Dropshipping: An Overview
The dropshipping concept can be a solution and, more crucially, useful to an eCommerce store if you're a business owner wishing to distribute products for your online store without the inconvenience of having to stock the inventory yourself — or potentially add new products.
If you're considering beginning an eCommerce business, learn more about dropshipping and the advantages and disadvantages of this business model.
What is Dropshipping?
Dropshipping is a great method to fulfill your orders without keeping a large inventory of your products in stock. Instead, you can sell your products directly and let a third-party distributor handle the preparations and shipping. According to research, dropshipping has been proven to be a beneficial business approach; you can make your offers more varied, raise your sales volume, gain access to unique alliances, and quickly negotiate attractive discounts.
How Does it Work?
With a traditional eCommerce model, you will realize that you are in charge of buying and storing your inventory as the merchant. Once you make a purchase, you are responsible for removing the product from your list and shipping it to the customer.
It isn't, however, the only method of operation. Dropshipping allows retailers to work with third-party sites such as Shopify or WooCommerce apps, Fulfillment by Amazon, eBay, AliExpress, and others to get all the information they need to display dropshipped products for sale on their websites. Then, when clients place orders for these products, the retailers' dropshipping partners are in charge of delivering them directly to customers.
Think of dropshipping as a business partnership with your supplier. You work as the middleman and are responsible for choosing your target market, product ideas, market research, customer service, expected sales, shipping costs, shipped orders, etc.
Dropshipping works differently depending on your logistics arrangement, but typically it follows this pattern:
- The merchant and the dropshipper sign a contract;
- The customer purchases your online store;
- The merchant accepts the order and forwards it to the dropshipper;
- Dropshipper ships the order;
- The customer receives the order.
This strategy has several clear advantages but has certain disadvantages to consider. Let's look at them more closely.
Advantages of eCommerce Dropshipping
Easy for Beginners
If you’re new to eCommerce, the dropshipping model might be just what you need. Holding your own inventory, and keeping everything on track when there’s no guarantee of when or how much you will be able to sell, can be exhausting and time-consuming. With this model, as an eCommerce merchant, you can add the available products to your online store, calculating the buying, storing, and shipping inventory as well. This will help lower the costs that you can use for other areas, such as marketing.
Inventory Management Not Required
Another advantage of dropshipping is that no inventory management is required. Not only will you save money on inventory, but you will also save time and effort. You don't need to pay staff to maintain your inventory when you dropship. No investment in warehouse and distribution center locations. No assistance with pest control and environmental protection, nor accepting responsibility for returned items, among other things.
These considerations are critical for a new platform. If you're a well-established company, though, it's better to invest your time and money in these areas yourself.
No Shipping Responsibilities
For most businesses that use dropshipping, the main reason is to avoid the burden of shipping. Both the expenses of shipping and the time it takes to package and ship goods are eliminated if you use a third-party service to handle all that for you.
Disadvantages of eCommerce Dropshipping
Around 27% of online retailers now see the dropshipping model as an easier path to tread as a retailer. Why should merchants go through the hassle of sourcing and stocking their own inventory when they can simply connect with a third party and delegate order fulfillment and shipment to them? Yet, there are some disadvantages to consider:
It’s not always sunny in the world of dropshipping, Competition is unavoidable because the number of dropshipping services is limited. As a result, sellers may have to compete with one another to offer the same things. Merchants may find it difficult to resist negative pricing pressure as a result of this. To succeed in this type of setting, you must embark on the adventure with a fierce competitive spirit.
The reduction in inventory management tasks may appear enticing, but you need to prepare yourself for the negative aspects of not having control in your own hands.
When retailers keep their own physical inventory, they have far more control over everything from the amount of merchandise they carry to how and when it is delivered to customers. Much of this power is given to third parties in a dropshipping agreement, and the consequences aren't always in your consumers' best interests.
When you rely on e-commerce dropshipping, for example, you may not be able to control:
- Order delivery time (especially if it’s an international delivery);
- Packing your products;
- Protection of your products in transit;
This might seem like an acceptable trade-off but if you want to build a solid brand image, customer experience should be your priority.
Smaller Profit Margins
Consider that profitability in e-commerce dropshipping is often lower than in regular e-commerce. This is because dropshipping partners must make up for their costs of doing business, which is usually in the form of somewhat higher rates than what merchants would pay if they bought their merchandise directly from wholesalers.
Due to rising competition from other stores selling the same things as you, the only way to set your business apart is to lower your prices. This can result in lower profits in the hopes of increasing sales.
How Can PackageHopper Help?
That said if you’re thinking of dropshipping for eCommerce specifically to reduce your shipping responsibilities, start by assessing the impact a partner like PackageHopper could have on your shipping processes. As a global leader in eCommerce shipping, PackageHopper offers the best rates and a variety of fast, reliable shipping options. PackageHopper makes it easy to handle shipping across the USA and around the globe so that you can avoid the high competition, low margins, and lack of control that can go along with dropshipping.
Your shipment is additionally protected by the PackageHopper export compliance team's expertise. We provide you with clear instructions on what you may and cannot ship, as well as all necessary export documents, to ensure that your package arrives securely and without customs or other delays.
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