6 February 2023
3 min read
Dropshipping: Pros, Cons and Suitability for Your Business
A dropshipping eCommerce business doesn’t physically handle any product at any point, but sells items to customers directly from a supplier. So, the store acts as a middleman between the customer and the supplier, handling the transaction and customer service while the supplier handles the storage, packaging, and shipping of the products.
This method is often mistakenly taken as an efficient way to gain money with little effort. But, the truth is that an ecommerce that operates exclusively under dropshipping is quite difficult to handle. Actually, it is proven that most dropshipping companies fail for diverse reasons.
Advantages of dropshipping
- Low overhead costs: Dropshipping allows you to avoid the costs of storing and handling inventory, as the supplier handles these tasks.
- Easy start: Setting up a dropshipping business requires minimal upfront investment, making it a low-risk option, especially for entrepreneurs.
- Flexibility: It offers flexibility in terms of product offerings, as you can easily add or remove items from their online store.
- Scalability: This method allows you to scale their operations without incurring significant additional costs.
- Location independence: As long as you have an internet connection, you can run a dropshipping business from anywhere in the world.
- Test products easily: Dropshipping enables you to test new products without committing to a large inventory.
- Time-saving: It eliminates many time-consuming tasks associated with traditional retail, such as packing and shipping products.
- Increased market reach: By working with suppliers from around the world, business owners can reach customers in different regions, expanding their market reach.
Disadvantages of dropshipping
- Low profit margins: This practice often involves offering products at competitive prices, which can result in lower profit margins compared to traditional retail.
- Limited control over shipping and handling: As the supplier handles shipping and handling, you may have limited control over these processes, potentially leading to customer complaints and issues with product quality.
- Dependence on suppliers: The success of a dropshipping business is heavily dependent on the reliability and quality of its suppliers. If suppliers are unreliable or have quality control issues, this can have a negative impact on the business.
- Competition: The ease of starting this kind of business has led to increased competition, making it difficult for business owners to stand out in a crowded marketplace.
- Lack of uniqueness: As dropshipping often source products from the same suppliers, it can be challenging to offer unique or hard-to-find products.
- Shipping and handling issues: Shipping and handling issues, such as long shipping times or damage during transit, can be a major concern for you.
- Branding limitations: You may have limited control over product packaging and branding, making it challenging to build a strong brand identity.
- Difficulty in building customer loyalty: Without control over the product and shipping experience, dropshipping businesses can experience difficulties when building strong relationships with customers and retaining their loyalty.
Evaluate the suitability for your business
Dropshipping would work to make a profit on items with high weight, big dimensions or fragility because outsourcing supply chain tasks such as picking and shipping might be really helpful. But, if the products you are willing to sell are lightweight and small, this system may not be profitable for you at all.
This practice is considered better suited for online ecommerce businesses because online retailers can reach a larger customer base and have greater flexibility to offer a wider range of products without having to hold physical inventory.
However, brick-and-mortar shops may also benefit from dropshipping, especially if they are looking to expand their product offerings without having to invest in additional physical space for storage.
So, is dropshipping a good option for you?
To make an informed decision about if dropshipping is the right choice for your business, you must carefully consider some factors.
First, you need to define or redefine your business goals. Consider your overall business goals and determine if dropshipping aligns with your desired outcomes. Evaluate the reliability and quality of potential dropshipping suppliers and determine if they align with your standards. Also, determine if your target market is likely to purchase products through a dropshipping model.
Finally, evaluate the profit margins associated with dropshipping to determine if they align with your financial goals and analyze the competition in your target market to determine if you can stand out.