Dropshipping is an e-commerce model where an intermediary lists and sells products to buyers.
These products are obtained by wholesalers.
Here, the retailer is not the owner of the inventory, instead, he fulfills the demands of the buyers by purchasing the products on behalf of them from the wholesalers and sometimes the manufacturers.
Given the fact that most people have access to the internet these days, the dropshipping business is here to stay.
How Does It Work?
Generally, a dropshipper registers an account on a dropshipping tool like Shopify or Oberlo.
The tool allows the products to be listed either manually or automatically.
The dropshipper can choose to list products from numerous niches like electronics, make-up, beauty, etc, and can acquire those products from various manufacturers or owners.
The buyers select the products from the options presented to them and the dropshipper receives an automated notification.
He then ships the product from the concerned seller to the buyer and earns a small commission on it by selling the product at a slightly higher rate.
The dropshipping tools also provide certain features that facilitate the link between buyers, sellers, and dropshippers.
Advantages of Dropshipping
Here are the benefits one is likely to get if he were to start a dropshipping business:
- Less Capital required: Firstly, you don’t have to invest a large sum of money to invest in an inventory to start this business.
Secondly, you only end up buying a product when an assured purchase has been made by the customer.
- Very Low overhead cost: Since the cost of managing a warehouse or investing in an inventory is out of the question, there is hardly any overhead cost to bear.
Hence a lot of dropshippers are able to run home-based businesses.
- Easy to begin with: As an eCommerce business, a lot of the aspects are automated and one is free from carrying a number of responsibilities like maintaining a warehouse, packaging, tracking of inventory for accounting records, keeping a track of stock records, and so much more.
- Not difficult to scale: Unlike a normal retailer-buyer setup, the pain of tackling an excessive amount of orders is reduced as most of it is borne by the dropshipping supplier who is providing the product.
Disadvantages of Dropshipping
There’s a downside to everything including the supposedly lucrative dropshipping business.
- Low-profit margin: With a number of people starting their own dropshipping businesses, the market is getting saturated, and earning high amounts of profits is thus, difficult.
- Shipping issues: Connecting multiple warehouses to various locations can create a lot of confusion and makes room for a lot of errors.
- Scapegoat: Being an intermediary means you have to take responsibility for the mistakes the suppliers make. There can be a delivery of low-quality products. Misplacement of orders may also occur.
- Inventory-related problems: Connecting with multiple warehouses and communicating with a number of sellers makes it difficult to keep a track of the stock of products.
Dropshipping is easy to understand and is definitely a big boon especially for those who are willing to start a small business or are seeking to invest in a profitable start-up.