What is Dropshipping?
Dropshipping is a type of business model which allows a business to use a third party vendor as a partner to house and maintain inventory and take care of all shipping operations themselves. Some businesses utilize dropshipping as a part of their omnichannel commerce operations, while others exist solely as a dropshipping business, never dealing with inventory operations outside of ordering. In either scenario, the retailer begins by connecting with a dropship supplier that manufactures and/or warehouses products. This supplier will also be responsible for picking, packing, and shipping all orders to the customer on the retailer’s behalf.
What are the Advantages?
There are both benefits and disadvantages to become a retailer who only deals with dropshipping. For someone who is just starting up and looking to begin exploring ecommerce, it may be perfect. One of the greatest advantages to dropshipping is the low startup costs. Statistics show that the inventory aspect of retail can amount to up to 80% of start up costs in some cases. By not purchasing any inventory you save a great deal of money. Also, with owning inventory comes the need for a place to store that inventory and a team of people to manage that inventory, along with other costs that help the inventory workflow processes run more smoothly. These are costs that are not an issue when beginning as a dropshipper.
Another benefit of dropshipping is that because it’s not your responsibility to execute the warehouse/shipping operations, your company will have more time to focus its efforts in other areas such as marketing and making sales. You can be as productive as possible in driving traffic to your site and converting those leads into new and returning customers.
As with most things, where there are advantages, there are disadvantages. There are some things to take note of when deciding whether or not you should start dropshipping. Because this industry is so easy to start up due to the low cost, it has become a very high competition industry. There are countless dropshippers out there who sell products very similar to each other. Therefore, as a dropshipper, you need to find something which differentiates you from the others. Why should a consumer choose your business over another? Whether it’s an outstanding website, great marketing, or great customer service, you need to choose your method of standing out from the rest.
Another negative aspect of dropshipping is the low margins. Because you are purchasing the item ordered by the customer from someplace else and then marking your prices up for your consumer, average margins are usually about 20%. You can only raise the price of the item so much before a consumer will no longer want to purchase it from you, which leads to having only about 20% profit on each sale. If you are looking to make a lot of money fats, this may not be the avenue for you.
Lastly, another problem dropshippers sometimes run into is low brand control. Because you have a third party packaging and shipping your product to the customer themselves, you have little control over how that product is presented. Issues such as poor packing, broken items, or late shipments are out of your control. However, with the right partner, this hopefully will not be an issue, and the customer will never even know that the product didn’t come straight from you.
Is Dropship Right for You?
To decide whether or not you’d like to begin dropshipping you must weigh the good and bad aspects of the industry. If you are just starting out, it may be a great way to explore ecommerce. As time goes on and more profit is made, you may decide that you want to begin purchasing and storing your own inventory. Some retailers choose to have a business that both dropships and houses their own products, depending on what is ordered. The process of drop shipping is easy enough once you get past the process of making purchase orders, but owning your own inventory takes a lot more than that.
Keeping Things Running Smoothly
If you are at a point where you are currently able to or are hoping to do both, you need to make sure you have a software to help you manage your commerce operations the right way. An order/inventory/warehouse management software such as SkuNexus can do that for you. Because the software can integrate with anything, making purchase orders to your vendors will be seamless and automatic. When it comes to the rest of the picking, packing, shipping processes that come along with storing your own inventory, SkuNexus has that functionality as well. Because it is completely customizable, the software will help you with every aspect of your intricate business and allow you to drop ship or ship straight from your own warehouse quickly and efficiently. Get in touch today by clicking HERE to discuss how we can be a solution for you!