What is the Dropshipping?
Dropshipping is a method of retail fulfillment when you have no need to keep the goods you sell in your store. Just another way round, you act like a middleman buying the goods from the third party and make it shipped right to the buyer. Thus you sell the product and don`t see and touch it at all.
That is the most amazing thing and the main difference between dropshipping and ordinary merchandise –one does not have to own or stock any items. You manage all orders with the help of purchasing the items from a third party, nothing extraordinary needing extra forces, finances and warehouses.
This is a unique thing and it has its pros and cons:
You have no need to have millions of dollars – That it most likely the best feature of this whole thing of dropshipping. You really can open your own e-commerce store, not being a favorite relative of Rockefeller. You don`t have to invest tons of money into opening of such a store, you spend money only after getting it from a client. It is a simple way – you get money from an order and you buy the item and have it shipped to the customer. You are able to start your own business with almost no money.
So easy to start – if you have a real store and you have to deal with real products – that is quite time and power assuming. But if you have dropshipping, it is much easier, as you can forget about such annoying stuff like:
- Running and paying for a warehouse
- Packing and shipping your orders
- Tracking inventory for accounting reasons
- Managing returns and inbound shipments
- Continually ordering products and managing stock level
LOW OVERHEAD – Your overhead expenses are going to be really small, as you are free from the necessity to purchase any inventory and running a warehouse. You run your business from your home office, thus your whole business based upon dropshipping can even not exceed $100 per month. Of course with your development these expenses can grow but don`t forget that you develop both your business and your bank account as well, this will be low compared with the traditional business expenses anyway.
FLEXIBLE LOCATION – You can run your business from a sofa or hammock on the Caribbean islands as long as you have a stable internet connection for your dropshipping business. You are able to enjoy your life and travel all the world round communicating with your clients and suppliers via your mobile devices as laptop of a smart phone with an internet access.
WIDE SELECTION OF PRODUCTS – You are almost in no boundaries in the selection of the goods to sell. Lack of necessity to buy the goods in advance and to keep them in warehouse makes your stock diverse. You can add the goods form the sellers list to yours with no additional cost.
EASY TO SCALE – If you have already an experience of running a traditional business, you know that as many work you have as many work you need to do. But with the dropshippning a great part of the job is covered by the suppliers. Thus you may spend your time on searching for new customers and clients leaving all the boring job like dispatching and shipping to your supplier. All you need to do good and fast is client support work – all the other job will be done instead of you.
Of course everything comes at a price. None says that dropshipping business is all cakes and ale. Of course all these listed above pros are really fantastic and tempting, but you should not forget about the cons.
LOW MARGINS – The biggest shortcoming of the dropshipping is low margins. But that is not surprising at all. As far as it is so easy to start, without almost no start-up capital, you remember that the overhead costs are really low, almost anyone who wants can start the business in this niche, a very competitive one. Lots of smart merchants can come up to this clever idea to get revenues with the e-commerce that needs no millions of dollars to start a new business. But that is quite logic – low start-up money – low margins. But keep in mind that slow and steady wins the race.
But remember that offering the same goods at the same price the winner is the one who offers the best service – that means a good web-site and really good customer support. And if you think that this competition may destroy all the possible margin – that is true, but you can win the race choosing the right niche of your dropshipping business. You will find out more about this in Chapter 4.
INVENTORY ISSUES – As far as you do not have your own warehouse and don`t influence yourself on how many goods are in and out of stock, there always can be problems with the availability of certain goods in the stock of your seller. Your supplier as well can fulfill the orders of other merchants and it can be difficult to influence on your turn of service. Of course, it is possible to sync the inventory of your store and your suppliers, but this solution doesn’t always work like this because of some technology problems.
COMPLEXITIES – What happens quite often is that while working with several suppliers it is quite difficult to calculate and do everything concerning shipment. If you have three items to be shipped and all three from different suppliers, you have to pay for 3 different shipments, which is quite a lot for your customer. If you want to cover partially this expenses, that will be really somehow difficult to calculate. This complicates your shipping costs.
SUPPLIER ERRORS – Nobody is perfect. And everyone at least once has been blamed for somebody else`s fault. So it is in the business. There may always be some circumstances when something has happened to the goods, a mistake or even missing items. And being a good seller you are to offer the best service and apologize and run the business forward keeping your reputation up high.
Is It Worth It?
As already said above dropshipping is not an ideal thing, as nothing in real life. But this model has its benefits and shortcomings. And it is a real opportunity to start a business having little money, though you will have to deal with some complexities.
How to deal with these problems? – We will show everything we can in the next chapters. Keep in mind that with some good planning and consideration, almost all complexities can be resolved and you can become an owner of a profitable e-commerce dropshipping business.