The Dropshipping Pros and Cons – Is Dropshipping Right for Your Business?
Dropshipping is a growing business. But some drop shippers may tell you otherwise. Every dropship seller has a unique experience. The reason is the understanding of different aspects of dropshipping. Some drop shippers understand dropshipping pros and cons and act accordingly. Yet, sometimes the sellers miss critical aspects of the business.
Let’s tell you about the advantages and disadvantages of dropshipping. It will help you decide if dropshipping is the right business for you. Before we talk about the pros and cons of dropshipping, here’s a quick look at drop shipping.
What is Dropshipping?
Dropshipping is a business model where you do not keep products in stock. The seller contacts a third party to keep the inventory. The third party can be a vendor, warehouse, or dropshipping agent. They buy and keep the products for you. You take the orders on your website. The third-party ships the products to the customer on your behalf. These services may charge you a little extra for keeping your inventory. However, it saves you from worrying about the safety of the products.
When you opt for dropshipping, you rely majorly on a third party. Mostly the third party is a vendor or supplier. They manage the packaging and delivery of your products. Thus, finding a reliable vendor for your dropshipping business is important. A dropshipping agent like Wefullfill can help you improve your service by finding the right vendor and order management.
Read here how you can find the right vendor for your dropshipping business.
You can set up your eCommerce store on AliExpress, Alibaba, Amazon, or others. Many online sellers also create their independent dropshipping inventory. Sellers who adopt the dropshipping business model are called drop shippers. You have much less on your mind as a drop shipper than a traditional business. You do not have to worry about managing employees or warehouse maintenance.
Keep reading to know the advantages and disadvantages of dropshipping.
Like any other business, dropshipping pros and cons go hand in hand. It initially seems quite simple. But let us tell you that it is not as easy as it looks. You can be a successful drop shipper only if you understand the problem areas besides the dropshipping benefits. Understanding the possible issues will help you decide whether you want to be a drop shipper. Here’s a thorough look into dropshipping advantages and disadvantages.
Benefits of Dropshipping
Low Startup Costs
One of the most prominent causes of why people avoid business is high startup costs. What if we eliminate that part of starting a business?
Dropshipping is a model that removes the need for huge capital. Most businesses require a high cost to manage the staff, pay bills, and for maintenance. The warehousing costs and risks add to the overall cost. But, dropshipping means you do not have to worry about anything.
All you need to do is set up a store that might require professional help. So, there are no additional startup costs besides the store development. The best part is that you can earn immediately through proper marketing and promotion. Money will start flowing in quickly if you can reach the right audience fast. Eventually, you will recover the small amount you spend within no time.
So, what’s better than starting a business that does not require huge capital to launch? This also saves you from the trouble of raising investments for your business. You can start with a small amount and scale gradually.
Low Inventory Costs
Did anyone say you can start a dropshipping store with low inventory costs? They lied to you.
You can start a dropshipping business with ZERO inventory costs.
Usually, traditional businesses are based on how much inventory you have. You ask any conventional business owner, and they will tell you the importance of inventory. Many sellers keep a huge inventory even if they set up an online business. They believe that they will lose customers if the inventory is not enough. Though inventory is important, you do not have to keep anything in stock.
The benefits of dropshipping offer it a lead over traditional inventory keeping. It is majorly because you never know which product sells high in your store. You might buy a large quantity of that product with no buyers. Sometimes, the inventory may run out sooner than expected.
Vendors typically deal with various drop shippers. Thus, they have a high stock of every item. They keep your products safe in their warehouse and ship when required.
You can save the amount you would otherwise spend on dropshipping and focus on marketing. Channeling your money in the right direction will prove beneficial. You will be able to reach more people and make better profits.
