E-commerce has seen a huge spike in sales over recent years. With more and more people preferring the convenience of shopping online rather than in a physical store, e-commerce became a major player in the business. Now that a lot of traditional stores and retail outlets have closed due to the COVID-19 pandemic, many entrepreneurs have started looking into the possibility of setting up an online store.
One of the latest trends that the e-commerce world has seen is dropshipping. If you have been thinking about starting your own online business recently, you may have encountered this term a couple of times in the past. But what exactly is dropshipping? Is it even worth a try? Read on to find out.
What is Dropshipping?
Dropshipping is a business model that allows online stores to sell products without having to deal with the inventory. In a traditional retail business set-up, merchants buy their products from suppliers or manufacturers in bulk and build their own inventory. In dropshipping, on the other hand, the merchant passes the sales order to the supplier for a profit, then the supplier ships the items to the customers. In short, items are bought on an “as needed” basis, taking the tedious task of inventory off of the merchants’ hands.
A lot of dropshipping stores use popular e-commerce websites such as Shopify and Amazon as channels for their online stores. There are also some online store owners who choose to set-up their own websites while still following the dropshipping model.
Advantages of Dropshipping
There are several advantages to choosing the dropshipping model over a more traditional one, and a lot of it has something to do with costs and labor.
For starters, an online dropshipping store requires less money to put up, thus lowering the risks of losing profit. Since there is no need for the merchant to buy products in advance, investment and overhead costs are pretty low. In addition, the need for manual labor is also decreased, as dropshipping completely takes inventory and shipping off of the merchant’s hands.
Another advantage of a dropshipping store is that it is easy to set up. There is no need for the merchant to consider a place to put up inventory and a lot of the process is simply done online. There are websites such as Oberlo and AliExpress that merchants can use in order to directly connect to suppliers. As a result, merchants can now focus more on customer service and marketing - two integral aspects of an e-commerce business.
Disadvantages of Dropshipping
Similar to any business model, dropshipping is not exactly a get-rich-quick scheme. In business, the less money you put out, the less money you take in so profit is lower compared to the usual buy-and-sell method.
Another thing to consider is the competition. Because dropshipping stores are easy to set-up, expect a lot of competition among other e-commerce stores. Furthermore, suppliers are not exclusive to your store so chances are, you will be selling the same item along with other stores.
Lastly, merchants don’t have complete control of the supply chain, shipping delays, and return policies. In dropshipping, these are handled by the supplier, but customer service is still the merchant’s responsibility. So if there is a problem with the product, it is the merchant who faces the customer, and not the supplier.
So is Dropshipping Worth a Try?
It is still up to you as the merchant to decide. But knowing these advantages and disadvantages may help you make up your mind. Business experts believe that the dropshipping model is good for novice merchants who would like to dip their toes into the world of e-commerce. On the other hand, there are also those who believe that as long as you find the right market niche and supplier, dropshipping can be a success.
Just like in any business, dropshipping has its good and bad side. It is now up to you, as the business owner to weigh in on those views. For expert business finance advice, give us a call and we’ll help you make your business a reality.