Guide: Basics of Dropshipping (Chapter 1)

Dropshipping is an online retail venture where a store or store owner doesn’t keep inventory. In dropshipping business, when a store gets an order (makes a sale), it buys the product in question from a third party (dropshipping supplier) who supplies to the customer directly. The implication is that the online entrepreneur who runs the store doesn’t get to see the products nor handle them.

What makes dropshipping business different from the standard retail stores is that in the former, the seller doesn’t see or handle their products. Suffice it to be that they don’t handle inventory but buys inventory from a third party to fulfil their orders. Manufacturers or wholesalers could be the third party.

Dropshipping business as a whole can be very profitable, and smooth when done rightly. In fact, doing this business comes with a lot of benefits but has some drawbacks too

Benefits of Setting up Dropshipping Business Model

Not Capital-intensive

One of the fascinating features and advantage of dropshipping is that it’s easy to set up an ecommerce store without buying thousands of dollars stocking up inventory. This is common with other retailers who have to tie up large amounts to purchase and stock inventory.

Dropshipping business model takes away the issue of purchasing products before making sales. Here, you must have received an order and paid by the buyer before informing your dropshipping supplier to deliver the supplied item. Since this business model is void of inventory investments, you can get started with little budget.

Easy to Kick Start

It’s much easier to run an online store when you don’t have physical products to deal with, and that is what dropshipping offers. You don’t need to worry about the following

  • Paying for a warehouse to stock your inventory
  • Packing and delivering all orders you receive
  • Tracking your inventory for proper accounting
  • Attending to returns
  • Checking stock levels and placing orders for more products

Low Overhead

With dropshipping, you encounter low overhead expenditures because you don’t handle purchases of inventory. It shouldn’t come as a surprise to know that many successful online entrepreneurs run their dropshipping business from a home office.  Though the expenditures associated with this business grow with time as you scale up, it can never be compared to the conventional brick-and-mortar business models.

Flexibility of Location

Dropshipping can be done from anywhere. You don’t need to set up a big company with countless offices to achieve success in this business. As long as internet connection is available, and you can interact with your dropshipping suppliers and customers, it’s possible to manage this business model.

Wide Range of Products to Offer

It’s possible to offer a wide collection of products because no pre-purchase is done. You can sample many products on your store, and even list new stocks that are with your supplier at no extra cost.

Quick to Scale

Unlike the standard retail business where you have to work exactly in line with your business growth, the dropshipping business puts most of the work on the suppliers. As a store owner, it’s easier to grow over time with less incremental work. Businesses that dropship scales easily than many other models.

With all these benefits, it’s clear that dropshipping business is an attractive model that helps both beginner and existing merchants. However, it’snot always rosy as the flexibility and comfort come with a price somewhat.

Drawbacks of Dropshipping Business

Low margin Per Sale

Dropshipping in a very competitive niche results in low margins. Get this; many merchants will kick start and sell at very low prices to grow their store and revenue quickly. After all, it’s easy to get started with minimal overhead costs. These merchants, just like every other dropshipper have invested not-so-much in starting their business so that they can operate on low margins.

Even if these merchants who sell at rock-bottom prices have poor website structures and design, potential buyers will still compare their prices to yours.  Apparently, this brings down the profit margin in some niches. However, it’s possible to mitigate this by selecting a niche that is ideal for dropshipping business.

Inventory Issues

With the conventional retail business where business owners stock their products, it’s easier to keep track of store when they are in or out, but dropshipping doesn’t offer this. In dropshipping, merchants source from various warehouses and suppliers who already have merchants, they fulfil their order, and inventory can change within minutes. Although there are ways to synchronize your supplier’s inventory with your store’s inventory, these methods don’t work seamlessly often. Also, some suppliers don’t allow these synchronization technologies.

Shipping Complexities

If you deal with many suppliers, just most online entrepreneurs into dropshipping, the products listed on your site will have made available by different suppliers, and this makes your shipping costs complex.

Take, for instance, a customer orders for three items, and each has a different supplier, you will incur three distinct shipping charges for delivering each of the items to the customers. In such a case, you don’t necessarily have to pass these extra charges to the customer as they may not feel comfortable with the idea. Even if you get a means to pass the charges to them, it may be hard getting an accurate calculation of what to charge.

Errors from Suppliers

If you have ever experienced a scenario where you take blames for things that are not your fault, but you can’t complain anyway. Such cases are common with dropshipping.

Sometimes, when suppliers make mistakes while fulfilling your orders, you will be at the forefront of apologizing and taking responsibility for the mistakes. Issues like missing items, low-quality packaging, botched shipments among others can be frustrating, and harmful to your brand.

Is It Worth Trying Out?

In as much as there as some drawbacks dropshipping business models, the benefits far outweigh it.  Dropshipping is not an all-rosy way to generate huge amounts; you’ll definitely need to address some issues while you grow. However, you need to play safe and be on the better side, and that is where Ali2Woo comes in handy with amazing dropshipping tips, store development and guide.

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