Starting an online business can be overwhelming, especially when you’re trying to figure out the best way to sell your products. You may have heard of dropshipping (also known as “drop shipping”), an increasingly popular way to sell products online—but is it right for you?
Even though there are many benefits in starting your retail business by using drop shipping, there are some considerations you need to make before going this route.
This article will provide some insight into what drop shipping is, how it works, why people use it, and whether or not this business model is right for you by addressing the pros and cons of dropshipping right now.
Let’s get started!
What Is Dropshipping?
Dropshipping is a business model where online retailers sell products without having to carry any inventory. When a store owner receives an order from a customer, they contact their supplier, who then ships the goods directly to the customer. As a result, sellers do not need to worry about shipping products themselves.
Obviously, outsourcing shipping saves time and labor. But how does dropshipping generate revenue?
Dropshippers mark up their items slightly higher than the wholesale cost, which is how they make a profit on each sale after paying their supplier. Customers pay the retail price and shipping costs, but dropshippers only pay the wholesale price and then delegate the fulfillment process to suppliers.
As you can see, a dropshipping model can be a fast and easy way to start a business online with low startup and inventory costs since there is no need to physically carry products. However, there are a number of disadvantages that sellers need to be aware of if they are considering dropshipping as a next business venture.
So let’s get into our list of pros and cons of dropshipping so that you can make an informed choice for your e-commerce business!
Pros Of Dropshipping
Starting a dropshipping business can come with many advantages, from low startup costs to the freedom to test new products.
So let’s get into some of the perks of dropshipping so you can decide if it is the right inventory management technique for you!
Easy To Set Up
Dropshipping can be a very quick, inexpensive, and easy way to get your e-commerce business started. And since you don't need to carry any physical inventory or manage a warehouse, the setup is simple—you just choose the products to sell, market your store, and start generating sales.There are also drop shipping platforms available to use, like Shopify, that make the process even easier. Shopify allows you to set up your own dropshipping store, which means that you can conveniently manage, market, and sell your products online all through their platform.
Low Startup Costs
Dropshipping can allow you to start your online business at a relatively low cost because you don't have to purchase your own inventory upfront or pay for warehouse space. Even if you start with very little capital, you can get your foot in the door.
Dropshipping minimizes the financial risk of new business, as you don't need to invest in purchasing inventory until after you've sold it. Due to these low startup costs, drop shipping can be particularly appealing for entrepreneurs who like low-cost and low-risk business opportunities.
Save On Storage And Warehouse Cots
With drop shipping, you can handle fulfillment quickly and efficiently while focusing on selling your products to customers—all without having to manage a warehouse full of inventory.Without the need for a physical storefront or warehouse, you can cut your overhead cost and prioritize what matters most for your business, whether that be cultivating an online presence or building customer loyalty.
With a dropshipping store, you won't need to purchase inventory until after you've made a sale, which lowers your risk of carrying excess product. Unlike traditional businesses, you won't have to worry about carrying a large amount of inventory that may or may not sell.
This makes drop shipping a low-risk option if you are just getting started with an online store and don’t have a lot of funds at the beginning —it gives you the freedom to experiment with what products to sell and different marketing techniques while you grow your business.
Lower Fulfillment Costs
Fulfillment is the process of packaging and shipping orders. You can save time and money with dropshipping because fulfillment is the supplier's responsibility, not yours.
This will make the fulfillment process stress-free since you can outsource the shipping process and focus instead of marketing your website.
Dropshipping offers an incredible amount of product variety because you can use dropship suppliers who specialize in niche markets. With dropshipping, you're not limited to the products that a brick-and-mortar store stocks on its shelves— you can carry a wide variety of products from different suppliers and offer thousands of unique items to your customers.
Drop shipping allows you to keep your store stocked with a more extensive variety of products than would typically be possible. Here are some examples:
Test New Products
Dropshipping allows you to test new products without the risk of investing in inventory. If you decide to start selling a new product, you can list the products for sale on your website and see if any orders start rolling in.
If it's not successful, no worries! You haven't lost any money yet because you didn't purchase any stock. Therefore, this is an efficient way to do market research and test multiple products to gauge your customers' interest.
Protection Against Overselling
If you face an unexpected surge in customer demand, dropshipping is an efficient solution. This is especially useful during peak sale times, like during the holidays.
Since orders are only sent to the dropshipping supplier for shipping when they are made by customers, you won’t have to worry about overselling products. You can even use multiple suppliers to fit your needs and avoid overselling products.
Be Your Own Boss And Create Passive Income
If you have an online store, you're only limited by your imagination regarding what products to sell and how to promote them. It's an excellent solution for entrepreneurs who don't want the hassle of maintaining a physical storefront or managing employees. With a dropshipping business, you can make your own schedule.
You can use your free time to develop new product ideas and work on marketing, while suppliers do the heavy lifting, making having a dropshipping store a fantastic way to create passive income.
Cons Of Dropshipping
Now that we’ve covered the benefits of having a dropshipping store, it is crucial that we go over the disadvantages.
Read on to see the downsides of dropshipping to help you decide if the rewards are worth the risks.
Lack Of Control
The supply chain with dropshipping goes from you, to the supplier, to the customer, giving you less control in customer interactions. If there is some problem with the quality of the product they receive, you are still seen as responsible by the customer, even if your supplier is to blame.
Potential Quality Control Issues
When dropshipping, you may not be able to verify that the product is made with quality materials because you are not handling your own inventory.
As a retailer, you will need to rely on your supplier to ensure that the product is high-quality—one way you can do this is by asking for samples from the supplier.
