As a business owner, there are several decisions you must make about the company you create.
For instance, will you be a brick-and-mortar, sell online, or both? What products and/or services will you sell and what will be your price point? Perhaps most importantly, how will you not only acquire, but continue to grow your customer base?
Well, there’s one additional decision that you need to make when you own your own business, and it is one that involves your inventory. Specifically, you may be wondering if there are other options besides buying all of your goods up front, storing them, and then shipping them to the consumer once they’re purchased. The answer is that yes there is, and it’s called dropshipping.
If you’ve never heard the term, dropshipping is basically another way to manage your supply chain. It’s also one that involves using a different method to get your products into your customer’s hands than what many retailers traditionally use.
With dropshipping, you don’t pre-purchase or store any of the items you sell. Instead, your customers place an order with you and it is then and only then that you buy the requested item from a wholesaler, having the wholesaler ship the items directly to your customer. What are the pros and cons of this type of supply chain management?
Advantages and Disadvantages of Dropshipping
One of the primary benefits of dropshipping is that you have lower startup costs because you aren’t buying products until they’re sold, which means no upfront inventory to purchase. This also means that you don’t have to store them, so there’s no need for a huge warehouse either. Additional advantages of dropshipping include not being stuck with inventory you’re unable to move and relief from shipping-related problems because that is handled by your supplier directly.
Another reason many ecommerce entrepreneurs prefer dropshipping is because of the greater potential for profit. This is due first to not having the overhead costs associated with traditional shipping (warehouse costs, shipping costs, etc.), but also because profit margins in dropshipping are generally in the 10 to 15 percent range, but can actually be as high as 100 percent on lower-priced items.
As for the disadvantages of dropshipping, by not buying and storing the items in advance, you’re at the mercy of your suppliers when it comes to product availability and method of shipping. This means that you’d benefit from working only with high-quality wholesalers that have a good reputation in these specific areas.
Also, when you dropship, if you buy from a wholesaler who also sells to consumers, your prices are going to be a bit higher than theirs because that’s how you make a profit. Thus, there’s nothing that stops the customer from buying direct from your supplier, that is, unless you can establish a stellar business-consumer relationship. This can be accomplished by providing great customer service, something which involves anticipating customer needs, making them feel important, and giving them more than they expected.
To Dropship or Not to Dropship?
Because there are both pros and cons to dropshipping, only you can decide whether you should use this form of supply chain management to dropship some or all of your inventory. If you have a good relationship with your suppliers and trust them, then it may be a great way to save some money, yet still service your customers. If not, maybe you can find more trustworthy suppliers, eventually making dropshipping an option.
Either way, as long as you stay true to your brand and do right by your customers while giving them what they want and need, you’re well on your way to making your business bigger and stronger year after year. That is what we all want in the end anyway, isn’t it?