Dropshipping is a retail fulfillment model where the store does not stock or own inventory but meets the demand through transferring clients order and shipment details to a third party who directly ships the products to the customer. In this model, the retailer never handles directly the product. In the US, e-commerce market accounts for over $220 billion and grows by almost 17%/year. Dropshipping accounted for 34% with a remarkable $14.2 billion drop shipped orders from Amazon. However, the model has its advantages and disadvantages just like any other business model.
Advantages of dropshipping
- Access more distribution channels
You will not be dependent on one distributor who may disappoint you. Depending on where your customers are located you can find nearer distributors to supply their orders. You also have the opportunity to sell a wide variety of items as the number of reached distributors grows.
- The online advantage
One of the most interesting facts about dropshipping is the low investment and operation costs. You do not need a physical storefront or warehouse that will cost you a fortune, all you need is an online store. E-commerce platforms are worldwide and give you the opportunity to get customers from all over the globe. You also do not have to own inventory yourself as someone else will supply your customers with what they need.
- Save money on delivery to retailers
You do not handle the goods directly as you only act as order intermediary between the buyer and the manufacturer or other retailers. This saves you the cost of shipping or transporting the items from your physical location to the customers thus reducing the operation costs.
- Go to new geographical without additional costs
Your business can be located anywhere as long as you have an internet connection and good relationship with the third parties. As your products are on an e-commerce platform, anyone around the world can view and purchase the product, expanding your geographical market.
- Diversify your sales channels to avoid dependency on few big retailers
When using the dropshipping model, you are able to sell a wide variety of products without incurring any extra cost. This massive ability just needs you to post what you can sell on your site and you are good to go. Unlike when you purchase inventory, you can buy few products in large quantities.
Disadvantages of dropshipping
- Low margins
You have to expect low margins on products sold because of the platform commission. The platform acts as your store and they can take a big commission of the entire product you sell which might leave you with very little amount of money.
- Organize your logistics
You need to post items yourself directly to the end consumer. Also, adding a third party to the sales process can lead to errors you’re not responsible of and you have to ensure that it does not happen. This may be difficult sometimes because you rely on the suppliers to meet your client’s orders.
- Updating your site is a constant necessary
It takes some time to provide pictures, product info, update product stock etc. This will be even more challenging as you would sell a wide variety of products. You always have to make sure that your site is updated to be able to attract customers because there are other online retailers who are competing for the same customers.
In conclusion, dropshipping is a way to increase brand notoriety but it isn’t such a big advantage for your brand and don’t expect to make a lot of money out of it.