More and more (novice) online retailers are doing dropshipping. The word “dropshipping” means that the manufacturer or wholesaler ships the product to the customer, after which it is delivered to the customer’s home (dropped). So the web retailer (you) just has to sell the product, nothing more. Handy, because the retailer does not have to buy the products he wants to sell, first, keeping a stock is not necessary and therefore he does not have to ship and deliver products to customers. But what exactly is dropshipping, what are the advantages and are there also disadvantages?
- What is dropshipping?
- Dropshipping suppliers.
- Disadvantages of dropshipping.
- Why is dropshipping popular?
- Broadening the product stock.
What is dropshipping?
Drop shipping is an e-commerce term that stands for the principle whereby the producer, wholesaler or supplier sends products directly to the end user (the customer). The online retailer, in fact the intermediary, is not busy with logistics and does not need to keep any stock. This is convenient to him, because it automatically means that products do not expire or become outdated and that he does not have any leftovers. And if it is properly automated, the orders will also be delivered if the shopkeeper takes a break, after all, everything goes directly via the dropshipper.
In the logistics area, a drop shipper takes important tasks off your shoulders. That is, if your web shop is linked to the supplier’s dropshipping software, otherwise you will still have to process all orders manually. At https://www.watchmanadvisors.com/list-of-dropshipping-suppliers you will find the most extensive list of dropshipping suppliers. And, of course, there is also the popular company Shopify. Some features of this company are: Fully hosted solutions in the cloud. Complete hosting. Fulfillment integration. SEO optimized. 99.99% availability. Ready for mobile trading. SSL certificate. Social media integration. 24/7 support. 100+ themes. Fraud prevention. More info can be found on https://www.shopify.com
Disadvantages of dropshipping.
It all sounds easy and cheap. Many starting web retailers therefore opt for dropshipping to be able to sell products and thus earn a good amount of money. Although they often do not think long enough about the consequences of drop shipping. Dropshipping goes a bit further than just logistics. For example, you must not forget that you are no longer physically involved in sending the package, but you are still liable and responsible. After all, the customer does business with you, not with your supplier. So if the package does not arrive (properly), then you are the primary responsible person. Now you can often recover the damage from your supplier, for example in the event of product defects. But this can be difficult if your drop shipper is some company in China that you have hardly any contact with.
Another drawback of dropshipping is that, in most cases, your dropshipper does not deliver exclusively for you. If you found the drop shipper via a simple search on Google, you can be sure that there are dozens of other entrepreneurs offering the same product stock via the same dropshipper. So you have to compete with them, while they have the advantage that they have been offering the goods for some time and may therefore have built up a loyal customer base already.
Not any system is perfect.
And ultimately, outsourcing logistics does not mean that nothing annoying happens. You may no longer be bothered by outdated products or expired ones, or leftovers, but your dropshipper will certainly not accept any risk. He probably just deducts any loss from your profits. The margins for dropshipping can therefore be lower than purchasing and processing the handling and logistics yourself.
Why is dropshipping so popular after all? Dropshipping – what it is – advantages and disadvantages.
You sometimes hear people say in the industry that real entrepreneurs are unlikely to opt for drop shipping. It limits you. For example, you can no longer send a personal note with the order in which you thank the customer for that nice phone call. Or deliver a package in person that is ordered near to your home or office. In fact, if something goes wrong with the dropshipper, you are responsible. Some say that web shops that grow the fastest and earn the most on sales usually do not work with drop shipping. Yet that is not true. Also huge players sometimes leave the logistics to their supplier. But that’s rarely because they are too lazy to do it themselves. It’s simply done because it’s profitable. Period!
Dropshipping ideal for broadening and automating the product stock.
So for big names and for starters, dropshipping is a good choice. Products that you only sell a small number of, you may earn less on, but this allows you to keep a wide product stock. Dropshipping is also suitable for testing if something could be popular or not. Certainly for ‘longtail’ products or products that you want to test first and where the margin is not yet decisive, it is useful.
There are sometimes even more advantages for starters. Dropshipping is just easier, for sure there’s a time saver, and even though a dropshipper may charge a small margin, it’s still cheaper in most cases. Even if a drop shipper charges all costs to you, they are often much lower compared to non-dropshipping. He does the purchase of shipping boxes in huge numbers, the packaging is in many cases very effective and, if it is a big dropshipper and they already achieved large volumes, they can negotiate shipping costs with the courier better than you can. Or even provide better service than you, because they have, for example, negotiated better opening or working times with the courier. Suddenly your little web shop can provide a service like “ordered before 10 o’clock in the evening, delivered tomorrow!” These are just a few of the advantages of dropshipping that you usually cannot realize yourself. And therefore also reasons why even big web shops use dropshipping.
If someone is absent at the dropshipper’s company, customers will usually not notice it. And dropshippers also know their disadvantages themselves and will therefore do everything to offer you optimal transparency. You can often see in real time where your package is located.
Dropshipping is similar to outsourcing.
In the end, dropshipping is nothing more or less than outsourcing webshop logistics, comparable to fulfillment. It has its drawbacks, but also advantages, and these differ per supplier. Compare it to an accountant. It costs money, certainly! But a good accountant knows that, calculates this and therefore does everything he can to discover a number of tax benefits with which he pays for himself at a minimum. A good dropshipper will have the same starting point.
Whether dropshipping is something for you depends entirely on what you want. What you sell, how much you will sell and how you enter into negotiations with your supplier. Inquire about the possibilities of dropshipping, but always consider the advantages and disadvantages compared to doing everything yourself.
Frequently Asked Questions.
What is dropshipping?
Dropshipping is an e-commerce term that stands for the principle whereby the producer, wholesaler or supplier sends products directly to the end user (the customer). The online retailer, in fact the intermediary, does not have to deal with logistics and does not have to keep stock.
How does it work?
If a customer orders something in your online store your software will automatically forward this order to the dropship company. This sends the item directly to the consumer and you receive (usually periodically/monthly) an invoice for everything that you have sold during that period. Instead of you purchasing, storing and then forwarding something, the supplier now sends it directly to the consumer on your behalf.
What are the benefits?
By not having to build and maintain your own stock but using the supplier’s stock, you need less working capital and you do not have the disadvantages of stock management. So you simply can sell much more items and the diversity of products is much bigger, compared to non-dropshipping. And you will be able to spend more time on things such as the development of your website and SEO.
What are the disadvantages?
You are responsible for the entire process. Especially when you sell to consumers it is important to know that you are liable for delivery times, warranty, errors and everything else. In addition, it is more difficult to distinguish yourself if the supplier also offers dropshipping for other retailers.
How much (margin) do I earn?
Some say there is little to earn with dropshipping. That is not true. Of course it is less interesting for the supplier to send the same product to 100 different customers, instead of getting one large order from you. But if you are just starting to sell or if you want to sell items with a low turnover rate, the costs of pre-financing, saving, or the costs of leftovers and expired or outdated products can be much higher. The purchase of the item is therefore often more expensive, but depending on the conditions that you discuss with a supplier, you can, in general, realize good profits with dropshipping.