As a business owner, you have to take care of many factors, including your staff and bills. You have to make sure of your employee’s well-being. It requires a lot of different departments and people to regulate everything. Running a traditional business involves processing, machinery, workforce, security risks, and maintenance issues. You must ensure your products are of good quality and find a reliable shipper. Eventually, you must also set up a warehouse to keep all your products. Sometimes, you may have an excess of inventory which gets difficult to manage.
Dropshipping inventory saves you from all these responsibilities. You do not have to find the best courier company to check the packaging of each product. The third-party vendor does all of this for you. You also do not have to manage multiple people for different tasks. It reduces costs and your responsibilities towards the operational aspects. You can utilize that time to market and scale your business. Sit with experts and find ways to improve your service and boost your business. As mentioned earlier, dropshipping agents are quite experienced and may be of good help to you.
One of the most important dropshipping benefits that people often forget is the immediate availability of products. The products are limited when you run a conventional business and keep an inventory. You can only offer what you have in store. But dropshipping allows you to offer a wide variety of readily available items.
Let’s see if a customer orders a product and asks for another related item. You may not have it in your store, yet your vendor might have it. You can tell the customer that you will arrange the product for them. The instant availability of products at the vendor got you a loyal customer!
You can also immediately add the item to your store without worrying about sourcing. Sell them individually or as bundles with other popular products.
It is a lesser-known advantage of dropshipping and gives you an edge over other online sellers.
Wide Range of Products
A wide range of products and instant availability are similar benefits of dropshipping. You can offer many more products when you work through a third party. You can communicate the needed products to your vendor. As it will allow them to boost their business, they will try and source it for you.
You do not have the advantage of providing various varieties within the same category. For example, you can sell different colors of the same coat if you have an apparel business. You do not have to think about having a large space to store them. Just upload pictures, add descriptions, and wait for orders. The product in the desired color will be packaged and shipped by the vendor directly to the customer.
Easy Product Testing
Keeping an inventory also comes with the fear of “what if it does not sell.” Eventually, sellers keep a specific variety of products they are sure about. Yet, sometimes, an unexpected product may become your best-selling. The only way to see which product works well is to test them. This is not feasible with traditional businesses.
But drop shipping saves you from this worry. It is one of the most critical points when mentioning dropshipping pros and cons.
This business model allows you to add many products to your online store. You do not have to think about what will happen if this product does not sell. You do not have anything at stake. Though you will benefit highly if it performs well. What’s better than being able to test multiple products without any investment? You can update your inventory quickly and cheaply through dropshipping. Look through other sellers and stores to see which products are performing well. Add them to your store and monitor the progress. They may perform highly or not, depending on your customer base. Remember to utilize adequate marketing strategies to attract your potential buyers.
You can find suitable products on AliExpress, Amazon, and Direct Dropship. The best part is that you can add and remove as many times as you want. It enables you to play with various products without any risk.
You might know that every businessperson wants to earn a high profit. But, the fact is that every businessperson wants to earn profit while spending less time. Investing less time in selling and managing allows them to focus on other business domains. Organizing and managing the inventory can be a time-taking task, even if you have staff for it. Then packaging, labeling, and shipping also take quite a lot of time. When you use a third party, you do not have to spend time on any of this.
You can utilize this time to test new products and create a suitable marketing strategy. It also lets you find the improvement areas and what your customers think of your service. You can spend this time improving service aspects and customer service.
How many businesses allow working from any part of the world, anytime? Not many.
Dropshipping allows you to be flexible in terms of products, location, and time. You can offer any type of products you want. They may range from luxury items to evergreen products that people use daily. You can sell these products from anywhere in the world. Different international courier services offer their services in 200+ countries globally. You do not have to pack or ship these products by physically going to the store. Most vendors will find a delivery service themselves. These services are generally reliable as various drop shippers use them to dropship their products. This automated process saves you from being physically present at a particular location to run your dropshipping business. You may enjoy your vacation in Hawaii while your business runs smoothly.
Read about different dropshipping shipping methods here.
