Dropshipping is quickly gaining popularity in the ecommerce world and many Shopify and Etsy sellers are beginning to adopt this method. The promise of low risk sales, more flexibility, easy scalability and more can all sound too good to be true, but is it?
What is dropshipping?
In traditional commerce, sellers are responsible for every step in the order fulfillment process. This means sellers often need to maintain a warehouse where they store their inventory, handle supply chain operations, and manage shipping. This puts the seller at risk because they’ll lose money if they aren’t able to sell the product.
Dropshipping is a supply-chain-management technique where the seller does not produce or store product, instead they list other manufacturer’s or wholesaler’s products in their store and send the order and shipment details to the manufacturer or wholesaler after the product has been purchased by a customer.
This method mitigates much of the risk for sellers and helps suppliers get more sales, so all parties benefit.
Dropshipping requires three parties:
- The seller
The individual listing the products in their store.
- The supplier
This could be a manufacturer, wholesaler, or another online retailer.
- The customer
The individual who purchases the product from the seller.
The four basic steps of dropshipping are:
- Seller lists a supplier’s product in their store
- Customer places an order for the product
- Seller sends the order information to supplier
- Supplier prepares the customer’s order
- Supplier ships the order directly to customer
Dropshippers choose products they love, list them on their store, market those products to their audience, and handle customer relations. This simplified form of ecommerce comes with some incredible benefits, especially for entrepreneurs with low capital who want to spend less time worrying about operations.
Low start-up costs:
One of the most significant advantages of dropshipping is the low start-up costs. As a seller, you don’t have to purchase inventory upfront, which means you do not need to have a physical store or warehouse to store your products.
Dropshipping reduces the risk of unsold inventory because sellers only pay for inventory after it has sold. In traditional retail models, sellers often buy a large amount of inventory, and if those products do not sell, they incur significant losses.
Flexibility and scalability:
Dropship sellers can offer a wide range of products without having to keep them in stock. This means that sellers can quickly and easily add new, unique products to their online stores to expand their product lines and increase sales.
Dropshipping allows sellers to operate their businesses from anywhere in the world. Sellers don’t need a physical store or warehouse, they just need access to the internet!
Dropshipping does present a few challenges that, although easy to overcome, entrepreneurs should consider before adopting this model.
Low profit margins:
Dropship sellers can’t take advantage of bulk pricing or economies of scale so they have to pay a higher price per unit for each product they sell. Additionally, because the competition is high in the dropshipping industry, sellers may have to lower their prices to remain competitive, reducing their profit margins.
Dropship sellers can overcome this challenge by selling unique products that have limited competition in the marketplace. Customers have been proven to pay more for products that are unique.
No control over product quality:
Dropship sellers aren’t involved in the creation of the product, so they don’t have control over the quality of the product . The manufacturer or supplier may ship faulty or low-quality products, which can lead to negative customer feedback and loss of business.
Sellers can mitigate this risk by taking time to research a manufacturer’s failure rate and checking their reviews before forming a partnership. Past performance is a great indicator of future success.
Dropship sellers are dependent on a supplier to fulfill orders, which means the seller has little control over the shipping process. Shipping delays are a common issue in dropshipping, as the supplier may take longer than expected to ship the product to the customer.
To balance this, many sellers search reviews to find reliable manufacturers or change their store’s shipping policy to account for the possibility of long shipping times.
Lack of brand control:
Because the dropship sellers aren’t involved in the shipping process, they have limited control over the customer experience and branding of their store. This can reduce the number of repeat customers.
Sellers can overcome this by increasing the number of customer touch points they have. For example, the seller could email their customers after their order has been delivered asking about the quality and thanking them for making the purchase. Going the extra mile helps customers remember a company, even when the shipping package isn’t branded.
How you can get started:
Dropshipping is a great business model for entrepreneurs who are looking to start an online store without having to worry about manufacturing, shipping and inventory. By partnering with a reliable supplier, these entrepreneurs can focus on building their brand, attracting customers and developing relationships with suppliers.
Although dropshipping presents it’s own set of challenges, sellers can easily overcome them and find success through this ecommerce method.