So, you’ve decided to start your own business and after a little research you found something called drop-shipping that is recommended by a few people. But what is drop-shipping in the first place? It is a method in which a store doesn’t keep the product it sells in stock but instead when a sale is made, the purchase is made from a third party and is shipped directly to the customer. Which means the merchant never has to see or handle the product. This is primarily the main difference between a drop-shipper and a standard retail store, no stock or own inventory.
This is an interesting method that has its pros and cons.
Pros
No Product Investment – This is probably the biggest advantage in drop-shipping, you can launch an ecommerce store just with a website. No need to invest anything in buying products and storing and stocking it. Plus, you only purchase products that have already been sold so no leftover products.
Easy Start – Starting your own business is much easier when all you have to do is set-up a site and talk to a drop-shipping manufacturer or wholesaler.
Low Expense – Since you have no need of having an inventory or a place to store an inventory, your expenses are very low. Many successful drop-shipping businesses are run from a home-office with a laptop that is only paying for the site fees.
Cons
Low Profits – The biggest disadvantage one might have with this method is low profits. Since it is easy to get started, most merchants will set up a site and sell items at rock-bottom prices just to keep the revenue growing. Another problem is that even though these merchants have low quality websites and almost non-existing customer service, people will still compare you to them and demand a lower price.
Inventory – No inventory is a benefit but a huge problem as well. When you don’t have the stock, you can’t keep track of the stock either. When you are sourcing from multiple warehouses, they are most likely fulfilling orders for other merchants as well and inventory will change daily. You can try to sync your site supplies with the warehouse but some problem or the other will still arise with this method.
Shipping Complexities – If you work with multiple suppliers – as most drop shippers do – the products on your website will be sourced through a number of different drop shippers. This complicates your shipping costs.