Though the pandemic has made a significant impact on various industries, the e-commerce industry has seen a boom in profit with the increasing number of people turning to online shopping.
If you are a business owner looking for a way to hop on this trend, you should know that there are many types of business models within the e-commerce world itself. Dropshipping is one of the popular models that many sellers are using. In this article, we’ll go through everything you will need to know about dropshipping so you can see if it will be suitable for your company.
What is dropshipping?
Dropshipping is a retail fulfilment method where a store doesn’t keep the products it sells as stock. Instead, the store purchases the item from a third party, who will ship the product directly to the customer. This method means that sellers do not have to handle the product directly.
This is the biggest difference as compared to the standard retail model – instead of owning stock or inventory, the seller purchases inventory from the third party to fulfil orders.
How does dropshipping work?
The dropshipping process can be explained simply in four steps:
Step 1: Your customer places an order on your online store
Step 2: Your store sends the order automatically to your dropshipping supplier
Step 3: The dropshipping supplier prepares your customer’s order
Step 4: The drop shipping supplier ships the order directly to your customer
Why choose dropshipping?
Many entrepreneurs choose to dropship as it is a very accessible business model. It allows you to test different business ideas with low risk, which allows you to learn more about the market and what products are in demand.
There are several benefits to dropshipping. First, less capital is required. This is the biggest advantage that dropshipping provides. You won’t have to purchase a product unless you’ve already made the sale and have already been paid by the customer. This makes it possible for you to launch a successful business with small capital.
Dropshipping is also easy to get started as you don’t have to worry about physical products. This means that you won’t have to deal with things such as paying rent for a warehouse, packing and shipping orders or tracking inventory for accounting reasons.
Other benefits of drop shipping include low overhead, flexible location and a wide selection of products to sell.
Disadvantages of dropshipping
Though there are many advantages to dropshipping, there are also several disadvantages. The low margins mean that it is easy to get started and many competing stores will set up shop and sell their items at low prices in an attempt to grow revenue. This can hurt potential profits.
Inventory issues, shopping complexities and supplier errors can also be out of your control which can damage your businesses reputation. Though these problems may be out of your hands, you will have to accept responsibility for the mistake.
Dropshipping also gives you limited freedom to customize and brand your items as much as custom-made products or print-on-demand. Usually, dropshipped products are designed and branded by the supplier.
What you need to consider
Though drop shipping may seem appealing off the bat, you should consider several factors and understand the dynamics of your business inside out. Here are some factors you should consider:
- How your industry works
- Pricing strategies
- Promotional efforts
- Product and placement strategies
- How to overcome potential roadblocks
If you can think of solutions for most of these problems, then you should be good to go. But if these factors leave you with more questions than answers, then it might be best to consider another business method.
If you are looking for solutions to your business model or need accounting advice, our team is ready to help you. Drop us a call or WhatsApp chat and our expert team will be able to help you solve your problems.