What is dropshipping and should I use it?
There are lots of terms you hear floating around the internet when setting up or running an ecommerce store.
Dropshipping is one of these such phrases. It refers to a retail fulfilment model where the seller doesn't actually hold the stock. Instead, when the retailer receives a customer order, it has the product shipped directly from a third party, without the item ever passing through its doors.
It's a method used frequently by ecommerce sites that deal with larger items such as flooring, flat pack furniture and the like, but is not exclusive to these industries. Amazon is probably one of the largest dropshipping sites around.
What are the benefits?
Dealing direct with a wholesaler in this way offers numerous benefits, the most obvious being cost. Although suppliers may miss out on discounts gained by buying bulk quantities of items, they make up for it with much lower overheads and initial outlays. Without the need for large warehouses, stock control areas, pickers, packers or packaging materials, merchants can run a business from almost anywhere, making it ideal for those working from home.
In short, dropshipping makes setting up a business from scratch much more achievable and cuts down the jeopardy - you won't run the risk of being left with bucket loads of Christmas jumpers or crates of last year's top toy that you just can't shift.
• Small overheads and start-up costs
• No need for a warehouse
• Stay competitive by offering wide selection of products
• Easy to scale
• Lower risk as you don't own stock
Disadvantages to dropshipping
Of course, with a business model such as this you are putting a lot of faith in your supplier - not only that they will fulfil the order in a timely manner and without error - but that they will choose a reliable shipping method. If the process does break down it will be your head on the chopping block - as far as the customer is concerned it's your business that has let them down.
In addition, you are reliant on the wholesaler's stock management; keeping this synced with your own ecommerce management system can prove bothersome.
Difficulties can also be found with delivery and shipping costs - if you just use one supplier then this may not be an issue, but if you are using several drop shipping suppliers then you may either need to charge the customer several times for shipping within one order, or else foot the bill yourself. In fact it can all get quite complicated.
As a customer you may have already come across this when ordering from Amazon - some items qualify for their free shipping whilst others will require payment. Not only that, certain times items may arrive separately, even though they were all ordered together.
• Lower profit margins
• Shipping complexities
• Supplier mistakes
• Difficulties with inventory
• Bigger leeway for error as more companies involved
Is dropshipping right for my company?
Ultimately it is down to you if you decide to offer dropshipping for some or all of your products. The best advice would be, as with everything, to do your research. Look into what options competitors are offering; if you are selling on a platform such as eBay or Amazon then see what other stores are doing, and most importantly research your wholesalers. If you decide to go ahead with dropshipping then ensure your partners are reliable, have a good track record and use dependable stock control systems.
If you choose to stick with the traditional methods then opt for a reliable delivery company to make sure your customers receive their goods in the optimum time and at minimum cost.
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