What is Dropshipping: its Benefits and Disadvantages

In your search for an online business opportunity, it’s likely that you’ve come across dropshipping at some point. Dropshipping is an online business strategy that has the potential to generate significant profits for the prospective ecommerce business owner. Dropshipping can be started with a little amount of beginning capital as well as a little sweat equity on your part. 

Once you’ve achieved some level of success, you can expand your operations by committing additional resources to advertising and brand development. Nevertheless, how does dropshipping operate, and why should you consider using this approach to achieve your entrepreneurial goals?

It’s critical that you understand the answer to the question, ‘what is dropshipping?’ before proceeding any further.

Related: How to Start a Small Online Business?

What is Dropshipping?

Dropshipping is a retail fulfillment method in which a store does not maintain the things it sells in stock. It is popular among online retailers. Instead, when a store sells a product using the dropshipping model, the store acquires the item from a third party and arranges for it to be shipped to the buyer directly. As a result, the seller is relieved of the responsibility of handling the product directly.

The most significant distinction between dropshipping and the traditional retail model is that the selling merchant does not stock or hold inventory. To fulfill orders, the seller instead purchases goods from a third party—typically a wholesaler or manufacturer—as and when it is required.

Related: What is an Ecommerce Platform?

The Benefits of Dropshipping

Dropshipping is an excellent business strategy for ambitious entrepreneurs to start with because it is simple and straightforward. The advantage of using dropshipping is that you can quickly test alternative company ideas with no risk, which allows you to learn a great deal about how to select and promote in-demand products. Here are a few additional reasons why dropshipping has become such a successful business model:

Less Capital

The ability to create an ecommerce store without needing to invest thousands of dollars in inventory up front is probably the most significant advantage of dropshipping. Traditionally, retailers were required to commit significant amounts of capital to the purchase of inventory.

You don’t have to purchase a product if you’ve already completed the sale and received payment from the consumer under the dropshipping model. It is possible to start sourcing products and launching a successful dropshipping business with very little money if you do not make major up-front inventory investments in the beginning. 

A dropshipping store is less risky than a regular retail business since you are not obligated to sell through any inventory you purchase up front, as you would be if you were beginning a traditional retail firm.

Easy to Start

Managing an ecommerce business is significantly easier when you don’t have to deal with any tangible products, as is the case with most services. With dropshipping, you won’t have to worry about any of the following:

• Managing or paying for a storage facility.
• Taking care of the packing and shipment of your orders.
• Inventory tracking is necessary for accounting purposes.
• Returns and inbound shipments are taken care of.
• Ordering products on a continuous basis and keeping track of inventory levels.

Affordably Priced

Because you don’t have to deal with inventory purchases or warehouse management, your overhead expenses are kept to a bare minimal level. Even many successful dropshipping firms are managed from home, with little more than a laptop and a few regular expenses to cover the costs of running a successful business. As your company grows, these costs will almost certainly rise, but they will remain inexpensive when compared to the costs of operating a typical brick-and-mortar business.

Very Adaptable

Dropshipping businesses can be operated from virtually any location where there is an internet connection. You may run and manage your business as long as you are able to connect with suppliers and consumers without difficulty.

Variety of Things

Because you do not have to purchase the items you sell in advance, you can provide a wide range of products to your potential consumers that are currently in style. In the event that suppliers have an item in stock, you can post it for sale on your online store without incurring any additional costs.

Easier to Try

Dropshipping is a handy fulfillment technique for both opening a new store and for business owners wishing to test the hunger of customers for other product categories, such as accessories or totally new product lines, before investing in more permanent fulfillment methods. 

One of the primary advantages of dropshipping is the opportunity to advertise and potentially sell items before investing much in big quantities of inventory, as has been stated previously.

More Scalable

In a traditional retail business, if you receive three times the number of orders as you did the previous year, you will often be required to perform three times as much work. Due to the fact that dropshipping suppliers will be responsible for the majority of the work associated with processing more orders, you will have less growing pains and incremental effort as your business grows.

Sales growth will always necessitate additional labor, particularly in the area of customer service, but dropshipping firms scale exceptionally well when compared to regular ecommerce enterprises.

The Disadvantages of Dropshipping

Dropshipping, like any other strategy, has its advantages and disadvantages. Generally speaking, ease and flexibility are not without their costs. Here are a few drawbacks to take into consideration.

Profit Margins are Low

The lowest profit margins are the most significant drawback of operating in a highly competitive dropshipping niche. A large number of competing stores will set up business and offer things at rock-bottom rates in an attempt to increase income as a result of the ease with which they can be established and the low overhead costs associated with them. 

Typically, these merchants will have low-quality websites and little (if any) customer support, which you may utilize to your advantage to distinguish your company from the competition. Customers, on the other hand, will continue to compare their prices with yours. 

Can Have Inventory Problems

If you stock all of your own products, keeping track of which items are in and out of stock is a rather straightforward process. The problem is that when you’re sourcing from many warehouses, each of which is simultaneously fulfilling orders for other merchants, inventory might fluctuate on a regular basis. Nowadays, there are a few apps that allow you to connect with providers, which is a welcome convenience.

With only a few clicks, dropshippers should be able to “pass along” orders to suppliers, and they should be able to view in real time how much inventory the supplier has on hand.

Difficulties with Shipping

If you work with numerous suppliers, as the majority of dropshippers do, the products you sell on your website will be sourced from a variety of different dropshipping companies. This increases the complexity of your shipping prices.

Consider the following scenario: a consumer places an order for three items, each of which is exclusively accessible from a single supplier. Shipping prices for each item to the client will be incurred by you three times; nevertheless, it is unlikely that you will be able to pass this cost on to the buyer. Even when it makes sense to incorporate these fees, automating the calculations can be time-consuming and error-prone.

Mistakes by Supplier

Have you ever been held responsible for anything that wasn’t your fault, but you were forced to accept responsibility for your actions as a result of the mistake?

Even the most reputable dropshipping suppliers make mistakes when it comes to completing orders—mistakes for which you must accept responsibility and apologize to your customers. Furthermore, average and low-quality suppliers can give you constant irritation with missing items, botched shipping, and poor packing, all of which will harm your company’s reputation in the long run.

Limited Branding Opportunities

Dropshipping, in contrast to custom-made products or print on demand, does not provide you with a great deal of control over the product itself. Typically, the product that is dropshipped has been designed and branded by the vendor.

Some Alibaba dropshipping providers may be able to accept your company’s product adjustments, but even in that case, the supplier has the greatest amount of control over the final product. To make any adjustments or additions to the product itself practical and economical for the manufacturer, the manufacturer often requires a minimum order quantity.

You Should Include Ginee In Your Venture

Ginee Philippines may prove to be a valuable resource for you as you embark on your Dropshipping adventure. They have partnered with leading digital marketplaces to provide you with the ability to manage all of your stores from a single dashboard, regardless of their tier status.

Because of this, you may deal with difficulties across all of your sites in one single move, despite the fact that the ERP structure is advantageous.

Make the most of Ginee’s features to maximize the effectiveness of your marketing efforts. After a specified amount of time, users can choose whether or not posts should be automatically reproduced. It is a win-win situation for all parties involved. For a limited time, a free 7-day trial of Ginee is being offered in order to promote the service.