What is Dropshipping?
Dropshipping is a common method of fulfillment used in many online businesses. In a dropshipping business, the online store does not stock products in its own inventory. Instead, when a customer orders any product the store owner buys it from a third party. Usually, these third parties are actually the suppliers of products.
In most cases, the suppliers are the one, who handle the shipping and fulfillment of the order.
This means you have zero overhead of logistics and inventory in the dropshipping business.
Dropshipping for Dummies
If you are new to eCommerce, dropshipping may be a new concept for you. So, let us elaborate on the simple answer of what is dropshipping that we shared above.
This, in turn, will help you to decide if dropshipping is the perfect choice for you.
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What is dropshipping and How does it work?
In dropshipping the shop owner is a middleman between the supplier and the end customer.
You must have already realized that the key features of a dropshipping business are:
- You do not manage the inventory.
- You do not handle the fulfillment of an order.
- You buy an item from the supplier only after selling it.
Is dropshipping worth it?
We have seen what is dropshipping. But you may ask me – can dropship really work in 2020? The answer is yes.
Dropshipping works. In fact, many successful online stores are actually running a dropshipping business underneath.
But remember that dropshipping is never the magic recipe for your online success. If you do not want to fail in the dropshipping business, you must be aware of the pitfalls of dropshipping.
Dropshipping Success Rate
As we will see very soon, it is very easy to start a dropshipping business. Expenses are low. Overheads are minimal. Tools are available. Success in a dropshipping business is easy if you plan properly.
But, many people just jump into the prospect of owning an online shop without proper analysis.
As a result, there are many store owners who fail even to breakeven. This is because they were not aware of the pitfalls of a dropshipping business that we are going to tell you now.
The Truth About Dropshipping
Although you now have a grasp on what is dropshipping, you must also know its pros and cons.
Advantages of Dropshipping
Low Capital Needed in Dropshipping
The foremost advantage of dropshipping is that you need not spend a lot to launch your online shop.
Of course, you will still have to bear the basic expenses to run an online shop. But, as you do not maintain the inventory, this expense can be very low.
In contrast, in normal eCommerce, you must spend thousands of dollars on inventory.
Remember this is an upfront capital investment. You spend the amount even before you can sell a single product from the inventory.
Low Overheads in Dropshipping
As we saw earlier, starting a dropshipping business has negligible overhead.
First, you do not maintain your inventory in dropshipping. Second, your supplier usually handles fulfillment. So, the overhead of running a dropshipping business is very, very low.
In fact, many dropshippers start their eCommerce business from home even as a side hustle.
Moreover, this also means that as a store owner, you can be flexible with location. You can start dropshipping if you can communicate with your supplier and customer. Think internet!
If you have internet, you can launch your eCommerce business from anywhere in the world. You can sell worldwide with dropshipping.
Easy to start a dropshipping business
In a dropshipping business you do not have to worry about:
- Managing inventory and warehouse
- Managing office location
- Managing shipping, fulfillment, and returns
As a result, it is very easy to start a dropshipping business. In fact, with platforms like Spocket, you can start a dropshipping business right away.
Products To Sell With Dropshipping
Another major advantage of a dropshipping business is the variety of products. Since you do not buy a product and stock in your inventory, you can offer a variety of products to your customers.
The catch here is your suppliers must be able to supply the items you put up on your store. With the right suppliers, you can sell lots of amazing products with dropshipping.
Scaling Up A Dropshipping Business
Scaling a dropshipping business is simple. This is because you do not manage the inventory and fulfillment services. So, you will not have to face the challenges as your business grows.
Leave the more complicated aspects of handling logistics to your suppliers. Be assured that they are much more skilled in handling these. On your part, focus on customer services and growing your business.
Disadvantages of Dropshipping
Let me very loud here. Dropshipping is not an all-is-well method of running a business. As we said, there are several dropshipping pitfalls that can harm your business.
Let us see the major disadvantages of dropshipping that you must be aware of.
Competition In A Dropshipping Business
Since you now know what is dropshipping, I am sure that you also realize that it is easy to start a dropshipping business.
As dropshipping is so easy to start, be sure that many like you are exploring this space.
In other words, the major disadvantage of dropshipping is competition.
And because of this, your profit margins can be very low. Why?
Since the barrier to entry in a dropshipping business is so low – you will face strong competition. Chances are your competitor is also sourcing items from the same suppliers.
To attract customers, you must offer extra benefits. Generally, price is the parameter that you will often compromise with. This, in turn, will lower your margins.
The trick here is to choose the perfect eCommerce niche!
Complexity of Shipping in Dropshipping
It is a common practice in dropshipping to source items from different suppliers. In such cases, shipping may become very complex for your store.
Let us take the help of a real-life scenario to understand why.
Consider this example.
Your customer orders two different products in a single order. Now assume that you are sourcing these two products from two different suppliers.
So, in this case, you will have to bear the shipping expenses twice increasing the shipping costs.
Moreover, automating these shipping scenarios is complex and expensive for your eCommerce software.
Tracking Inventory In Dropshipping
You do not own the inventory in a dropshipping business.
Let us step back and try to understand if this is always an advantage.
Not always. As you do not own the inventory in dropshipping, you actually cannot control the stock. So, if your supplier runs out of stock for a confirmed order, you are in real trouble!
This is more of a concern as your supplier may also be supplying items to other shops at the same time.
Supplier Errors In Dropshipping
In a dropshipping business, your supplier handles the fulfillment of orders. Throughout the process, your supplier is invisible to your customers.
This is good for your branding. But, this also means that if anything goes wrong, your brand will get the hit.
For example, if your supplier sends the wrong product. Or the shipment misses a product accessory. In all such cases, your customers are going to blame you. Do not forget this when you start a dropshipping business!
Quality Of Suppliers In Dropshipping
This is another serious disadvantage of a dropshipping business. If you choose a mediocre supplier, be ready for a bumpy ride ahead. You must be very selective when you choose your supplier. This can really make your life much easier (or tougher!).
Look for supplier lists having good and vetted suppliers. Connect your online store with platforms like spocket and have some peace of mind.
What is dropshipping: Final thoughts
In this article, we have seen what is dropshipping. We have also walked you through the major pros and cons of dropshipping. We are sure that now you know why or why not to use dropshipping for your business.
And is dropshipping worth it?
Yes. It is one of the easiest ways to launch a successful online store. You do not need any huge capital. You need not worry about the inventory. You need not handle the complexities of shipping. You can choose so many products to sell.
At the same time, remember that dropshipping is not a zero-risk business model. There are pitfalls you must be careful about. Just knowing what is dropshipping is not enough, learn how to avoid its pitfalls.
Balance the benefits and limitations of dropshipping before you start. If you do so, you can build a successful dropshipping store like many other entrepreneurs.
Do you have any other questions on what is dropshipping? Let us know your comments. Also, if you found this definitive guide on what is dropshipping helpful – share it!
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