Updated by Neil
Here we will cover the pros and cons of using drop shipping as a method of fulfillment.
In e-commerce, Drop Shipping is a method where the business owner has to set the store up, make and put up a list of their products, and market their store to get customers and sales. However, the sourcing of the products is done by a ‘middleman’ who gives you a list of items that they can deliver to you as and when you get orders.
Advantages of Drop Shipping
No Upfront Delivery Costs: One of the significant issues that many people face when trying to start an online store is paying for the inventory upfront. This issue is resolved by drop shipping by pulling the barrier for entry down majorly. The payment only needs to be made for the products that you have already sold.
Quick Product Testing: When it comes to sourcing inventory for a conventional online business, you should make sure that you have carefully done your research to ensure that your product’s actual demand exists. Opting for drop-hipping allows you to test hundreds of products at once by uploading them together and learning about the demand for each in various markets. This enables you to keep those products in your store that are demanded by the people.
Quick test Results: When you are sourcing your inventory by drop shipping, you pay a higher price per unit of the product. Once you have tested the market demand for all the products, you can get and sell your versions of the products that, according to you, have the highest needs.
Disadvantages of Drop Shipping
Uncompetitive pricing and low-profit margins: The profit margins you earn will be significantly lesser due to the per-product cost being high. This high cost also restricts you from making changes in prices to attract customers and increase sales. And given that you are not paying the inventory upfront, you will not be able to enjoy the discounts that come with bulk ordering goods.
With that being said, if you attract enough customers and get your sales up, the supplier may be open to developing an exclusive supplier relationship with you and give you special privileges, increased margins, and may also allow you discounted pricing.
Competition from Copycats: Often, you may not have an exclusive-supplier relationship with your supplier. Others might find your supplier and use their products to start testing their marketing channels on the same products sold by you.
You must make sure that your idea of business is not very easy to replicate, and if it is, it might be time for you to dig into other product markets. Like an email list of raving fans, good marketing entails making online communities where all your customers can talk about your products and company and make webinars or podcasts related to your industry. These things will help teach a brand image and develop a quality brand that these copy cats will not challenge.
Lack of Control: When you opt for drop shipping, a significant part of the process is not under your control, whereas in conventional e-commerce businesses, the business owner controls every step. The failure points are more critical; for instance, you may lose your supplier, or Facebook might suspend your ad privileges.
If the shipping is not done well o the part of the supplier, your company’s image will be at stake. It will be your company that gets a bad review and not them. The customer service and damage control will be your responsibility. You can reduce these risks by researching the dropshipping supplier and making sure that their reviews are good and verified.
- Drop Shipping is beneficial in many ways and helps you steer clear of many negative aspects of running an e-commerce business like paying for inventory upfront and risks of untested products.
- Rapid testing of many products for their market demands to find the ones that sell best is an excellent way to go ahead with the business.
- The cons of Drop Shipping are that it has a lower margin of profit, lack of command over the process, and more crucial failure points.