Alternatively, you can also look into an adjusted model of dropshipping known as reverse dropshipping. Understanding what is reverse dropshipping and how it works can help you mitigate quality issues by allowing you to choose better suppliers as needed.
Poorer Customer Service Compared To Traditional Business Models
One significant disadvantage of dropshipping is that you will not be able to provide the same amount of customer service as more traditional business models. Because the supplier handles order fulfillment, you may be unaware of shipping times or the product quality.
Additionally, you will still be held accountable for solving any issues with customer purchases, which may be delayed due to the supply chain. If there is an error or problem with the shipment, this reflects poorly on your business.
Since there is a low barrier for entry into dropshipping, the field can be very competitive. This is where the benefits of dropshipping, like low setup costs and low risk, can become disadvantagesーmany other entrepreneurs may also see an opportunity in creating a dropshipping business.
Another reason why dropshipping may not be the best fit for your business is that your prices will need to remain competitive or you could lose customers. This means that, to run a dropshipping business effectively, you must keep up with market trends and demand for certain products at low prices, which also means low profits (which we will explore more in the next section).
Lower Profit Margins And Less Competitive Pricing
The majority of online stores that use dropshipping business models have very little room for profit. To get customers interested, you often have to offer very low prices on your goods. This makes it hard for you to mark up your items and create a profit.
Additionally, you are competing with other retailers who may sell the same products. Because of this, you will have to have low prices in order to get the sale which limits your ability to create a healthy profit margin.
Larger marketplaces may receive better prices because they gain volume discounts and bulk pricing from manufacturers that allow them to list products at a lower price than smaller retailers. As a drop shipper, you do not have these same discounts available to you and therefore may have very low-profit margins.
You Need To Advertise
You will be required to market your business if you want people to buy your products. You can increase sales by using social media, running campaigns on Facebook or Instagram, or creating a blog where you can provide content related to the products that you sell.
Since your business will be online, it can be difficult for people to find your store, especially since there is already a lot of competition. As a result, you must come up with creative ways to increase traffic.
With an e-commerce business, marketing should always be a priority, and if you aren’t well-versed in social media and online promotion, you might lose out on sales.
Brand Loyalty Is Hard To Build
As a small business owner, it can be hard to build brand loyalty for your store if you are not able to provide something unique and special to customers. You cannot compete with large retailers just by offering low prices.
In order to stand out from other brands, you may need to offer higher quality products or more personalized customer service.
However, because your products are shipped with a third-party retailer, your brand may not be promoted on shipping materials. This can make it more challenging to make a lasting impression on customers, even if they are satisfied with the product.
How Do I Make Dropshipping Work For Me?
If you’ve weighed the pros and cons of dropshipping and decided you want to go forward with implementing it, here are some tips to get started. We will outline how to start a dropshipping business so that you can make it work for you.
Do Your Market Research To Create A Business Idea
The first step is to do your market research to learn more about the different types of products that are popular among customers. You can use Google Trends to see which products people are searching for.
You should also think about the type of customer you want to attract and what type of items they might be interested in buying. Since there is so much competition, it’s important to think outside the box, whether that includes selling niche products or implementing unique marketing techniques.
Build Your Store
Once you have a solid idea of your product, it’s time to think about the branding and store design. You can use platforms like Shopify to create a Shopify dropshipping store or Squarespace to create an e-commerce website that allows you to sell products on your digital storefront.
Choose A Supplier
Now that you know what product you’re going to sell and have an online store set up, it’s time to find out where you can dropship the products from. You can go on websites like AliExpress to search trending products that are available for dropshipping. You can also use e-commerce websites like eBay (more on this in our article eBay dropshipping: is it worth it?).
Market Your Store
The next step is to find the right way to market your store to generate traffic. Facebook ads, influencer marketing, and email marketing are all effective strategies to use.
The good news is that you can continually improve your dropshipping business by adding new products and refining your sales process in order to get more traffic to your store. This means finding ways to get better search engine rankings, investing in paid ads, and improving the content on your website.
So now that you know the basics of starting a dropshipping website, what are you waiting for? Use our guide to get started today!
Frequently Asked Questions
Dropshipping is a business model where a retailer does not carry any inventory. When a store receives an order from a customer, they contact the supplier and have them ship the items directly to the buyer.
The store owner makes money by charging customers shipping fees and marking up products. They buy the products wholesale but charge a retail price for customers and delegate the fulfillment process to a third-party dropshipping supplier.
Dropshipping is legal. However, you need to be careful with what dropshipping supplier you work with. If they do anything illegal, like using trademarks or selling brands without permission, you are also culpable because you sold the products (and you can even get sued for trademark infringement or copyright). So make sure to do your research when you are deciding on suppliers.
Depending on the costs for your subscriptions and website domains, expenses for running a dropshipping business can vary. You have to consider whether or not you want to use an online service like Shopify as well, in addition to paying marketing fees and advertisement expenses.
Here is a list of the pros of dropshipping:
Here is a list of the cons of dropshipping:
Dropshipping is a popular business model, but it’s not for everyone.
While it can be an affordable way for entrepreneurs with little startup capital to get their businesses off the ground without spending too much of their personal money upfront, this type of e-commerce model also has its downsides, including lower profit margins and high competition.
So before making your final decision about whether or not to start a dropshipping business, spend some time weighing both the pros and cons so you know if drop shipping will work well for your company’s needs.If you’ve decided that having a dropshipping business is right for you, make sure to check out our video on what dropshipping is. This video explains how beginners can get started.