What is Dropshipping?
Dropshipping is a retail fulfillment method; the business does not keep the products it sells in stock. Specifically, the products are sent directly from your wholesaler to your customer, and you are not required to keep products in stock.
With a dropshipping model, when a store sells a product, it purchases it from a third party and gets the product shipped directly to the customer. In this model, a seller doesn’t have to handle the product directly.
In the traditional retail model, you have to open a brick-and-mortar shop, maintain stock of products and have to pay overheads, whereas, in the dropshipping model, you open an online store and accept the customer’s order, and you transfer that order and the shipment details to a third party, i.e. a wholesaler, manufacturer etc., who then ships the goods directly to the customer.
Pros Of Dropshipping
For aspiring entrepreneurs, it is a great business model because it allows them to test different business ideas quickly.
Some other benefits are:
Minimal funds are required to start a dropshipping business as there are no upfront inventory costs or shipping logistics.
Easy to Start
Prior experience is not inessential to start this business; you can easily start this business with some foundational knowledge. In dropshipping business, you do not have to worry about inventory, warehousing, shipping, etc.
A dropshipping business can be run from anywhere as it does not require a physical store, warehouse, team or office. You only need a laptop and a good internet connection. Moreover, you have the liberty to choose your work hours. Another advantage is that you can easily add new products anytime at no- additional cost as you do not have to purchase them.
It is relatively easy to scale a dropshipping business as most of the additional work falls on the suppliers.
Cons of Dropshipping Business
Though dropshipping is an attractive business model but it has its downsides too. A few cons of are:
Dropshipping is a highly competitive vertical, and the margins are very low. For making profits, you will have to make more sales.
It is easy to enter the market for anyone as dropshipping requires little capital and expertise and has low entry barriers, resulting in high competition.
Since you do not have your own inventory and source the product from different suppliers, it is challenging to track stocks as suppliers work with many other retailers.
You have to accept the responsibility and take onus in case of delayed shipment, damaged goods, missing items, and low-quality packaging even though it is the supplier’s fault.
Dropshipping Best Practices
It is a supply chain model that allows you to lower costs and expand with fewer efforts and resources. The best practices in dropshipping business are an investment in automation to save time and effort doing manual tasks. Establish strong communication channels with vendors and cultivating a strong relationship with vendors. Outline business rules and compliance guidelines very clearly. Additionally, monitoring vendor performance and taking corrective measures before the escalation of the problem is the key.
In summary, following these tips will help you better manage your business and make it profitable.