What is Drop Shipping?
Have you ever wanted to get into e-commerce but didn’t want to worry about inventory stock? Then, you might want to consider drop shipping.
So, what is drop shipping? Simply put, drop shipping is one of the many kinds of retail work where you sell products online directly from manufacturers with a given markup but without the hassle of keeping inventory.
How does it work? You basically become the middleman. First, you purchase your products online from a third-party vendor at wholesale price. Afterward, you directly ship them to your customers via that online store.
Stick around if you’re interested in learning more about drop shipping, how it works, and why it might be the best option for your business.
How Does Drop Shipping Work?
If you’re trying to start a drop shipping business, you don’t need to hire a bunch of employees and buy a store. Instead, all you need is to build an online store presence where you’ll advertise whatever products you’re selling.
The process is simple. Let’s first break down the key players of the supply chain management method.
First, you have to find reputable third-party manufacturers that will supply your product chain at a retail price. You always want to ensure they’re reliable and offer the quality standard you advertise.
Wholesalers may also come in handy since they’re responsible for keeping your products in inventory. In addition, they buy various products from the manufacturers and apply a mark-up when reselling them to retailers.
That’s where you come in. As a retailer, you drop ship your products to the customers at a profitable mark-up that compensates for the wholesale and manufacturing costs.
Ideally, you want as few middlemen as possible to avoid extra fees and turn over a better profit.
Advantages of Drop Shipping
here are loads of reasons why you could consider drop shipping. From less commitment to fewer costs, you’ll fulfill your entrepreneurial goals at a more manageable pace.
Here are a few of the benefits of drop shipping.
Fewer Costs
Whenever you think of starting a business, you might feel intimidated by all the costs and overheads. Drop shipping reduces these costs and makes the entire process more manageable.
Apart from that, lots of solid businesses usually have issues with an inventory surplus that can go to waste and cause loss. Luckily, drop shipping avoids inventory altogether, and your purchase to sell ratio will remain equal.
More Versatility
Whenever you own a business, you’re usually asked to be on-site for the most part. However, if you drop ship, you’ll be working remotely. In fact, all you really need is a working laptop and a reliable internet connection.
Being your own boss means deciding which products you want to sell and at what rates. Plus, with today’s tech advancements, you can leave your business to work itself out through automation.
Less Demanding
Are you wary of commitment but enjoy dabbling in business? Then, drop shipping is perfect for you.
You won’t have to deal with hiring employees, finding a warehouse, and all those finicky details. Plus, you can work anytime you please without having to worry about keeping a stock over inventory or capital income.
Easy to Launch
One of the toughest parts of any business is kickstarting it. The good news is that drop shipping offers you a less risky option than a traditional business.
Since start-up costs are much lower, you won’t be putting as much on the line. Another bit of good news is you don’t need to be a business major to operate a drop shipping online store.
Nevertheless, we recommend acquiring prior knowledge about drop shipping, your product, and manufacturer insights before starting a drop shipping company.
Disadvantages of Drop Shipping
The pros sound great and all, but drop shipping can have its disadvantages. Thus, you’ll want to consider the cons before starting your online store.
Check out a few of them below.
High Competition
Since drop shipping is easier to get into, you can expect other people to want in. You’ll most likely want to watch out for larger drop shipping companies that offer lower prices because of lower markups.
Another factor you’re competing with is the suppliers. Suppliers like to keep their options open and can easily make deals with several drop shippers. You’d be selling the same product as others, so standing out might be a struggle worth considering.
Less Control
As the retailer, you have little control over the product’s quality standards. You don’t even get to see the supply chain at work. You won’t get to handle the shipping, product inventory, stocking, etc.
You’re putting a lot of trust in your suppliers to do most of the work. As a result, they can be more hard-hitting on your business if any issues were to occur. That’s why you need to be more knowledgeable about damage control and customer retention.
Customer Service Difficulties
If a customer wants to return or exchange an item, they’ll head to you. Then, when a customer communicates with you, you’ll need to first talk to the supplier before replying to their queries.
Unfortunately, this back and forth exchange is likely to experience some delays, which could lead to unsatisfactory customer ratings.
Ordering Issues
The process may seem clear-cut. Customers order, you process their order, and the supplier does their job. Yet, in reality, order processing can get a bit messy.
When you cut a deal with more than one supplier, you’re signing up for two different shipping methods: billings and processes. This might cause issues when customers purchase different products from different suppliers.
If a few orders go wrong, you might lose your customer retention to other drop shippers.
Fewer Profits
When starting your drop shipping gig, don’t expect high-profit margins, especially if your product has a high competition rate. You’ll need to be patient until you build your brand name, which takes time.
To expect more profit, we recommend selling niche products that aren’t as popularly available. It’ll give you better chances of accumulating a profit.
Conclusion
Thanks to technological and communication advancements, you can build your brand via drop shipping. The process comes with several benefits, like being less demanding, more cost-effective, and highly versatile.
Even with all these promising advantages, you’ll still need to consider the cons. Things like less profit, more competition, and difficult customer services can take a toll on your drop shipping business.
That’s why you shouldn’t dive headfirst into any business commitment without gaining sufficient experience, knowledge, and networks in the field.