If you have ever been interested in online marketing, most likely you have come across the term dropshipping. However, only a handful of people understand how it works. In case you are new to online business and e-commerce, dropshipping may be a tough term for you to understand. It is difficult to come across a reputable source that explains everything that you wish to know about dropshipping. Here is everything you want to know about the term.
What is the meaning of dropshipping?
It refers to a business method where an organization does not stock the products it sells. The business neither keeps an inventory nor uses the services of a warehouse. The merchant cooperates with a dropshipping firm that packs and ships the goods directly to clients on behalf of the business. It works as follows, client orders particular products from a business’s online store. Once the business receives the description of the product and the client’s details, they are forwarded to the dropshipping supplier. Once the dropship receives the orders, it packs and ships them to the respective clients using the merchant’s business name.
What are the advantages of dropshipping?
It is simple to start
It is easy to venture into dropshipping business. It relieves you the burden of dealing with physical products. All you need is to go through the three simple steps which are, identifying the appropriate supplier, creating your business website and commence selling of goods. You don’t need to pack or ship the orders. For beginners in the e-commerce industry, this method is convenient to keep you going. Forget about tracking inventories for the accounting purposes
It is Cost-saving
Most of initial business costs go to establishing and running retail activities. Such costs include buying retail inventories and paying for warehouses. Once you establish an e-commerce store, your customers can access the products that you offer and make their orders. With dropshipping, the only costs that a merchant will incur are those needed to manage the website such as web-hosting, themes and applications. The merchant only purchases the product once he has sold it to the client. Elimination of inventory up-front costs makes it possible to open a business with minimum capital.
It is flexible and minimizes overhead costs
Most costs overhead costs go to acquiring inventories and controlling warehouses. With no need to buy inventory or acquire a warehouse, you slash the overhead costs. A good number of dropshipping businesses are managed without an office. You need a laptop and internet access to manage your e-commerce platform where you take client orders and arrange for delivery of their ordered products. All you need is to contact a shipping company and get their freight quote to strike business deals with them. The growth of your business will result into increased expenses but they will still be manageable.
What are the disadvantages of dropshipping?
Low profit margins
One of the main setbacks of running an e-commerce in a competitive dropshipping niche is low profit margins. Since the venture is not only easy to start but also economical, merchants dispose products at cheap prices to maximize their sales. Although some businesses have low quality websites, it is easy for customers to compare prices to select those with cheapest offers. This doubles the competition forcing merchants to lower prices of their products to attract customers. You can overcome this by selecting a suitable niche for dropshipping.
Inventory management issues
Businesses that stock items find it simpler to monitor the products that move in and out of the stock. Sourcing products from varieties of warehouses makes it difficult to keep track of the daily inventory changes. E-commerce businesses that rely on dropshipping sometimes experience issues with their clients for allowing them order goods that are out of stock in the dropshipping companies.
Merchants that work with multiple suppliers source the products experience multiple shipping. This complicates the shipping procedures and costs. For instance, a single client makes an order of three different products. They can be sourced from three separate suppliers who charge different shipping costs. Your business will be forced to pay shipping charges for each product separately.
One major problem facing online marketing is delivery errors. Have you ever been in a situation where you ordered a product only to get a different one during delivery? This problem is common especially for the orders of electronics. For example, you order a Samsung J7 pro but instead you receive a Samsung Galaxy S3.
Is dropshipping worth it?
Dropshipping does not guarantee you a stress-free way of building a successful business empire. It has its advantages which when well utilized can help you grow your online business. Besides, it also has several limitations that merchants need to address in order to establish successful businesses. You can reach Freightrun for guidelines on how to get best freight quotes.