As an entrepreneur, how would you feel if you were paid for a product that you neither own nor sell?
Well, this business model has been around for quite a while now and it is known as – Drop Shipping.
How can drop shipping be defined in layman’s language? It is a process in which a retailer will not stock the products s/he wants to sell but will redirect the orders to either a manufacturer or a wholesaler, and the product is directly delivered to the customer’s doorstep.
Sounds cool, right? Well, it is. Drop shipping has many advantages to its credit, along with its set of disadvantages. In this article, we’ll analyze this popular business model objectively.
How Drop Shipping Has an Edge Over Conventional Supply Chain?
- Pocket-friendly: There are minimal startup costs involved if you want to opt for dropshipping. Inventories need not be purchased in advance, which is not the case with upfront retail stores. Also, there is no investment in the warehouse, equipment, etc.
- Location: Again a big advantage in terms of flexibility, and investment. Managing an online domain is all that the merchant has to do. Nowadays, there are companies offering dropshipping and web hosting solutions. Also, you can setup a Point-of-Sale system that will manage your stocks and financial transactions, under the same roof!
- Freedom: This applies to testing, validation, and marketing of products. You design your own strategies as per your convenience and implement them. The size of inventory can be adjusted anytime, as you don’t own them physically.
- Scalability: Business trends are, and will always be unpredictable! If the demands for your product fluctuate it is not your headache. You can scale your business higher in due course of time, with minimal workload.
Limitations to consider before opting for drop shipping
We don’t live in a perfect world! Like any business model, even dropshipping has its downside –
- Responsibility: Under this business model, you have to assume responsibility for goof-ups, even though you are not at fault. Sounds absurd? Well, the customer bought the product from your portal. S/he is not interested in who the suppliers are. So, if anything goes wrong and the quality of the product is compromised, then you will be solely held responsible for the same. Hope it makes sense.
- Lower margins: In the e-commerce world, dropshipping is being adopted by many people. Like any industry, there is stiff competition here too. The lower price is what attracts the customer and hence, your margins will eventually take a hit.
- Product quality: It’s out of your control! As a retailer, you have to accept the product from the third-party supplier, as it is. Also, your reputation is at stake. Testing the products, yourself would require additional resources from your side.
Dropshipping is an emerging and promising arena of the e-commerce industry. As a merchant or entrepreneur, you should scale the risks associated with any business model, before adopting it. What worked for everyone might not work for you, and vice-a-versa. So, think objectively and then take the final call!