Dropshipping is one of the simplest e-commerce business models out there, so it’s no wonder it has become so popular in recent years. The process of dropshipping involves listing products for sale on an online store. The products are held by a third party, such as a manufacturer, wholesaler, or supplier. When a customer places an order, the third party takes care of fulfilling the order and shipping the item directly to the customer. While dropshipping may sound like a dream business opportunity, and it certainly can be lucrative, there are both advantages and disadvantages to running a dropship business. To determine whether you should start a dropshipping business or not, begin by considering the following pros and cons.
A Dropshipping Business Has Low Startup Costs
With other business models, if you want to sell physical products, you need storage facilities. With dropshipping, you need neither a warehouse nor inventory. That means you don’t have to pay any costs for storage and goods. You only pay the supplier when a product has been sold, and you will have already been paid by the customer. Your profit lies in the difference between the wholesale price and the resale price. In addition to saving money on storage facilities, inventory, and other costs like staff, you can save lots of time as well, because you only need to handle the marketing and selling of goods. With few start-up costs, you will not need to find investors and you do not risk going into debt, as you would with other business models.
Powerful Dropshipping Automation Software Makes a Dropship Business Even Easier to Manage
When you use high-quality dropshipping automation software such as from SparkShipping, full product inventories are automatically uploaded to your e-commerce store. The inventory is regularly updated too. Furthermore, automation software connects to goods available from multiple suppliers to automatically find the best suppliers with the lowest costs. By using dropshipping automation, you can make use of many helpful features to ensure your dropship business is a success.
A Dropshipping Business Gives You Time to Focus on Other Business Areas
With no inventory and warehouse costs and no shipping management to deal with, you gain a lot of extra time to deal with other areas of your business to ensure it is profitable. For instance, you could test new items, experiment with new marketing strategies, and build your brand identity to attract new customers and guarantee a high number of repeat customers.
Dropshipping Provides Relatively Low Margins
While you can be savvy in increasing your margins by choosing the right niche products, dropshipping typically involves relatively low margins compared to other business models. That means you have to sell a lot of products if you want to be highly profitable. Therefore, until your business scales up, it will be challenging to make big profits.
Dropshipping Is Dependent on Suppliers for Order Fulfillment
While the fact that suppliers handle order fulfillment has many advantages, it also has some drawbacks. Most notably, you have no quality control over the supplier’s product selection and shipping process. If customers are dissatisfied with the supplier’s service, it’s ultimately you who will pay for that dissatisfaction.
Dropshipping Means High Competition
It’s great that almost anyone can begin a dropshipping business, but at the same time, that means you’ll face a lot of competition. Not only will other e-commerce stores be selling similar products, they will sometimes be selling identical products from the very same third-party suppliers. So, you need to be selective in the goods you sell, develop a strong brand, and come up with unique marketing strategies if you want to stand out from the competition.