Each year customers come to us and ask us "what are the pros and the cons of dropshipping?". This is a very good question. Here at Dropstore, we understand that drop shipping might not be the best option for every entrepreneur. There are significant tradeoffs between dropshipping and traditional wholesaling.
What this article is going to do is go over the pros and cons of Dropshipping in an honest and transparent manner with tips on what you need to make Dropshipping easier.
What Is Dropshipping and How Does It Work?
Dropshipping is a supply chain management model in which retailers don’t have to worry about managing their own inventory. They can easily promote the products of suppliers and earn handsome commission on arbitrage.
The drop shippers work as intermediaries for suppliers and customers. They transfer the order information to the suppliers while keeping a certain amount as commission, who then dispatch the product from the warehouse to the customers.
What Are the Pros and Cons of Dropshipping?
Many people start a dropshipping business because they think it’ll be easy to run.
“No inventory, no problem!” they say.
The truth is, it’s not “easy.” It comes with its own set of problems.
With that said, dropshipping also solves many problems for retailers and for wholesalers suppliers.
Let’s take a look at the pros and cons of dropshipping to see if it will solve your business problems or if it will add to them.
Cons of Dropshipping
Drop shipping’s ease of entry is a double-edged sword. As it allows many entrepreneurs to start an eCommerce business with low overhead and no warehouse and still make a profit, it can get highly saturated if there aren't enough products and suppliers. Here are the other disadvantages of dropshipping:
Less Profit
Dropshipping can have higher shipping costs. When you dropship, you not only pay the real cost of stocking, picking, packing, and shipping, you also pay a hefty mark-up which means drop shipping costs scale as your sales grow.
Less Control Over Order Fulfillment and Lead Times
You don’t control anything except your prices and the products that you “offer”.
Potential quality control issues
A consignment, if not packaged well and handled with care, leads to high returns. And high returns rate is detrimental to any business.
Inventory Issues
Risk in offering and selling products that are no longer available from the drop shipper supplier resulting in potential customer service issues.
Supplier Errors
Drop shippers aren't perfect, but if they stuff up, you get the blame and you might get bad feedback placed on your account if you are selling on a marketplace. If the supplier packages the item poorly, causes delays in shipping or makes a mistake with the order, then you are held responsible, even when there is very little you can do about it.
Communication with the supplier
Since your supplier is responsible for such an important part of the business (logistics), you must be to reach him whenever you need to. You may need a tracking number or help with the product and the supplier might not be reachable. Your customers don’t care about your supplier, they deal with you and if there is a problem they come to you, you are the address to solve their problems. If you rely on your supplier then make sure you establish ongoing communication.
Pros of Dropshipping
Sell and Test More Products with Less Risk
Without the constraints of a physical inventory and the costs associated with it, dropshipping allows you to update your inventory quickly, easily, and cheaply.
If you know a product is doing well for another retailer or reseller, you can immediately offer it to your customers without waiting for it to arrive in your warehouse.
Dropshipping allows you to test new items without the risk of carrying obsolete inventory. You only pay for what you sell.
Low Order Fulfillment Costs
Order fulfilment usually requires you to warehouse, organize, track, label, pick and pack, and ship your stock.
Dropshipping lets a 3rd party take care of all of that.
Your only job in this arrangement is to make sure they get your customer orders. Everything else will be handled by them.
Low Barrier to Entry
In dropshipping, you don’t have to pay upfront for the products. So, you will only pay for the hosting and domain charges.
As you have no excess inventory, hence your business is less prone to loss of revenue.
You can upsell your own products along with best-selling ones on your store.
Convenience for Supplier and Dropshipping Store
With dropshipping, neither the dropshipping store has to worry about the shipping and packaging of the product nor the supplier has to worry about marketing and promotion of his products and both reap decent profits.
Dropshippers can work with multiple wholesalers at once.
Easier to Scale and Remodel
As dropshipping stores don’t require storage facility and are completely digital, they are easier to scale.
Even if one niche or product doesn’t sell well, dropshipping stores owner can easily move to a better selling product.
Minimum Risk
A dropshipping store can be started for free. Just get a domain and hosting and you are good to go.
Even if you lose the store, not able to scale or profit from it, you can easily back out with no risk at all.
I hope this might have helped you
Here’s What You Need to Make Dropshipping Easier
Now that you know the pros and cons of dropshipping, it’s important for you to know about a tool that you can use to make dropshipping work better for you.
We mentioned that one of the cons of dropshipping is not being in control of the inventory you’re selling – leading to potential stockouts. We also mentioned less profit, lack of control over lead times, quality issues and communication problems.
But, you can use a Dropstore which acts as a cloud-based inventory management software that integrates with the supplier’s software so that both of you know how much inventory is in stock at any time and it will automatically update your inventory in your store.
This helps you as a drop shipper synchronize your marketing and sales campaigns with your supplier’s stock.
So, when any of your supplier’s customers make a sale (including you), it will update the amount of inventory in your supplier’s warehouse automatically.
We also negotiate down the prices from suppliers for a higher profit for the retailers which ultimately results in a higher number of sales for the supplier, suppliers are required to display lead times and shipping times of their products (we also send shipping reminder communications to suppliers) and you can easily communicate with suppliers on orders.
If you want to minimize some of the issues with dropshipping and make it more worthwhile, then you need a system committed to solving all the issues faced n Dropshipping.
Where will you find such a system?
Right here at DROPSTORE.
P.S. Let us know what other pros and cons you face in dropshipping in the comments section below and we'll be sure to tackle them too.