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The Beginner’s Guide to Dropshipping
Dropshipping is an innovative method of order fulfillment for retail businesses. Using the dropshipping approach, a retailer does not have to keep any products in stock. Instead, when the store sells a product, they hire a third party to ship the item directly to the consumer. Typically, the third party is a manufacturer or wholesaler.
Dropshipping is an especially popular approach for eCommerce retailers, as it limits the need for the physical presence of a traditional warehouse or office.
The Benefits of Dropshipping
Many businesses prefer this new model of retail for a range of reasons. For instance, the dropshipping approach requires less investment than a traditional retail model.
This makes it useful for aspiring entrepreneurs and businesses. However, there are other potential advantages to dropshipping, such as:
Less Capital Required
When they use dropshipping, businesses only have to invest capital after they make a sale. There is no need to purchase a large amount of inventory in anticipation of business that may never arrive.
The lower risk also makes it a useful model for businesses that want to test the market for new products. Even traditional retailers can use dropshipping to decide whether a new product is worthwhile or not.
A Simpler Business Model
Dropshipping simplifies eCommerce for many online businesses. Business owners that use a dropshipping model do not have to concern themselves with
- Leasing a warehouse or other inventory storage space
- Physically packing or shipping product orders
- Receiving inbound shipments
- Product returns or replacements
- Tracking or reporting inventory movements
- Ensuring adequate inventory levels
Outsourcing these elements of online retail makes the logistics of an eCommerce business much simpler.
Wider Array of Products
Businesses that use dropshipping can easily offer a wide range of products. This is possible because the business does not need to invest in the product before customers make a purchase.
Lower Overhead
Overhead costs are much lower for businesses that use a dropshipping model, as well. Many eCommerce companies are run with only a few pieces of equipment.
When it comes to dropshipping, the main function of the business is communication. Online retailers are primarily responsible to correspond with both customers and suppliers, showcasing products and ensuring customer satisfaction.
Potential Downsides of Dropshipping
Many companies use dropshipping to great success. But every business model has its advantages and disadvantages. Although dropshipping offers flexibility, convenience, and ease, the model also has some drawbacks.
Lower Profit Margins
Because this retail approach requires little capital and low overhead, competition is fierce. Many retailers that use dropshipping operate on margins that are razor thin.
In such a competitive market, consumers gravitate to retailers that can offer rock-bottom prices. This makes it difficult for new businesses to survive and thrive.
Inventory and Supplier Problems
Outsourcing the logistical challenges of inventory can be invaluable. But if a problem does arise, it can be more difficult to resolve.
For instance, suppose that a supplier is out of a particular product. Retailers may not have that information in time to update their online stores. This can lead to customer frustration and delayed delivery. If a supplier fails to provide optimum service, customers may also blame the retailer.
Every retail model has its downsides. But dropshipping can be very helpful for many online businesses. Low overhead and ease of entry make dropshipping an excellent option for new and growing companies alike.