It started with the opening of online web stores. Then came the various logistics companies, which took over the trader’s logistics, packaging, and delivery tasks with fulfillment services. And now we’re there not even to have to deal with the product, and it’s enough to sell it – everything else will be done for us. But what is dropshipping?
Meaning of Dropshipping
A business model allows a product purchased from an online store to reach the customer without contacting the product.
This means that the dropshipping supplier will run into the product order, he will store the products and then after the purchase, he will pack and deliver.
The profit of an online store comes from the difference in how much you sell for more than the dropshipping company sells the product for.
In practice, this is enough to run an online store and deal with sales – there is no need to hire people on the logistics side.
This sounds very good, but it’s worth looking at the pros and, most importantly, the downsides as well.
Advantages/disadvantages of a dropshipping business model
Let’s start with the disadvantages because it will soon be clear whether the dropshipping web store is right for us or not.
In many cases, product coordination is required.
Our customers may order more products from our web store, but we obtain them from different dropshipping providers, so they arrive at the customer at other times.
Much of the benefit often does not land with us.
This is the price of not dealing with the product and logistics: we have to work with a relatively small margin because if we put too high a price on the price given by the supplier, customers will instead get the product from elsewhere.
There is no control over the products.
Dropshipping is a massive game of trust. There may also be problems that would never occur if we shipped our products with our packaging.
For example, they can print our brand name on the packaging or have instructions in another language. In addition, there can be problems with the product, and if our customer starts complaining, we have a tough time proving who is right because we haven’t seen the product.
Long delivery time
If we procure the product from abroad, we have to calculate a relatively long delivery time. Several studies have shown this to be a significant consideration when a customer is about to buy a product. Today, everyone wants to receive the ordered product within 1-2 days – but from China, for example, you have to wait up to weeks for the package to arrive.
We have no view of storage.
We may be able to sell a massive amount of a given product with a campaign – and then the crash hits, and the partner runs out of the product. This is when we can scratch our heads about cutting ourselves out so that we don’t lose the majority of our customers forever.
Because dropshipping has made things much easier for online stores, there is more and more competition, which will only result in a drop in our profits.
We do not need to maintain our own logistics center or warehouse
We have to work with a much smaller number of people, making it easier for the whole company to operate.
Virtually zero seed capital is required.
The entry barrier is getting lower because of this, so almost anyone can start pulling up a dropshipping web store. Webshops for rent have already taken the burden of creating a webshop off the backs of entrepreneurs.
Zero start-up capital is significant for large-scale products that we would not store at home in the initial period. This saves us a considerable rent on the warehouse, for example.
It can be automated and does not require physical restraint
Today, employees can work more freely, and the home office is becoming more common. For businesses, however, most are still reasonably stationary – dropshipping, on the other hand, offers a flexible option that can be easily operated even off the coast.
This is one of the most critical aspects of a start-up. It is related to point 2. The smaller the initial capital required, the lower the risk.
Easy to develop
As the improvements do not apply to logistics systems and warehouses, it is a much easier business opportunity to develop than in the case of an average webshop.
We can have a much more comprehensive product range than an average webshop.
Since we don’t have to store anything, our product range only depends on how many products we offer in our webshop. Of course, this is a risk because the more dropshipping partners we involve, the more complex our system will be – but in return, our product range will be more comprehensive.