In a typical, conventional supply chain in a business, a company receives the order and fulfills those with the stock they have stored in their huge inventories. The usual flow is very obvious:
- Picking the order
- Packaging the order
- Shipping the order
What is the problem with this method? The problem lies in the fact that this working model requires a lot of overhead expenses and tends to burden one party with everything from receiving the order to the packaging of it to delivering it. The cost of keeping products on hand (viz. maintaining an inventory), storing it safely (viz. warehousing), and fulfilling the orders (viz. labors, packaging, and shipping) can be very burdensome especially for the local businesses or the ones that are just starting out. Hence, it’s important to understand what dropshipping is.
What Is Dropshipping?
Dropshipping is a feasible option that has been surfacing when it comes to avoiding these overhead expenses. This model allows retailers to receive the order and leave the rest (inventory management, storage, and fulfillment) to the dropshipping supplier.
With the endless number of dropshipping services available, you can contact a reliable dropshipping sourcing agent like MatchSourcing, to select the best service provider.s
But before you go and choose dropshipping as an alternative, let us brief you with its pros and cons, shall we?
Advantages of Dropshipping
There are many advantages of dropshipping that make it a more preferred option for business management as compared to other models. Let us see some of them:
1. Low Overhead Expenses
As we saw earlier, a typical business management model needs individual expenses for investing in inventory management, warehousing and storage, and fulfillment of the orders. While this may not be a big deal for well-established organizations and businesses, these expenses can be a great burden on the companies that have just started out.
But, the question is, why does the typical business approach an issue? This is because the failure of just one product can leave you stuck with an unsold inventory, further trapping you in a loop of debts and huge losses.
With the usage of dropshipping, the risks of debts and unsold inventory are minimized. Surely, it can’t guarantee you no loss, but stay assured that you won’t be left with unsold products lurking behind you.
2.Ability to Test New Products
Whether a new business is being launched, or simply sample testing a new product, dropshipping allows us to experiment in many ways. What you can do instead of purchasing a new inventory about which you’re unsure about, try testing the products’ ability to sell through the dropshipping model.
In case a new product doesn’t sell as you expected it to, you have the freedom to move on to the next product. Dropshipping in this way allows you to pivot to something new if you fail to discover your profitable niche.
If your product manages to earn you a desirable profit, then you can consider selling, storing, and shipping the item yourself, keeping large portions of profit to yourself.
3.Makes Scaling Your Business Easier
One of the earliest struggles, when you start as a business organization, is scaling it up to handle success. Once your organization starts taking off, and orders start pouring in, it often becomes difficult – mostly impossible- to meet their demands single-handedly, causing another set of problems for the business owners.
This includes overtime for workers, long frantic hours of endless working, leading to low morale and more mistakes, stressing over having too many products on hand, and answering a growing number of customer inquiries – these are some challenges that can be very troublesome for any owner.
Dropshipping allows you to regulate the orders at the rate they come in. This gives you more time to focus on other aspects of business growth like marketing and customer service.
4.Marketing & Customer Service
As discussed earlier, dropshipping gives you more time to explore more product offerings, targeted audiences, marketing strategies, and appealing customer service. You have potential time to test new products and implement marketing strategies, which is a great way of getting a better understanding of your customers and their areas of interest and what engages them in the best way possible.
Once this is done, there is an ample amount of time left with you to craft out the customer care services of your business by automated replying to some common queries, and ensuring product support and delivery is fast and up to customers’ expectations.
Disadvantages of Dropshipping
Now, while we have learnt about the advantages of dropshipping, it is time to know why you can’t just go for dropshipping without knowing the cons too.
1.Profits Will Be Lower
While one can often get products either at wholesale prices or somewhere close to them, you must know that you will be expected to pay fairly for all the services that dropshipping supplier performs on your behalf. You have to pay them for maintaining an inventory, for warehousing, and fulfillment of your orders.
Dropshipping works in the following manner:
- When a customer pays you for the product that they have ordered, you in return pay to your dropshipping supplier for the same product, usually along with a cut to cover fulfillment.
- This can be in the form of a monthly payment, a one-time full payment, or a small percentage of the product price. It depends and varies from supplier to supplier. Hence, the profit margin will differ in a traditional business model and dropshipping model.
- You’re prone to lesser profit than it would have been if you were fulfilling the entire order by yourself.
2.Product Quality is Not Under Your Authority
Since you are not in charge of manufacturing products yourself, you don’t have the power to cross-verify the quality standards of the product drop shipped by the supplier. You can’t personally guarantee that the best quality product would be delivered to your client.
You can, however, avoid selling bad products to your customers (which, if happened, can drastically affect your business reputation) by personally testing the products before you sell them out in the market. If the product meets the quality standards, go with it. Otherwise, you can ask for an exchange of the specific product or choose another dropshipping facility.
3.You Will Have to Face High Competition
The flexibility and low-overhead benefits of dropshipping facilities make it a very preferred option for a lot of would-be entrepreneurs. This makes the competition in business markets fierce. This raises a necessity for you to stand out from the rest of your competitors and give your clients a reason to choose you over them.
How can you do this exactly? Make sure to explore your options and get to know your potential audience, before selling a product in the market. If it is possible, search for markets that aren’t saturated for the industry you work in but at the same time offer a healthily high demand for your products. This improves your chances of getting noticed quickly in the market and gives you time to establish your brand name.
4.The Logistics Can be Confusing
While the idea of having someone else handle fulfillment may seem to be considerably easier than doing it yourself, working with dropshipping suppliers can be a hassle – especially if you’re required to work with multiple vendors.
Keeping the various policies with different vendors and fluctuating between fulfillment methods can be very overwhelming confusing. There is no exception to mistakes in business. So is the case with dropshipping.
Products may arrive late, damaged, or misplaced – there are inevitable mistakes that make their way to every supply chain. You have to be as prepared to handle them in the dropshipping model as you’d have if you were fulfilling orders yourself. Keep a variety of customer service responses ready in case of delay or misplacement, and develop an acute understanding with dropshipper of how you both will handle things like returns, damaged products, and re-deliveries.
In this article, we overviewed the advantages and disadvantages of dropshipping. We saw how even though a wonderful alternative to avoid overhead expenses, dropshipping is not the easiest way for order fulfillment. There are pros and cons to it that you should consider.
If you choose to opt for dropshipping, the market is flooded with many options, but we are sure you want to go with the best out there. If you are looking for the best drop shipper service provider, you can contact reliable dropshipping sourcing agents like Matchsourcing to get the best service providers for you.