Easy to Scale
One of the most prominent advantages of dropshipping inventory is its scalability. Scaling your business is a pain point many new sellers do not want to touch. They want their business to grow but are scared to manage a high influx of orders. It can be difficult and overwhelming. Yet, it is also the best opportunity to scale your dropshipping business.
The situations are not the best in businesses that manage everything on their own. They have to insource more products, hire more staff, and offer over time. It leads to more chaos and stress about delivering to the client. Alternatively, drop shipping makes scaling incredibly easy. You can always manage orders at a growing rate. Instead of one or two vendors, you can get in touch with more. Direct one order to each vendor to keep the process running smoothly. You do not have to worry about order fulfillment and shipping. Take your time to promote your store and focus on customer satisfaction.
Now we know that there are various benefits of dropshipping; let’s tell you about the disadvantages of dropshipping.
Drawbacks of Dropshipping
Lesser profit is the major disadvantage that scares people away from dropshipping. We won’t say that it’s not true. But, it is also correct that people make good money from dropshipping.
Now, you might think, how are the profits low when no costs are involved?
Here’s an explanation to understand why dropshipping does not offer high profits. When you add a product to your store, you consider the vendor cost, expenses, and profit. The vendor also keeps their margin for order fulfillment. Some suppliers keep the cut in every profit, while others charge a monthly fee. You only get the slight increase you mention from the vendor’s rates. Thus, the vendor’s shipping costs and inventory margin adds to the costs and lessens your profit.
Dropshipping may not be the best choice if you want to earn more in less time. It will take time to increase the influx of orders and scale your business. You will have to sell more products than you do when selling independently.
Hundreds of people research dropshipping daily and many design their stores within the next week. The increase in the number of sellers means an increase in competition. Everyone wants to sell high-profit products. If you want to do the same, the competition is even higher.
High competition is a major factor contributing to lower profits as well. Some dropshippers with a wide customer base offer low prices. Eventually, the buyers prefer buying from them instead of stores with high prices. In reality, many sellers cannot offer that low rates. When you have to compete and offer similar rates, the profits drop.
One important point in the pros and cons of dropshipping is the dependence on the supplier. You rely on your vendor in all aspects of your business. They control the variety of products you offer and the prices as well. They also impact how well you can cater to your customers. For example, if your vendor does not have a product in stock, you won’t be able to offer that to your customers. It will lead to losing customers. Retaining more customers is easier than bringing in new buyers. Thus, the dependence on the vendor may impact your business negatively.
Besides products and prices, they also contribute to customer service. Your buyers expect top-notch shipping and order fulfillment. The third-party sources, packs, and ship your product to the customer. Good vendors make sure to offer cost-effective and high-quality solutions. If your vendor does not provide adequate service, they might not order from you again.
Less Control over Quality
Dropship inventory takes away the worry about sourcing products and keeping them safe. Yet, it does not only come with benefits. You might come across customers complaining about the products. But, the disadvantage of dropshipping is that you cannot control the quality. You may ask your vendor not to send sub-standard products; there is no guarantee they will listen to you.
On the other hand, when you have the inventory, you can keep better control. You can check each product before shipping it to the customer. Experts suggest ordering directly from your vendors every few weeks to assure quality. You will only be able to retain customers when the product and service are best. The reliance on suppliers impacts the business today and also tomorrow. A dependable vendor enables you to scale your business without any second thoughts. You trust in their products and service to take you to the top.
More Supply Chain Issues
When you do not directly have a supply chain business model, it does not mean there will be no issues. Your vendors and suppliers may give rise to serious issues. Any problems from the vendor’s source or courier company will impact your business directly. In this digitalized world, it is better to use CRM systems. You can use them to manage the supply chain with your suppliers.
It lets you connect to your supplier’s system to check the inventory and order fulfillment. It takes the burden off the vendor’s shoulders as well. Finding the right solution to your supply chain issues is critical. You can only build a loyal customer base if you have a robust supply chain.
