Dropshipping is an entirely hands-off method of fulfillment, meaning you’ll never have to touch the product before it’s shipped to the customer. That’s right: when you use dropshipping, you won’t have to manage inventory or deal with the specifics of fulfillment – saving you precious time and energy.
If this sounds like something you may be interested in for your business, keep reading. Dropshipping is an excellent alternative to traditional fulfillment, but there are a number of details you should know before committing to it.
The Advantages of Dropshipping
Dropshipping has an odd reputation among eCommerce store owners – some prefer it, while others would rather use other methods of fulfillment. There are many reason to choose dropshipping for your business – some of the best advantages include the following:
- You do not need to purchase inventory upfront, nor will you need to manage, track and store inventory.
- Dropshipping allows you to focus on other parts of your business, like marketing, sales, and customer relations.
- You can test out new products at very low risk. If your customers do not tend to purchase a product, you will not lose your initial investment.
The Disadvantages of Dropshipping
Dropshipping has very clear advantages, but it’s not perfect for everyone. Because you are outsourcing much of the fulfillment process to another company, they will take a larger portion of the final sale than if you were to fulfill each sale yourself.
When you purchase products in bulk online for inventory, you’re taking the upfront cost on the chin, but you will make a much higher profit from each product. However, you will need to purchase, store, track, pack, and ship each product yourself (or hire a team to do so).
In addition, dropshipping gives you much less control over the fulfillment process than more traditional fulfillment methods. Because you are outsourcing the process, you will not have direct control over much of what happens. This means orders may be delivered late, and you’re at the mercy of your dropshipper’s stock. If they run out of a certain product, you need to be aware so you can list it as out-of-stock on your store – otherwise, you may find yourself with some angry customers and chargebacks.
Picking Your Partners
Dropshipping means you’ll work with other teams of people in order to fulfill your orders. These partners are known as your suppliers, and they manage inventory and control the shipping process.
It’s important to choose the right partners when you enter the dropshipping scene. The wrong choice in vendor could mean the difference between a highly successful online store and failing one. You’ll be providing your vendor with sensitive customer information as well, so you want to make sure they’re trustworthy – otherwise, your customer could find themselves in a less than ideal position.
You also want to work with vendors who are trusted to deliver and fulfill on time. Many vendors have a terrible reputation for on-time fulfillment, and late deliveries will hurt your store’s reputation severely. Other vendors are also known to pack products improperly, resulting in broken product and unhappy customers.
Dropshipping suppliers can be very difficult to locate, as they don’t typically advertise themselves like normal stores. Some popular dropshipping directories include:
How Much Will Dropshipping Cost?
The most important factor of dropshipping to many store owners is the cost. Dropshipping involves the use of a middle-man, which will understandable raise the price of the product to some degree. But exactly how much more can you expect to spend using dropshipping rather than traditional methods?
Most dropshipping suppliers have membership fees and per-order fees you’ll need to pay attention to. Many also have minimum orders, meaning they will not work with you until you can place orders over a certain limit. Each of these factors will impact your bottom-line, so plan accordingly when you predict your revenue.
You’ll also need to take the vendor’s price of each product into account. You won’t make as much in profit margin per product because the vendor needs to make a profit as well. Profit margins will fluctuate widely depending on the product you are selling, what you are charging your customer to buy it, and how much your supplier is charging for it. You want to sell products at a competitive price, but the lower you set your price, the less you’ll make per sale.
The Dropshipping Process
The dropshipping model is fairly simple and easy to follow:
- Find a supplier who you trust. Your supplier should offer the products you wish to sell, and should be located near your target audience.
- Sell your supplier’s products to your shoppers using your own store.
- Send your orders to your supplier via phone, email, or an integrated online system.
- Allow your supplier to fulfill the order.
Dropshipping has become extremely popular among many online retailers because of its ease of use and low upfront costs, but it’s not the best choice for every store. You should not expect to make as much as you would by purchasing your products upfront and fulfilling orders on your own, but you will save time and reduce the risk of your investment.
Do you use dropshipping for your business? If so, why did you choose dropshipping over other methods of fulfillment? Let us know in the comments below!