Everyone who works with e-commerce is constantly challenged to achieve more and more results.
However, some managers do not have enough budget for this. At this time, it is necessary to resort to different solutions, such as Dropshipping.
And, if you are not sure what Dropshipping is, its advantages and disadvantages of applying it to your business, don’t worry. We made this article just for that.
What is Dropshipping?
Dropshipping is a business model where a business can operate without keeping an inventory as they have a warehouse to store their products and ship them to customers.
In practice, the retailer partners with a dropshipping provider who manufactures and/or stores the products, packages them, and ships them directly to the customer on behalf of the retailer.
In simpler terms, this is how dropshipping works:
- the customer places an order for a product in the company’s virtual store;
- the retailer then automatically or manually sends the order and customer details to the delivery provider;
- Finally, the delivery provider sends the order directly to the customer on behalf of the company.
This type of business model is extremely attractive because it eliminates the need for the store owner to have a physical location to store the products, such as a shed or warehouse. Instead, all they need is a laptop and an Internet connection.
Below, you’ll learn the pros and cons of drop shipping so you can evaluate how it could apply to your business.
Advantages of Dropshipping
1. Lower investment
This is probably the biggest advantage of Dropshipping, as it is possible to launch an e-commerce without the need to invest in stock in advance.
If before, companies needed to invest in large amounts of inventory to meet initial consumer demand, with the Dropshipping model, it is not even necessary to buy a product.
Thus, without large initial investments in stock, it is possible to start a successful business through Drop Shipping.
2. Location flexibility
A drop shipping business can be run from anywhere that has an internet connection.
After all, the most important thing is that you can easily communicate with your suppliers and customers, as well as manage your business online.
3. Wide selection of products
Since you don’t need to pre-purchase the items you sell, you can offer a wide variety of products for your customers.
It is enough for a supplier to have these products available for you to put them up for sale on your site.
With a traditional business, if the sales increase, the work will increase proportionally.
However, by opting for dropshipping, the part of the work that requires the processing of orders is supported by the suppliers, allowing the business to scale with less financial and operational resources.
Although sales growth always brings additional work — especially in customer service — those who use Dropshipping particularly fare better relative to traditional e-commerce businesses.
All these benefits make Dropshipping a very attractive model for business owners and managers looking to sell through digital channels.
But, since not everything is flowers, let’s now talk about the drawbacks of Drop Shipping.
Disadvantages of Dropshipping
1. Low benefits
Low profits are the biggest disadvantage of operating with Drop Shipping.
Because, being a highly competitive niche market, the overhead costs are so small that many products end up being offered at low prices in order to increase revenue from higher sales volume.
This ends up having an impact on the reality of a company that needs to sell a lot to have an acceptable turnover.
And, on the Internet, one thing that customers always do is compare offers and prices. Therefore, those without strong branding work online may find it more difficult to sell to the point of being profitable.
2. Stock problems
If you stock all your items, it’s relatively easy to keep track of which products are in and out of stock.
But, when you rely on third-party stock, which is also fulfilling orders from other companies, inventory changes happen on a daily basis.
While there are ways to sync your business inventory with your vendors, these solutions don’t always work perfectly, which can lead to issues for the end customer, such as delivery delays.
3. Complexity of shipments
By choosing drop shipping, you work with multiple providers, so the products on your site will be delivered through several different shipping senders. This complicates your shipping costs.
Let’s look at an example: imagine a customer placing five orders in your store, each offered by a different supplier. So, you will have five separate shipping costs for the same customer.
Sending five different charges to the customer leads to a poor shopping experience, as well as being capable of causing confusion. And even if you accept those charges, automating these calculations can be difficult for your business.
4. Provider errors
Do you know when you are guilty of something that was not your fault, but you have to take the consequences anyway? This type of situation can occur when you work with Drop Shipping.
After all, even the best suppliers make mistakes when shipping orders. And, in the eyes of the customer, you have to take responsibility and apologize.
Common problems that can occur such as lost items, non-delivery and poor quality packaging can undermine the reputation of your company, since the image that the final customer will have will not be of the supplier, but of you.
5 companies that work with Dropshipping
eBay is an e-commerce company considered one of the world’s leading sites to buy and sell products on the Internet and, also a pioneer in this type of business.
AliExpress is an online retail service owned by Alibaba Group.
4. Free Market
MercadoLibre is a technology company that offers e-commerce solutions so that individuals and companies can advertise and ship products over the Internet.
Alibaba is a group that brings together several Chinese companies whose businesses are based on e-commerce, functioning as a search engine to buy online.
Now you know what Dropshipping is, as well as the advantages and disadvantages of applying it to your business. Regardless of the business model you adopt, it is essential to ensure that sales conversions are effective.
To find out how to achieve this, take a look at the e-book we wrote about content strategy for ecommerce!