Continuous Product Hunting
Dropshippers have to move with the trends to become successful. As the competition rises, the sellers need to add more products that customers like. You must survey other stores to find products that perform well in your niche. Some trending products provide an instant hike in sales. When drop shippers fail to add in-demand products, their business fails. Build a strong online presence and offer products that other sellers do not. It gives you an edge over competitors.
Lack of Information
The list of dropshipping pros and cons cannot be complete without this grave issue. Lack of information is a problem drop shippers do not identify initially. Though, it can prove to be harmful to the business.
As the sellers do not have the product in hand, they do not have complete information about it. The supplier might share details from the manufacturer. But they are not often enough. Thus, you cannot answer general questions from customers like ease of use, functionality, etc. You have to ask the vendor all this, increasing the customer’s waiting time.
Every drop shipper wishes to grow their dropshipping business. When you grow your business, you connect to multiple vendors. So, you have to talk to different suppliers and vendors at the same time. They might use different fulfilment methods, charge differently, and take varying delivery times. Keeping a check and managing multiple vendors at once can be complex. You will also be dealing with the issues of numerous vendors at the same time. Problems like late arrival of products, damaged items, and wrong shipment are common. You might think, “I would never make these mistakes.” Yet, your vendor might!
Poor Customer Service
Customer reviews are the most dreadful when it comes to dropshipping. A review might make your day and encourage more customers. Or it may damage your business widely. Your vendor may face various dropship inventory problems impacting your customer base. The customer will go to the reviews section of your store and leave a bad review.
Customer service in dropshipping is different from customer business. Sellers are not able to maintain a personal touch with the customers. You will have to deal with the issues of your sellers and solve them for your customers.The issues take longer to resolve when you act as a middleman between your buyer and the vendor. Customers get tired of waiting for replies and get a worse impression of your store.
Is Dropshipping Right For Your Business?
The main reason to understand the pros and cons of dropshipping is to see if it is right for you. If you think that the advantages outweigh the disadvantages, you are good to go. But, if you think the cons are more, give it another thought. You can find solutions to all problems, including shipping and customer service. Yet, it is important to remember that it will take time. You will not be able to make money instantly. Thus, it is essential to consider all these factors before stepping into dropshipping. It does not require huge capital investment, but instead, time and effort. So, weigh the pros and cons to decide for yourself.
The Bottom Line
Dropshipping is a growing business, with many people joining it now. You can also be a drop shipper if you want. But, you must realize dropshipping pros and cons to see if it is right for your business. The best thing about dropshipping is that you do not have to worry about the inventory. It does not require huge startup or inventory costs. You can take help from third-party vendors. It also allows you to work anywhere in the world. You do not have to micromanage everything. So, you can spend that time marketing your business. Besides the benefits of dropshipping, there are also a few flaws. You have less control and depend more on the vendor. Sellers sometimes have to compromise on lesser profits due to high competition. Most importantly, you have less information, leading to poor customer service.
Is it worth it to dropship?
Yes, dropshipping is worth the effort if you find the right vendors and manage them properly. Creating a proper marketing strategy is essential to bring more customers to your store. Follow the trends, keep in touch with vendors, and provide dynamic customer service to your buyers.
What are the negatives of dropshipping?
Dropshipping comes with many advantages but also a few disadvantages. Remember that dropshipping is not simple, and you do not have complete control over quality. You depend on the vendors and may face order fulfillment issues. The competition is high, and building a business can be difficult.
Is dropshipping good for beginners?
Dropshipping is ideal for all types of sellers. You must keep the pros and cons in mind before choosing dropshipping business. It is a low-risk business and the best choice for beginners. They can test new products and scale their business eventually.
shailesh is a Design Founder & Advisor, Berlin School of Creative Leadership Executive MBA participant, Zippie advisor, Wolt co-founder, and Nordic Rose stakeholder.