Pros & Cons of Dropship eCommerce
Dropshipping is one of the easiest, low-barrier to entry businesses provided you have access to the internet. If you’re not familiar with the dropship business model it’s relatively simple; you set up a virtual storefront and sell items at retail (without holding inventory), to which you forward for fulfillment by a wholesaler, and you in turn keep the profit.
How Popular is Dropship?
Dropshipping is still a viable business given that dropshippers have the leverage to earn more than 50% profit than those who keep their own inventory; and with eCommerce steadily on the rise even post-pandemic, there is opportunity to reach customers where they are with this method. Suppliers also stand to gain with 18% more profit selling their products to dropshippers.
Sounds simple? It is and it isn’t. In this post we’ll take a second look at dropship and review the pros and cons as a business model. We’ll start with the pros:
#1 Pro – Turn a Profit if the Product is Right
You’ll want to do a fair amount of brainstorming and market research before venturing into the world of drop ship. The key to success is finding your product niche. With eCommerce heavily influenced by competition, you’ll need to stand out in the marketplace. Look at what’s trending; are there upticks in a particular industry such as health and beauty, driven by a social media influencer touting the next greatest skincare regimen? Is there a new craze in mobile accessories targeting the 18–24-year-old set?
Current trends point to increased spend within women’s clothing, baby items, and tools (think specialized all-in-one kits for the home or car), with beauty products not far behind.
#2 Pro – No Inventory Management
Without the pressure of where to store product, you have freedom to test products without buying in bulk. Less overhead, less to worry about. Your biggest upfront expense is how you will host your virtual storefront, but more on that later.
#3 Pro – Work with Trusted Vendor Partners
A good partner is crucial to your success. You’ll want to work with vendors who offer ease of use, support, and speed, such as selecting a reliable Order Management System (OMS). We commonly work with Jetti and FluentCommerce for order management integrations specifically related to drop ship. We cover more top OMS providers in our blog for more insight as to Who’s Who in the market, and what questions you’ll need to ask to determine what provider is right for your business.
#4 Pro – Speed to Market
You’ll be off the ground and running in no time. With no physical retail space and inventory to manage and insure, your startup costs are minimal. Your focus with any dropship business as we’ve mentioned above is the product mix; you’ll want to focus on a niche market or what’s trending like fire in the market. It’s also a good idea to test products since you don’t need to purchase in bulk.
#5 Pro – Scalability
Dropshipping is highly scalable considering you can sell about anything and ship it to anywhere in the world, provided your fulfillment vendor has service there.
And now for the inevitable Cons:
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#1 Con - There will be Upfront Costs
You are essentially creating your own personal storefront, so you’ll need the platform to build it out and go live. Vendors like Shopify, WooCommerce, OpenCart, and Drupal are common in the market, with WooCommerce known for its economy especially when starting small dropship stores. A basic WordPress site could run between $1,500 - $3,500, however if you need advanced features, you’re looking at additional spend for plug-ins and customizations.
From the Shopify side, it’s an estimated monthly charge of $30 to create and host a site, along with their selection of themes and branding tools.
Building rapport with your customers begins with a name. Choose a domain name that fits your brand style and is memorable. The average domain cost is between $5-$20/year. If you need help selecting a name with a ring to it, try using a domain name generator to see what’s available.
You’ll need to invest in advertising. As your business grows organically you may scale the budget back, but when you launch take full advantage of mobile and social ads to get your name out there.
Ask Plenty of Questions
Look at the basic features offered by a provider such as product, catalog, payment gateways, taxes, and shipping methods, and determine what you’ll require to get up and running. You may not even require additional plugins at this stage in the business.
You’ll also want to consider ease of use with clean user interfaces, and the all-important scalability factor. I recommend looking at several vendors to compare your needs to go live quickly, and where you see yourself in a year.
#2 Con – This is Not a Get Rich Quick Business Model
If you’re looking for overnight success, dropshipping is not the right business for you. It’s not simply opening the virtual storefront and advertising while your fulfillment partner does all the work. A growth mindset will serve you well.
Knowing what to sell and for how long is key to dropshipping success. Bear in mind again with so much competition you’ll need to stand out with the product and how you sell it in your store. This article offers tips on how to make your dropship offer unique and profitable.
#3 Con – You Have Less Control of the Customer Experience
In contrast to a B2C or D2C channel, you have little control over outcomes such as shipping and packaging; especially if you are drop shipping overseas. If there are customer complaints regarding shipping delays it’s out of your control to fix it, if not prohibitive. This is where finding a reliable fulfillment vendor is so important; you’ll need to build a relationship with them and know their limitations and strengths.
#4 - Lack of Quality Control
You’re selling a product sight unseen with little shipping control. The condition of the product once it’s received can be unpredictable. If you have concerns about a product’s initial quality, it’s recommended to order a sample to see and touch for yourself. This is also a perfect opportunity to create product imagery or content for your storefront to put the product’s best foot forward.
Dropshipping May be Just the Right Model for You
A fair number of pros and cons in the drop shipping model, however if you do your market research, keep an open mind, pick the right vendors, and strike while the iron is hot you stand to fare well.
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