Wholesale Products, No Inventory, No Investment… Sound Good?
Individuals venturing into the world of ecommerce will have heard of the term “dropshipping” and its money making potential. There are countless successful professionals around the world running their own dropshipping enterprises without fail. Let’s take a look at what dropshipping is all about including its pros and cons.
Before looking at the pros and cons of dropshipping, it is important to understand it as a concept.
This is a retail fulfillment method where the business does not keep the inventory in stock. Essentially, the business will never have full possession of the inventory during the process. The item is purchased from a third party and is directly shipped to the customer. This is similar to the average retail method used around the world barring one major difference. The difference comes in the form of keeping the products in stock.
With this method, the orders are processed and then the purchase is made from the third party. It reduces the risks involved with having unsold inventory depreciating in value.
Due to the lowered need for initial capital, it is easier to begin this business without having to seek loans and other related financial assistance. Many entrepreneurs tend to be swayed away from retail businesses due to the need for large initial investments.
Dropshipping does not require a significant investment in dollars right off the bat. There is no need for a specific warehouse to store products, handling returns, managing stock levels, or packing products for shipping. This is quite the hassle and is taken care of for you by the third party.
The low overhead should not be overlooked. This is a major advantage for those who want to start earning money right away. A drop shipping business can effortlessly run from home offices at less than $50-100 per month in expenses. As one can imagine, when the business is scaled it becomes easier and easier to manage this cost. The profits coming in will also become larger as time goes and more orders are being fulfilled.
Unlike regular retail businesses, the expenses will always stay low in comparison to having to retail the items from one’s own warehouse. These are expenses that start to add up in the long-run.
Large Variety in Products
Customers seeking products are often looking for variety. They want to get the most out of their time spent online looking for quality products. With a good drop shipping supplier, it is easier to offer a range of products to a consumer.
This might not be possible with a regular business that has inventory to clear. They might not be able to offer the kind of range that dropshipping allows. The item can be listed right away on the website as long as the supplier is willing to offer the product.
Not everything is rosy with dropshipping and it is pertinent to look at the disadvantages too. Nothing will be flawless or an immediate money making machine and dropshipping is no different. There are lower margins involved with dropshipping businesses.
Most merchants that are involved in this business (especially in competitive niches) are going to drop their prices regularly. They will start getting mere cents in return just to make the sales because of the low overhead involved.
Merchants have to be prepared to handle these lower margins as the business is getting started. Over time, the business will start to establish itself and the prices can rise.
Complicated Shipping Processes? Sometime’s… How Long Does Drop Shipping Take?
There are certain complications involved with dropshipping because of how the shipping is being handled by a third party. There are shipping costs involved and it can become hectic if there are multiple suppliers.
An example of complications that may arise has to do with varying shipping costs between suppliers. What if a customer orders products from different suppliers? They will be expecting a flat shipping cost and this can become challenging to manage.
Most dropshipping businesses have to incur these charges themselves. As you can imagine, it can become frustrating having to deal with these issues in the long-run especially with smaller orders.
Dropshipping is a wonderful ecommerce opportunity for those who wish to run a business without having to deal with the headaches of storing inventory. It is unsold inventory that can become the biggest headache when there is minimal demand for what is in stock. Many businesses fall apart due to this constant requirement of having more demand than supply. Yes, the margins are smaller with dropshipping, but so are the risks. It is easier to sell more at lesser margins than at larger margins while taking on more risk. Many modern day entrepreneurs are heading down this road to ensure they are getting great returns on their invested time without having to see significant losses.
P.S. – You would be surprised how many of the big names out there are actually doing this right now!
Questions and Answers
Drop Shipping Business?Can someone explain to me the concept of drop shipping, and where I can find a good drop shipping company for Child Care/daycare supplies. Has anyone had any good or bad experiences with this type of business. I’m really interested in getting into the business and there are so many companies, I need more information. Thanks.
JoseDrop shipping has been getting a bad name from people selling junky drop ship lists, and work from home schemes.You find a manufacturer, or a distributor and enter into a drop shipping agreement with them.You advertise and sell the product, and a customer orders something, and pays you your price plus shipping and handling.You send the order to the manufacturer or distributor, with the payment plus shipping and handling, and a mailing label with your return address. You keep your profit margin.The manufacturer or distributor uses your mailing label to ship the order directly to the customer.So you can have a mail order business, without carrying an inventory.Some drop shippers charge you fees, and some have a special per item drop ship fee.
It is a difficult business as all those extra fees come out of your profits.
My personal advice, is to never pay a distributor or manufacturer to sell products for them because it is stupid.
But expect to pay a slightly higher wholesale price, and perhaps a per-order drop ship fee.
How lucrative is an Internet drop shipping business ?
Sell Unlimited Products: With no inventory to maintain, you can expand your business and sell unlimited products without getting bothered of inventory related issues.
Choice of Ecommerce Solution for online storefront will be one of the most important decisions in operating your business on Drop Shipping model.2) Benefits for Drop Shipper:If you are a Drop Shipper, this can be a low risk ecommerce model to earn through Internet without having an online store of your own. For you, as a Drop Shipper, contracting with web sites working on Drop Shipping model acts as a lower risk preposition. Drop Shipping has the following advantages:Expand your Reach: Contracting with multiple web sites selling merchandise through Drop Shipping, helps in expanding the reach of your business. You will be able to expose your business at various web outlets and as a result your sales may also increase.Accept online orders without a web site: You are only responsible to fulfill the orders received from the online store. You can earn revenues, without facing the challenges of selling online.
I prefer one the won’t charge me monthly fees but rather a “per shipment fee”.