Dropshipping is an order fulfillment method where the retailer doesn’t keep inventory in stock. Instead they purchase items from a third party supplier, who will pack and ship products directly to the customer on their behalf.
As a result, the retailer doesn’t ever see, handle, stock or own any of the inventory themselves.
Advantages of dropshipping
- Less finance is required. Dropshipping allows retailers to start an ecommerce business without needing to invest thousands of dollars in inventory.
- Easier to scale. Retailers can expand with less incremental work, as most processing work is done by third-party suppliers.
- Easier to get started. There’s need to worry about managing a warehouse, packing and shipping orders or continually ordering new inventory.
- Lower expenses. Fewer staff and overheads means monthly expenditure is significantly lower than in a typical ecommerce business.
- Flexible business location. It’s possible to manage a dropshipping business from anywhere, as lonf as you have access to an internet connection.
- Broad selection of products. Retailers can list a variety of suppliers’ stock on their website at no extra cost.
Disadvantages of dropshipping
- Low margins. Dropshipping can be a highly competitive dropshipping niche, and means many merchants will sell at bare minimum prices to grow revenue.
- Difficult to track inventory. It’s difficult to keep track of stock when you’re sourcing from multiple warehouses and fulfilling orders for other merchants.
- Shipping cost confusion. Sourcing products through a number of different dropshippers can make it difficult to calculate shipping costs for customers.
- Lack of control. Your business and brand reputation can be damaged by fulfillment errors that you have no direct control over.
Who is dropshipping best for?
Dropshipping can be a great way to start a business from scratch with little up-front cost. This makes Dropshipping ideal for first time-sellers.
It can also work well if you:
- Frequently get orders from far-away locations.
- Have received complaints about the variety of your inventory.
- Want to expand into a certain niche but are looking to “test the water” before spending large amounts of money on a new product range.
Dropshipping also works for retailers looking to work remotely, with little space to store a large variety of products.
Who should avoid dropshipping?
Dropshipping should be avoided by retailers that want complete control over their brand. This means the control of the products, presentation and customer perception.
Due to the nature of dropshipping, these aren’t always easy or even possible. Dropshipping should also be avoided if you make your own products, desire high profit margins or sell common goods that aren’t special ordered.