Dropshipping Pros and Cons
Dropshipping seems to be all the rage these days, with it’s low cost of entry and low overhead, people are gravitating towards this model. I am going to give a quick rundown of the pros and cons of dropshipping and the alternatives. First lets define dropshipping, “(to) move (goods) from the manufacturer directly to the retailer without going through the usual distribution channels.” Now that we have that out of the way lets talk about the pros and cons of using such technique.
- Low risk – Since you are only purchasing inventory when it sells, you’ll always have the money first then the products get sent.
- Low cost to startup – No inventory to purchase up front makes getting off the ground that much easier.
- Unlimited products (almost) – Your store has the ability to offer almost an infinite amount of different products since you wont have to purchase inventory.
- Low overhead – You don’t nee to have a warehouse, employees, insurance etc.
- Low profit margin – Since you are facilitating the sale of the products as a middleman you are/can be the lowest person sharing the profits
- Competition – Ease if entry means other companies can utilize this same tactic, meaning you’ll need to spend more time and money to out market them.
- Supply/inventory – If a product sells out and can’t be shipped you have no way to increase the speed of getting the product to the customer. These inventory issues can lead to bigger complications as customers expect products to be shipped fast.
- Shipping speed – We live in a world where Amazon Prime has increased the expectations of online shoppers to want their products within 2 day. Dropshipping tends to have a longer ship time do to manufacturers limitations and locations (a lot being based out of Asia and China)
- Returns – When selling something online people tend to change their mind, so having a strategy to handle returns is important. Not all dropshippers handle returns in an easy to understand fashion.
The Alternative – Dropshipping is great to find out what products sell the best out of a wide variety of products. This can help you narrow down your best selling products then focus your business on those products. I said products a lot but hang in there. Now once you have, lets say 5 different best selling products, you can find a manufacturer who can produce those products at a higher quantity giving you a lower price (COGS). Since you know that these products are going to sell you have a lower risk now than before. You can hold inventory, increase shipping speeds and raise customer satisfaction by being more involved in the entire product cycle. Once you are at this point you have the ability to out source your fulfillment so that you can still keep a lower overhead. Using a company like Ships-a-Lot where your products can be warehoused, picked, packed and fulfilled you still have the same simplistic business model as before but with the ability to increase shipping speed and customer satisfaction. If you’re at this point in your dropshipping business or are currently looking for warehousing and fulfillment, you can reach out to us here.