Dropshipping is a supply chain management whereby retailers transfer their customer shipment orders to the manufacturer, wholesaler or to other retailers. The goods are then shipped directly to the customer by them. When a store sells a product, the product is purchased from a third party and is shipped directly to the customer without getting into the merchant’s hands. The merchant fulfills their orders by purchasing inventory from the third party, unlike the standard retail model.
In dropshipping, you don’t have to worry about inventory issues. Most customers wouldn’t know you are dropshipping when you use a private label shipping with customized invoices and a return address. Most of the major dropshipping suppliers are mainly based in the USA. However, many dropshipping companies have been emerging rapidly in China since 2006. This model of business has a number of benefits and drawbacks.
1. Less Capital Requirement
This is the major benefit of this kind of business model. You don’t have to invest a lot of money in order to get started. You can start dropshipping without major upfront inventory investments. This is mainly because you don’t have to purchase products.
2. Convenient and Easy to Start
Managing an e-commerce business requires commitment and more resources. However, with dropshipping, you don’t have to worry about fulfillment and you get more time to expand your business.
3. Low Overhead Costs
Many successful dropshipping businesses are run from home offices. You don’t have to manage a warehouse or deal with purchasing inventory. However, the expenses may start growing up as your business grows but will still be very low compared to standard retail businesses.
4. Wide selection of products
With this business model, you can offer any product since you don’t have to pre-purchase them. Therefore, you can always offer a wide range of products to your customers.
1. Competition and Low Margins
This is the major drawback for dropshipping business model. Since the business is easy to start and requires minimal overhead costs, many people can easily start it hence leading to increment in stiff competition. This stiff competition leads to low profit margin.
2. Difficulty in Syncing Inventory
Your suppliers also have to fulfill orders from other merchants leading to daily changes in inventory of which you may not know about. It is therefore difficult to always keep track of which items are in and out of stock.
3. Shipping Complexities
Most drop shippers work with multiple suppliers. Shipping complications come in when a customer places multiple orders involving different suppliers. Each item will be shipped separately to them and, therefore, meaning high shipment charges.
4. Supplier Errors
Just like any other businesses, there are always mistakes to be made by even the best dropshipping suppliers. You will always have to take responsibility of mediocre and low-quality suppliers and accept it as a business cost.
When managed properly, dropshipping can be your path to eCommerce success. However, there will always be some drawbacks in this kind of business model. If you are thinking of starting a dropshipping business, some of the best dropshipping suppliers include Dropship Direct, Doba, Wholesale2b, Sunrise Wholesale Merchandise, National Dropshippers, Inventory Source, Megagoods, Dropship Design, Smart Living Company and Dropshippers.