher costs. Some dropshippers will also charge a drop-ship fee for the cost of labour and packaging. On average, your profit margin will be between 15-20%.
There are many pros and cons to dropshipping that you need to consider. Your initial start-up costs and workload are greatly reduced but as a result, you have less control over the process and a lower profit margin. It’s up to you to decide if dropshipping is right for you and your business.