Making money online has never been easier. A few years ago you would need a lot of money to set up a website, get a good domain and hosting, buying in and storing your inventory, and delivering the orders. Thanks to the dropshipping business model many of these problems are now gone so online entrepreneurs can focus on the most important aspects of running an online business.
Dropshipping is a successful and tested business that lets you buy goods individually from a producer, wholesaler, or even different trader and ship them directly to your customer. This enables internet entrepreneurs to run a business without having warehouses to store and ship the merchandise and focus only on promoting and selling products.
The risks, as well as necessary start-up capital, are much lower with the dropshipping business model. You only need to promote a product, receive orders, and let the others handle packaging and shipping. For every order, you earn a profit margin on every product that is the difference between the sales price and the purchase price.
You don’t get to see and touch the product, the suppliers do it all from packaging to shipping, to billing and sending you your fee for every product you sell. There are some variations though. Some suppliers will let you select the shipping company or handle billing.
There are many advantages and disadvantages to dropshipping business. In this post, some of them will be mentioned so that you should be aware of what to expect when you start your online dropshipping business.
Advantages of dropshipping business model
- Lower start-up capital. When you starting a business there are a number of expenses to consider just to get your business off the ground. You will need first and foremost office space, then a warehouse as well as a store where you’ll display your merchandise. With the dropshipping business, you don’t have all this because stocking, packaging, and shipping are handled by the vendors that supply the product.
2. Easier to run your business. When you run an online dropshipping business you don’t have to deal with:
● Renting or managing the warehouse area
● Packing orders and shipment
● Tracking your inventory for accounting
● Handling inbound shipments
● Having to order products and managing your stock amounts
All those activities associated with the business process are now handled by others and you don’t need to deal with them or hire others to do that for you.
3. Reduced costs for running the business. Most dropshipping business owners will need nothing more than a computer connected to the internet to run their business. There are no costs for storage space, office, or workforce.
4. Flexibility in location – Dropshipping can be achieved from somewhere as long you have a connection to the world wide web. All you need to be in a position to do is to connect and communicate with your clients and your suppliers. , If you have this in place you can do business from anywhere in the world.
5. Very large selection of products – Because there’s absolutely no requirement to purchase stock up the front, you are able to provide your potential clients an extremely large selection of merchandise to pick out from. You can also start promoting and selling products that are new immediately after they appear on the market. You don’t have to stock them first before you start selling them. You could just list them on your online store and when a customer makes purchase orders are fulfilled by the suppliers.
Disadvantages of dropshipping business model
- Lower profit margins. Here is the largest downside to dropshipping. Because of the low start-up investment, many other people are drawn into the dropshipping business model. They open their online stores and try to get customers by offering as low as possible prices for the same products. All of this in the end will result in low profit margins and no profit. A solution for this would be to focus on a single geographic area or a smaller niche not tapped by other online entrepreneurs.
2. Problems with the inventory. One of the advantages of dropshipping is that you don’t have to keep stocks or products and have a warehouse. But on the other hand, this way you don’t know which products are available and which are not. So what can happen is that a customer orders a product that is no longer in stock. When the customer does not receive the product he will be disappointed and you probably leave a negative review about you and never come back to your store again
3. Issues with transport. Many drop shippers work with more than one supplier. When a customer makes an order in the price calculation is includes the cost of the product, your fee as well as transport expenses. What may happen is that one and the same product is sourced from many different suppliers each working in a different location. what can happen is that transport expenses can be much greater if the supplier is shipping the product from somewhere far and the purchase price might not be enough to cover the cost of the product and shipping and you might end up losing money on the order.
3. Problems with suppliers. One of the main advantages of dropshipping business model is that many things associated with the process are handled by the suppliers themselves. If you have a supplier that is experienced and reputable then you can expect very few problems. But if he is not then there are a lot of problems that can happen. From miscommunication. to defective or missing products, bad packaging, and many more that will make your life very difficult.