What is dropshipping fulfillment? What are the pros and cons of dropshipping?
Dropshipping is an eCommerce business model where a merchant sells products without stocking their inventory in the shop or warehouse. The merchant will purchase the required items by a shopper from a third party-supplier (can be either a manufacturer, wholesaler, or an aggregator) and then has them ship the product directly to the customer. Dropshipping sometimes tends to be confused with Third-party-logistics, commonly known as 3PL. Though some terms are similar, for instance, in both eCommerce merchant does not get to handle the goods, which means a third party does the packing and shipping of the products to end-users. The key difference is, in 3PL, the eCommerce merchant buys goods from a manufacturer and sends them to a third party company for storage, packaging, and shipping to end-users, dropshipping, on the other hand, the merchant does not need to own inventory since manufacturers, wholesalers or aggregators are solely responsible of packing and shipping customer orders.
There is no perfect business model. Before venturing into your dropshipping eCommerce business it’s important to understand the pros and cons.
What are the advantages?
- Dropshipping requires less capital. In this case, what appeals to many startups is the fact that you do not have to pay for inventory. You will only be required to pay for the product when the customer pays.
- Easy to start since it has less overhead costs. Since there is no need for inventory, dropshipping eliminates overhead costs like warehousing, inventory management, shipping cost, administrative costs, etc.
- Dropshipping is flexible. One can start an eCommerce website from anywhere and start promoting their products. For instance, one can operate a business online from China while located elsewhere.
- Wide range of product selection. Dropshipping does not limit you from what products you can sell. You can test and experiment with different products to establish your customer base.
- Dropshipping is a straight forward business model that is easier to understand and execute.
What are the disadvantages?
- Too much relying on suppliers. Since the supplier is the one servicing the order, you will have no choice but to trust that they do their best to pack, ship, and get the goods to the customer in time. Any error made by the supplier automatically translates to your business since you are the point of contact with the customer.
- Less to no control over the product. There is a lot of limitation when it comes to the items. Branding design comes from the manufacturer. Additional customization could mean additional cost to meet the manufacture’s minimum order to cover their costs.
- It’s common to experience poor customer service and conflicts since it is difficult to sort out issues like damaged items, missing orders, etc.
- Dropshipping has low-profit margins due to extreme. Many startups in this market struggle because everyone is looking to undercut their competitor through pricing to get custom.
After looking at the advantages and disadvantages of drop shipping fulfillment, you can now decide if it is a viable venture.