Dropshipping refers to the method, where a store doesn’t keep the stock of products it sells. Instead, it buys from the third party for the fulfillment of the orders. It is different from a regular retail business. And it is relatively easier to start as no inventory is maintained, so there is no incurrence of extra costs. The miscellaneous costs expended for keeping inventory updated like warehouse costs, operational costs are normally shelled out in picking, stocking, advertising and packing orders.
A new dropshipping entrepreneur will have less audience, hence less competition. The same can be said for a person running a niche dropshipping store because the target audience will be smaller. If you are new in the industry of dropship, you can differentiate your products by planning the strategies of adding values to them. For example, with your PC you can provide a printer or a warranty period more than usual.
Since a dropshipping business doesn’t maintain the inventory, the reputation of the store depends on the supplier and the quality of the products supplied. The products from the third party for fulfillment of orders need to be in a desirable condition, which means they should not be damaged and retain their qualities. Along with the reliability of suppliers, it is to be ensured that deliverers should not be from overseas or long distance. This is because long distance delivery will take more time, subsequently resulting in more delivery costs. The local suppliers make certain that products are reaching the correct locations at the right time and delivery time is lesser. For instance, the distributors of VARStreet are based in the USA and Canada, which means reduced dispatched and lead time.
Now to make sufficient profits, the pricing has to be done after checking the prices of competitors and sourcing right. The price should be set in such a way that they are able to cover costs and help in earning an adequate profit.
Along with pricing, it is important to make sure that the products you are selling hold a value in the market. It means they should be demanded by the buyers. For that, you have to advertise your products to the public and highlight how they can add utilities to the lives of buyers. The best products for drop ship are namely health and beauty, computer accessories, cell phones, cell phone accessories, headphones, office supplies, party supplies, wireless devices – Bluetooth speakers.
DROPSHIPPING E-COMMERCE – THE PROS AND CONS
The dictionary meaning of dropshipping is the provision of goods by direct delivery from the manufacturer to the retailer or customer. It means, in a dropshipping business the store does not maintain a stock. Upon the order, it buys the required amount from the third party, who is often a manufacturer.
Advantages of dropshipping e-commerce
For a VAR it is an interesting business to do, as there are numerous advantages coming along. These are mentioned below –
1. Low Capital
Since there is no requirement of inventory maintenance to carry out a dropshipping business there is low investment of capital, low finance costs and next to nil existence of warehousing. When orders are received and are to be fulfilled only then certain costs like shipping costs have to be incurred.
2. Easy To Start
In dropshipping business, there is no want to stock up, which is the huge (and requires investments, depending on nature) aspect of any entity. So the mundane to the task of inventory procurement or warehousing prior to the commencement of business is eliminated. This specialty makes dropshipping an easy-to-start enterprise. If you are operating an online store, then, in this case, you don’t need any physical store as well, which makes dropshipping even easier.
3. Scalable and Diversification
In dropshipping, you can easily display a variety of products on your portfolio to the customers. You can easily cancel out those not fetching many profits; could add products trending in the market to increase your profits and public image. This type of advantage provides a drop shipper an edge over other types of retailer, who maintain huge stocks to keep up with the demand, which often fluctuates due to various factors. And they are prone to risks which are, at times, not rewarding, whereas a drop shipper can order samples of products to test them before inclusion in the portfolio.
4. Easy to operate
In addition to the easy-to-start feature for a dropshipping business, the easy operation also makes dropshipping a great deal. Most of the times online drop shippers don’t need to be present physically at a business place, they just require an internet connection and a PC to receive the orders from customers and give the orders to third parties for fulfillment.
So the additional costs and functions which are performed in a regular business are slashed down here.
Disadvantages of dropshipping e-commerce
The advantages make dropshipping a fascinating idea, but we need to look at the negatives as well for the sake of prudence.
1. Heavily reliant on suppliers
Since drop shippers don’t scrutinize the orders to be shipped personally, they cannot give a complete assurance about the qualities of products. So the advantage of personal touch, which retailers often have, is absent here. And this pitfall, inherent in the nature of dropshipping, causes the dropshipping entrepreneurs dependent on suppliers. They have to conform to whatever suppliers will be doing, without their own addition of value.
2. Depends upon the niche itself
The dropshipping business mainly runs under categories like computer accessories, cell phones, electronic gadgets, etc. So there are certain niches created in a dropshipping market. If a niche is saturated and has disappeared from the market then there are high chances of losses and even shutting down of business.
3. Need the right e-commerce platform
The e-commerce platform which you are running should not be cutting into your margin i.e. should not charge transaction fees, or take out a percentage of the sales. Evidently, this will lower the profit margins.
It is always better to know the bright and dark sides of any business before you jump into one because it’s better to avoid risks than suffering unnecessary consequences. And in this case, clearly, the pros of dropshipping outnumber the cons.