What is drop shipping?

Dropshipping is a fulfillment method in retail where a store does not keep the products it sells in stock. Instead, products are stored by the product supplier. When a customer makes a purchase from the store, the supplier then fulfills the order directly to the customer, which means the store owner never sees the physical product.

Unlike traditional retail, dropshipping allows merchants to sell products without ever holding any stock or inventory themselves. Third-party suppliers fulfill all orders for the merchants.

Pros

Little to no initial investment

With dropshipping, you only pay for what you sell. This means that starting an online store could potentially cost as little as $30, or whatever price an e-commerce platform charges for users. Naturally, this opens the floodgates for virtually anyone to begin an online store and dropship their products.

Simplicity

Running an online store is simple with dropshipping. No need to worry about handling physical products, ordering shipping labels, or fulfilling your own orders. It essentially eliminates the accounting experience needed to run store that stocks its own inventory, leaving you with more time to focus on marketing and building your brand.

Product variety

Almost any physical product you can imagine is available for dropshipping. Home goods, toys, appareland jewelry are just a few of the categories that product suppliers offer to online stores. You can sell a wide selection of products on your online store with dropshipping, or focus on a specific niche.

Cons

Low margins

The biggest detriment to dropshipping is the relatively low margin potential. With starting an online store becoming very easy through dropshipping, many merchants start online stores and sell products at the lowest prices possible to turn a profit. While it’s great to see e-commerce open up to many different people, many markets and niches have become saturated with stores selling similar products at the same prices, which can make it difficult to sell online.

However, managing inventory yourself can easily kill potential margin gain. This is what drives many merchants to dropship their products. Handling your own inventory is a complex, never-ending battle that takes a lot of time. Unless you have the capital and experience, it isn’t the most efficient option.

Supplier error

As a dropshipper, you are effectively handing over all shipping responsibilities to your product suppliers. This means that order processing, shipping, and fulfillment all fall on the shoulders of the supplier. However, if there are any issues, customers will blame the merchant who sells the product, creating a great risk for any merchants who do not choose reliable suppliers.

Lack of inventory control

When you manage your own inventory and products, it’s fairly simple to keep track of items that are in and out of stock. With dropshipping, you are handing over control of inventory to the suppliers. Inexperienced suppliers will have trouble communicating to you which products are out of stock or low on stock. Failing to maintain communication between merchant and supplier can lead to unfulfilled orders and angry customers.

Is Dropshipping Worth It?

Yes. While markets are becoming saturated, dropshipping still offers a great opportunity for merchants to create an online store, sell products, and generate profit. With some business experience and some marketing savvy, virtually anyone can begin a dropshipping business. E-commerce technology has developed many great solutions in the past few years that make dropshipping as seamless as possible.