Dropshipping sounds simple enough, right? You might picture a drone depositing a package neatly on someone’s front doorstep. There’s a lot more to it than that, though. Dropshipping, at its most basic, is making yourself the middle man in order to cut costs and potential losses. It’s a fulfillment program where you, as the business owner, don’t actually stock or handle any of your merchandise. Rather, when a customer wants to purchase an item from you, you contact your supplier who then ships the product directly to your customer.
No inventory? No warehouse? Low start-up cost? It seems like a no-brainer to conduct business this way, but there are quite a few pros and cons where drop shipping is concerned. If you’re considering going this route, read on to decide if it is the best business plan for you.
- Decreased Risk: While each of the following bullet points carries substantial weight, this one is probably the most attractive for people considering drop-shipping. Because you’re not physically stocking and selling the merchandise yourself, you don’t have all that capital tied up in “things.” You also don’t have all that inventory sitting around waiting to be sold. Your start-up cost as a drop shipper is minimal because you don’t buy the merchandise until after you have gotten the money from your customer. This can take quite a burden off you if your funds and space are tight.
- Room for Growth: With drop shipping, the sky is the limit as far as merchandise goes. You can appeal to a wide audience by stocking trendy, popular gadgets while also selling more niche items for a select audience. A good example of this might be a candy store that sells standard confections like M&Ms and Skittles while also offering international and specialty treats like Turkish Delight and chili-coated tamarind sweets. Most of your customer base will know about the standard candy options, but you can also appeal to a more focused target audience with the last two.
Another nice thing about drop shipping is that it lets you try out new things with minimal cost to you. Perhaps you’ve heard about a local, dairy-free, nut-free, gluten-free, vegan candy maker who only uses cocoa from beans he grows in his own backyard? If you set up a drop shipping agreement with him, you can test out the market for his products with very little risk to you (since the market for that particular combination of factors is probably relatively small).
- Less Expensive: This benefit probably ranks right up there with the first one in terms of attractiveness to first-time drop shippers. When you’re going through a supplier, they can often get better shipping rates and packing prices than you since they are working on a large scale. When that supplier ships directly to the customer, you’re also not paying for shipping twice (from them to you and then you to the customer). That can save you some serious cash. You can run your whole business from wherever you are, so you don’t need to rent or buy a storefront to sell your wares. That grants you greater flexibility because you can make deals and fulfill orders from wherever you are.
- Save Space: Space is a precious commodity for any business owner, but that need grows exponentially when you are selling large or bulky items. Think about people who sell car parts or life-sized, elephant-shaped lawn ornaments. How could any person without a warehouse store that kind of merchandise and meet demand? With drop shipping, your suppliers are maintaining and tracking inventory in their own warehouses, so you don’t have to. You can also avoid worrying about packing supplies because your suppliers handle that, too.
- Fast and Convenient: Convenience and speed are essential when you’re on a deadline, and drop shipping lets you quickly add and take down items from your website. It also lets you immediately notify your suppliers who can then promptly ship off your items. Additionally, you’re not in charge of returning merchandise or tracking inventory – both of which can be a massive headache.
- Customer Service: Because you’re the one selling the item but not providing it, you could run into some problems with customer service. If your suppliers are difficult or slow to deliver merchandise, you are going to be the one who hears about it – most likely in a very animated fashion. Your customers won’t care that you don’t have their item in front of you, so you will have to learn how to deal with people on a whole new level. If you can do it well, you will be sure to gain repeat customers.
- Errors: This one ties into the previous con. It’s a fact of life that people make mistakes because they’re, well, human. The more humans you add into the mix, the more mistakes you’re going to run into. Sometimes with drop shipping, your supplier will get mixed up and send out the product incorrectly to your customers. Even though you weren’t the one to make the mistake, you are going to have to deal with it on the customer’s side of things, and that can be time-consuming and frustrating.
- Profit Margins: Your suppliers may charge you extra fees to package, store, and ship your merchandise. When you’re already slashing prices to keep a competitive edge, these additional fees can take a serious bite out of your bottom line.
- Stuck in the middle: As the middleman, you are going to be talking to a lot of different people and navigating delicate customer relationships. This can get stressful, especially when things go wrong—as is bound to happen. Some sellers decide that the stress associated with drop shipping just isn’t worth it.
Since the inventory is never directly in front of you in the world of drop shipping, you will need to do a lot more behind-the-scenes management to ensure that your customers stay happy. If you’re up for the challenge, it’s worth taking a closer look at drop shipping.