Thanks to the advancement of technology over the years, we can easily buy and sell goods from the comfort of our homes. Likewise, through technology, business owners can now create and operate their businesses online. This convenience makes it easy for many e-commerce entrepreneurs to start their stores online using eCommerce platforms like Shoplazza, Shopify, etc.
However, with the cost of startups still high, most e-commerce entrepreneurs adopt the use of dropshipping when starting their online stores. If you’re an e-commerce entrepreneur looking to use dropshipping as a startup, you must pay attention to this article.
What is Dropshipping?
Dropshipping is a business model whereby a business fulfills a customer’s order without having to keep the goods in physical stores first. This works by passing customers’ orders directly to the supplier to fulfill. Here is a practical example of how dropshipping works.
Let’s say a customer orders a shoe from your store and makes the payment for the shoe. After payment, you contact your supplier about the order, make payment for the shoe and its shipping, and then the supplier will deliver it to the customer.
To profit from this business method, you have to charge the customer more than what the suppliers would charge you for the item and shipping. Then whatever is left after settling the supplier bills becomes your profit.
Although dropshipping can seem simple, it has its advantages and disadvantages. By examining its advantages and disadvantages, this article will help you decide whether this model can work for you.
Advantages of dropshipping
Lower Startup Cost
This is one of the eye-catching features of this business. Everyone wants a low-cost start when thinking about starting their own eCommerce stores, and dropshipping does just that. It requires little capital to set up, unlike other businesses, which need capital for storing, packaging, and shipping goods.
Dropshipping cuts off these expenses as customers’ payments will leave you with enough money and profit to pay suppliers for both the item and shipping to customers.
Instant Product Availability
In a standard retail business, you must have your products on hand before putting them up for sale. However, in dropshipping, you don’t have to wait for these procedures before you can start selling. Instead, you can start advertising as soon as you have a product supplier.
Wide Range of Product
Dropshipping gives you the advantage of offering a variety of products for sale. You can sell different items on your site as you do not have to worry about storage or shipping them from suppliers. You only have to make them available for purchase on your store’s website.
No Cost of Inventory Maintenance
Dropshipping eliminates the cost of maintaining inventory, which tends to be a significant problem for businesses that hold items in storage. Dropshipping has no need for product storage, so you don’t incur any extra costs from storage issues like damaged inventory.
Disadvantages of Dropshipping
Due to the low cost of starting this business, the competition is high because many e-commerce entrepreneurs participate in it. High competition can make your sales drop, so to solve this issue, you can channel money into running marketing campaigns to increase your store’s awareness.
Order Processing Difficulties
Dropshipping takes the process of getting products to customers out of your control. This sometimes makes it hard to determine how long it will take to deliver customers’ orders. However, you can manage this by maintaining close contact with your supplier and monitoring every process.
Since you do not physically possess the products, it is not easy to determine the authenticity of the products as advertised. In addition, the product quality depends on the supplier, so be sure to ask enough questions about products from the supplier, leaving no room for misinformation.
Now that you know what dropshipping entails, you can see why it is a great startup choice for e-commerce entrepreneurs. It can provide a steady income and save you a lot of money. However, it’s not all that easy as there are some disadvantages you must work through to make it work.
(Contributed by Oluwafemi Adedeji & Hermes Fang)