Benefits and Drawbacks of Dropshipping and Recommended Solutions
With the immense growth of the Internet and Internet users, everyone wants to start an online business because it is cheaper than opening a physical store. This type of business allows you to significantly save on retail space and store employees so if you are looking to become an internet entrepreneur, dropshipping is something you might be interested in. This business model is popular all over the world as more and more entrepreneurs are seeking ways to make money online. But what is dropshipping and how does it work? What are the benefits and drawbacks of dropshipping? Let’s find out.
What is Dropshipping?
According to Shopify, dropshipping is an order fulfillment method where a business doesn’t keep the products it sells in stock. Instead, the seller purchases inventory as needed from a third party – usually a wholesaler or manufacturer – to fulfill orders.
To put it simply, dropshipping is a method of directly shipping products from the manufacturer to the consumer, where the seller doesn’t need a physical store to pull the item from. In this case, the seller acts as a middleman or middlewoman. The main difference between dropshipping and standard retail fulfillment is that you don’t own or keep any stock or inventory. You have a contract with one or two companies and they ship the products to the consumer on your behalf. There’s no need to have a warehouse, no need to carry any inventory, and no need to pack items in boxes and ship orders. What’s not to love?
Even though dropshipping business model might seem like a quick, easy, and risk-free way to start an online business, it is not as easy as it sounds because of how this type of business works and the level of competition it has. So of course, there are downsides, but plenty of people have done it right and made a lot of money and as with everything, it takes time and effort.
The fact that start-up costs are low, and that you don’t need to hold inventory makes dropshipping so appealing to future entrepreneurs. In 2020, the global dropshipping market was valued at 128.6 billion dollars. Over the 6 years between 2021 and 2026, the global dropshipping market size is expected to reach 476.1 billion dollars. Its growth cannot be denied. It’s a legit business model, and it can be a long-term business. The benefits are very real but if you make your own products, and have a storage space, then dropshipping is not for you.
Before you start an online dropshipping business, make sure that you understand the advantages and disadvantages of this business model.
Benefits of Dropshipping
Easy to Set-up
This E-commerce business model requires little start-up capital and it is easily the biggest advantage to dropshipping. You don’t need thousands of dollars to get your online business up and running. For example, buying, renting, and managing your own warehouse is expensive and with dropshipping, these problems can be avoided. Seriously, you don’t need a warehouse space to store your products. Moreover, this low-risk business model doesn’t require an office. You can be your own boss, you can own and you can operate your entire business using just your laptop or smartphone, that’s good as your laptop.
Do you need the experience to start a dropshipping business? Not necessarily. You learn as you build your online dropshipping business. You need to learn as much as you can and with some research, planning, patience, dedication, and hard work, your new business will have some good times.
Flexibility and Wide Range of Products
There’s something very appealing about being your own boss and doing something you enjoy. You’re in charge of everything and that gives you flexibility so it’s easily one of the most flexible jobs that you can pursue. You can work whenever and wherever. All you need is a laptop and an internet connection. When you are your own boss, no one sets a work schedule for you. You decide when you want to wake up in the morning but the funny thing is that you might find yourself getting up early because everything depends on you. You just need to find the time when you work best, whether it’s morning, afternoon, or evening. You decide which products you sell. If consumer preferences are changing you can make adjustments by offering new products. You can test out if they sell or not.
As your business grows it can become harder to meet the demand. Luckily for you, the work falls on the supplier’s shoulders and your business method doesn’t have to change very much at all. The supplier takes care of shipping, storing, and manufacturing the product. The infrastructure costs don’t rise when you scale so you can save some money and spend them on your marketing campaign. Plus, you can also focus on the improvement of customer experience.
Even though dropshipping is an inexpensive way to start an online business and is a legit way to earn money online, it has its own challenges.
Drawbacks of Dropshipping
High Level of Competition
The dropshipping market is growing at a steady rate and because of the benefits it provides, a lot of entrepreneurs want to become dropshippers, so it is no surprise that the competition is so high. It can be a bit frustrating knowing that you are selling the same products as your competitors. The most successful and experienced ones can match and lower their product prices to win over your customers.
Solution: Before getting down to a product-selling business, you need to find a unique niche that makes competition irrelevant and it is really important to know your audience.
Your suppliers do all the hard work behind the scenes. They handle inventory and shipping and as a result, it lowers your revenue. When you store and manage your own inventory, you are buying your product in large quantities at wholesale price, and as the owner of a dropshipping business, you are likely to pay more for each item.
Solution: The only solution is to sell more products. Simple but true.
Product Quality and Brand Loyalty
There are certain aspects of the dropshipping process that you can’t control directly. For example, you cannot control product quality because you rely on your suppliers heavily. You don’t see the product you sell in your online store. Of course, you can promise your clients that the product is of high quality, but it may turn out that your product fails to meet customer expectations. They might not understand that it’s the supplier’s fault. There’s no way you can guarantee that a product has arrived on time and in proper condition. The product can be of different colors or sizes, or it can be damaged.
It’s hard to build a brand with dropshipping. If your customer loves the product you are selling, he’s more likely to focus on the product’s brand than on the dropshipping business that served as a middleman or middlewoman between the manufacturer and customer. Your supplier takes the credit for your work.
Solution: Make sure you understand how your suppliers manage returns. Moreover, you can request product samples from them. Order the same product from different suppliers to your house to choose the right one for your business. By doing so, you get an opportunity to check the delivery time, the condition of the package, and the quality of the product. Find a supplier that will let you place your logo on product packaging.
If your dropshipping business is booming and your product is selling faster than you expected, your online store might be at risk of running out of stock. It can leave your clientele with a bad taste in their mouth and the last thing you want is to disappoint your customers. Dropshipping makes you reliant on your supplier. If he runs out of stock, you run out of stock.
Solution: You need to strengthen your communication with your supplier. Ask him how much stock he has, and how fast he can find new inventory. But what if your current supplier runs out of stock? What are you going to do? The answer is simple. Find another supplier that offers the same products which is why it is important to keep in contact with multiple suppliers. You will always have a plan B. Communication is the key. Choose the right suppliers that are always accessible, cost-efficient, and easy to work with.
When it comes to dropshipping, it can be hard to control your customer experience and customers are the ones buying your products and supplying your revenue. Customer service is essential for your business and if they aren’t satisfied, they are more likely to leave bad reviews. Reviews ratings affect your company’s ranking on search engines. If your clients aren’t happy with the delivery time and product quality, you won’t be able to solve these issues promptly because you depend on a 3rd party. You can’t see the product yourself.
Solution: You’ll need to track the shipment with your supplier and if the product is damaged you can redirect your customer to the supplier for support. That’s why it’s so important to find a good supplier. Plus, you may want to invest in E-commerce software that lets you connect with your customers.
Dropshipping business model has become extremely popular these days and is gaining popularity worldwide as it is one of the easiest ways to start an E-commerce business and requires minimum investment but it’s not without its own challenges. It’s crucial that you look at them before getting started. To succeed with dropshipping, you need to choose carefully your suppliers, and the types of products you’ll be selling, be patient, and work hard.
If you want to know if dropshipping, “is still profitable these days?”, then I suggest reading our other article: “Is Dropshipping Profitable in 2022?”