Dropshipping is a logistic model enabling to sell online without having storage space and investing in the purchase of offered goods. Like every solution in the e-commerce market, dropshipping has both advantages and disadvantages. Their awareness allows for reasonable planning of sales and to increase profit.
What is dropshipping?
Dropshipping is a logistic model, that can be briefly described as direct delivery of goods from the warehouse directly to the retail customer who made the purchase in the online store. As a result, the parcel skips the transfer to the online store, thanks to which its owner does not have to worry about renting large warehouse space, as well as keep purchasing goods and filling the assortment.
Advantages of dropshipping
- The biggest advantage of dropshipping is the ability to easily and quickly enter the e-commerce market, which does not require specialized knowledge, experience or financial investments. For this reason, a number of people who start their adventure with running an online store decide to sell without renting a warehouse. Enjoy the benefits of dropshipping and create your dream business!
- You do not need to buy all offered goods. In a traditional sales model, it is necessary to purchase all the goods that you want to have in your offer. In dropshipping, you avoid stocking and investing in products. You pay only for those items that have been ordered by customers and you earn on the imposed margin.
- No inventory- you don’t have to pay for rental of warehouse. One of the biggest advantages of dropshipping is no need to rent large warehouse space and installation of operating systems that allow you to manage current shipments and stock lists.
- You do not need to hire employees who handle the delivery process. Due to the fact that the warehouse is responsible for the process of packing and shipping orders to your customers, you do not have to hire additional people and provide space, and materials to secure shipments.
- Dropshipping is a business idea with a small monetary contribution and low investment risk. Thanks to the aforementioned savings on stocking and leasing of the warehouse, larger investments are not necessary to carry out dropshipping. This option minimizes the financial risk incurred when setting up a business. By choosing dropshipping you can be sure that if you fail, you will not have to deal with the debts caused by setting up the company.
- In dropshipping, you can offer a wide range of products. Using the offer of many dropshipping wholesalers allows you to have a huge number of products, which would be almost impossible to store in a traditional warehouse. By working with various wholesalers you can sell goods from different locations, and work in several industries, this also enables your customers to purchase all possible accessories.
- The possibility of trading in low-demand goods. With a large number of products in the online store, you can trade with goods that are rarely bought. The advantage of dropshipping is that you can offer products that are not available by your competition. This gives you the opportunity to attract customers with a specific product and at the same time sell other goods available in your offer.
- No need to establish cooperation with numerous external companies. Another advantage of dropshipping is the lack of necessity to establish additional cooperation with external companies offering accessories for packaging, as well as courier services. If you are responsible for packaging and shipping products – you do not have to worry about it!
- Low dropshipping costs. The costs of dropshipping usually include income tax and the costs of running an online store. You can have fully functional online store software operating on a subscription system for €4 a month!
Disadvantages of dropshipping
Dropshipping is not an ideal solution and like other logistic solution, dropshipping has disadvantages. The main negatives of dropshipping are the lack of direct control over the delivery of products, as well as high competitiveness on the market. The disadvantages of dropshipping include:
- The possibility of having outdated stock levels and delays in shipping due to the fault of the warehouse. Although the professional online store software allows you to update the inventory of the warehouse even 8 times a day, it may happen that the desired product has been sold out. A good practice to protect against the purchase of goods that potentially are not available is to determine the availability limit. Another big issues is the fact that during holiday periods the traffic in the warehouses is huge and this might affect the delivery process, which will influence in a negative way on the company’s image.
- Huge competition on the market. A number of advantages of dropshipping and the possibility of its easy launch, makes a huge competition. A large number of the same goods at similar prices means that the margins imposed must be low to ensure a large number of orders for wholesalers, and to increase the discounts on products and the possibility of greater profits in the future. When running dropshipping you have to focus on advertising and development of your company.
- Dependence on the warehouse. Many wholesalers have requirements regarding minimum order and sales policy. You must adjust to the rules applied by the warehouse.
- Problem with customer identification.A large number of shipments leaving the warehouse mean that a company using dropshipping can not count on using their boxes or tapes. As a result, the customer receiving the package may not associate it with the store where he made the purchase.
Who is dropshipping for?
The balance of advantages and disadvantages of dropshipping clearly indicates that it is a model that gives wide possibilities to both beginners and advanced entrepreneurs. Opening an online store in a dropshipping model allows you to run it with a low financial contribution. With dropshipping you have the chance to expand the offered range with numerous accessories and conduct market research. On the basis of eagerly purchased products, it will be possible to select a group of products that should be brought to your warehouse permanently. Read this article to know more about the 30 most frequently asked questions about dropshipping!