The emergence of online businesses has opened up a number of opportunities for selling wares, and dropshipping is the most intriguing, affordable and hassle-free among these. If you are thinking about taking baby steps into the e-commerce field, you need to understand the dropshipping process since this is one mode of online business where you can sell without manufacturing and storing goods. So what exactly is dropshipping?
What is dropshipping? How to understand it as beginner
It is a model of online business where you don’t need to maintain an inventory or own a warehouse to store products. You also don’t need to ship the products to your customers yourself. Manufacturing, storing and shipping is managed by others. You get paid for the product sold without handling the products. You need to maintain just a bare minimum of infrastructure to handle the transactions; you just need a web store. You need to partner with a supplier who either manufactures or stores products which you are interested in selling. All the packaging and shipping job will be taken care of by them and the products will be sent to your customers directly from the third party’s premises on behalf of your business. A flowchart of dropshipping can aptly put forward the essence of the model.
- 1Customer orders for a specific product on your online webstore, your primary and only engagement with the customer.
- 2The order gets forwarded to the supplier, automatically or manually, as per the design of your webstore. The order includes all customer details.
- 3The supplier packages the product and ships it directly to your customer in your name.
It is an extremely attractive business model since it eliminates the need to have a warehouse or an office space. You just need a laptop with internet connection. Nevertheless, all is not hunky dory about dropshipping. In fact, the dropshipping model has got a beating in the last few year, although there are quite a few thriving dropshipping business models. Let us look at the merits and demerits of dropshipping. As a prospective dropshipper you need to be aware of both since that can help you to take decisions.
Merits Of Dropshipping Business Model
Easy to set up
It is pretty easy to set up since you just need to take 2 steps – find a supplier for your product and set up a webstore. No physical store, no packaging and shipping hassle.
Setting up a business and running its essential operations like inventory and purchase entails huge cost. Dropshippers neither need to keep inventory nor get involved in purchase. This brings down the cost by a whopping margin.
No Overhead Cost
Since there is no store or purchase department, a dropshipper does not need to maintain any infrastructure. So fixed overhead costs like electricity, rent for warehouse, salary of people etc are next to nothing. You just need a webstore and pay for maintaining the store, which is often miniscule compared to fixed overheads.
Since you don’t have to invest a lot, the risk of failure would not bother you. You would not lose much if the business does not take off. If you decide to stop operations, you don’t need to think about unsold stock since there no stock at all.
Run From Anywhere
A dropshipping business is independent of location. Since you don’t need an office, a warehouse or employees, you can run the business from anywhere. So, you can conduct the business while relaxing at the beach or sipping a cup of coffee at home. You just need a laptop with internet.
Variety of Products
As a dropshipper the sky is your limit as far as product variety is concerned. As long as there is a dropship supplier for the product you can do dropshipping for it.
Devote All of Your Time To Procuring Orders
Since you don’t need to own a store, manage employees or get into packaging, you can devote your time to procuring orders. The more orders you can send to the dropship supplier, the more profit you can make.
Less Shipment Hassle Leading To Less Damage
Since the products are shipped to the customers directly by the supplier, there are only a few steps in shipping. This reduces transit time and risk of damage to goods.
Demerits Of Dropshipping Model
Despite its benefits, everything about dropshipping is not good. Here are the demerits of dropshipping.
Lower profit margin
Different different products suppliers usually charge higher prices for dropshipping. This can eat into your profit margin.
In dropshipping, you are the interface with the customer although you are neither manufacturing, nor storing or shipping the product. So, even if the supplier or the manufacturer messes up the supply or the product, it’s counted as the retailer’s fault. To avoid such situations, you need to choose the right supplier.
When you are dropshipping, you have little control over things like branding, shipping and packaging of the product. You miss on things like personalized packaging, freebies with goods etc which customers take note of. To avoid this you need to make sure that the supplier is willing to go that extra mile to do personalized branding and packaging.
Issues arising out of complexities with shipping
If you are selling multiple products, you need to have multiple suppliers. The issues that may arise out of such multiplicity of supplier is that each supplier may charge a different shipping cost. The cost depends on factors like type of products, location etc. If customers order multiple products, they will get the products from different suppliers, and you have to pay different shipping costs to each of them separately. If you make the customer bear these shipping costs, it may negatively affect your sales and thus profit margins.
High Level of competition
The affordable and no-hassle model of dropshipping business attracts a large number of players. This drives up competition, which may, in turn, bring down profitability.
Managing inventory is tricky
Though you don’t have to maintain stock, you need to keep a track of the stock lying with the supplier. However, it is quite a tricky task since the supplier may not share his stock with you. This can lead to cancellations of orders which can definitely impact your brand value. You need to make sure that the supplier share his stock with you ethically and in real time.
All the points in merits and demerits of dropshipping are actually true and I mentioned them here according to my experience. I hope you can understand the initial steps of this article. In this article, I tried to make easy dropshipping for beginners. If you loved it, please share it.