Dropshipping Business Basics
Dropshipping is a highly profitable business opportunity for entrepreneurs and an excellent model for anyone looking to begin an online store or expand their existing product offerings.
However, just like every other business, dropshipping has its disadvantages. Entrepreneurs planning to get into the dropshipping business need to understand its benefits and the challenges they may face before diving in.
Before we proceed with discussing the pros and cons, you must first understand the business of dropshipping. Head over to our article on what dropshipping is and how it works.
Below are the major advantages of the dropshipping business:
Dropshipping doesn’t require any form of expertise or prior business knowledge. It is very easy to get started with the basics and master the rest as you go.
Unlike in the traditional retail business, scaling up doesn’t affect your business much. Since suppliers handle most of the work involved in processing orders, it is easy to manage and expand with minimal work increment.
Dropshippers are mostly only responsible for their online storefront and so can easily manage everything even when scaling up.
One of the most attractive benefits of dropshipping is that it requires little or no start-up investment. Even when running a dropshipping business, it only requires little maintenance cost.
You can start a dropshipping business right from your pc, without having to invest a dime in inventory upfront, much unlike with the traditional retail business. Dropshippers don’t have to purchase a product unless the customer has paid for them, and this makes the business risk free.
Dropshipping is one of the most flexible businesses anyone can manage.
You can work from home at any time convenient for you with just a laptop and an internet connection, without any commitments. There is no need for a physical business location, and an online store can be set up anywhere on the internet as long as you have the means to communicate with your buyers and suppliers.
Dropshipping gives entrepreneurs a lot of room to make flexible decisions that suit them and their business.
Since dropshippers are not required to stock up products before selling, they can offer a wide variety of products to potential customers at no cost.
The risk-free nature of this e-commerce business model makes it easy to put up all kinds of trending products for sale to buyers, thereby increasing your brand’s popularity and reliability.
As dropshipping is a risk-free business, it serves as a useful means for entrepreneurs to launch new stores and test products that customers would buy the most before committing to purchasing a large amount of inventory.
Dropshipping serves as a great way to determine which products would sell successfully on your online store, and this a significant advantage over the traditional retail method because no seller wants to stock up with products that would be difficult to sell-off.
Dropship retailers don’t have to buy products and re-sell to customers, since suppliers ship the products directly to buyers themselves. This direct process reduces the shipment steps involved, thereby reducing the risk of products getting damaged due to handling and transportation from place to place.
The advantages above may have already convinced you to proceed with dropshipping. But don’t forget, it also has some disadvantages. Below are some of the major drawbacks entrepreneurs in the dropshipping business face:
Because dropshipping is so easy to start up and maintain, entrepreneurs often face a high amount of competition from online stores selling in similar niches. These competitors, most times, sell items at ridiculously low prices in an attempt to attract more customers and grow revenue.
The pressure from competitors often forces dropshippers to lower their prices to gain the attention of customers, leading to low margins. Niches with less competition often result in higher margins, but profit still highly depends on the number of sales. It is essential to select a niche suitable for dropshipping to mitigate the problem of low margins.
Dropshipping does not require you to stock your own products, and so it may be hard to keep track of inventory. Since suppliers also deliver orders for other sellers, the inventory can change regularly and may be hard to keep track of. Sometimes, a buyer may place an order, and you realize it's out of stock. This could force you to cancel orders or make back orderings for your customers, which could hurt the image of your brand.
Most dropshippers source products from different suppliers and each supplier may use a different shipping method. This may become an issue for the retailers and their customers because costs could get high, and shipping multiple products can become a problem.
Imagine a customer orders three different products, all from different suppliers. Since each supplier has different billing structures, communicating the price and product delivery time to customers could get tricky as calculations may get complicated.
In dropshipping, the seller has no control over the products and the way the brand is projected to the customers. The products dropshipped are branded and designed by the supplier, giving little or no chance for product changes to suit the seller’s brand.
Dropshippers are forced to work seamlessly, as they have no control over the stocking, order fulfillment, and shipping of products. Nevertheless, they still have to bear the liability for every error on the part of the supplier. Often, this makes customer service challenging and could reduce the chances of retaining customers, thereby hurting your brand.
Knowledge about the pros and cons of a business helps in deciding whether it would be a suitable means of earning for you or not. Dropshipping has the potential to become a highly lucrative source of income for most people; however, nothing good comes easy. It does have some disadvantages that could nevertheless be mitigated with the right amount of planning.
Dropshipping is not ideal for people who want a means to get rich quick, because the nature of the business requires cumulative sales to make a significant amount of money. Therefore, anyone who wants to succeed in the dropshipping business as a full-timer or part-timer needs to put in a good amount of effort. Knowing about the possible challenges this business could bring, helps entrepreneurs to prepare and stay ahead of the game.
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