When looking for a business opportunity online, it is worth directing your attention to the phenomenon of dropshipping. This is a modern model of online sales, the great advantage of which is that it requires very little initial investment. How exactly does dropshipping work and why should you choose this model to make your dream come true?
Advantages and disadvantages of dropshipping business model
Dropshipping is a retail fulfillment method where instead of stocking products in a store, you choose to purchase products from a third-party supplier. These products are then shipped not to us, but directly to the consumer. This way, the retailer does not have to deal with the product directly and de facto has no contact with it
Dropshipping is great for startups or small entrepreneurs because it doesn’t require as much commitment as a traditional retail model. So you don’t have to open a traditional store, pay overheads or stock your products. Instead, all we have to do is provide an attractive online storefront and then gradually, as demand grows, buy in bulk from third-party suppliers who already have products and warehouse space
Being a seller in such a paradigm, we are mainly responsible for efficient customer acquisition and order processing in dropshipping. So we choose to play the role of a middleman, which also has its drawbacks, but allows us to focus on the best possible strategies to reach consumers. This simple business model really can be very rewarding.
Advantages of Dropshipping
- Dropshipping is very forgiving
We don’t have to be a business guru at all to get off to a smooth start. Many people have started their online sales journey with this model, with no prior business experience! By taking some time to master the basics, we can get started quickly and learn the rest as we go along.
- Dropshipping is easy to run and develop
As we scale up, the business model doesn’t have to change much at all. As we grow the business, we will have to put more work into sales and marketing, but the day-to-day responsibilities will remain more or less the same. Additionally, a big advantage is that as we scale, costs don’t increase too dramatically. So it’s easy to grow at a fairly rapid pace with most of the duties done by yourself.
- Dropshipping does not require a lot of capital
Because starting a dropshipping business requires so little, we can start with minimal capital. We are able to build an entire business right from our laptop and don’t have to make any high level investments
Disadvantages of dropshipping
- Dropshipping imposes small margins
One of its disadvantages is that you should initially expect low profits on a pure basis. This doesn’t mean that running this type of business can’t be profitable, but you should be aware that product margins in some niches may be small.
- Dropshipping can make it difficult to fulfill an order
It seems very simple: the customer orders, we process the order, and the supplier fulfills it. In most cases, it is indeed simple. However, if you decide to source products from multiple suppliers, you may run into some difficulties quite quickly
For example, each of them may use a different shipping solution, which can prove to be a source of problems for both us and our customers. Different suppliers will also have different processing and invoicing structures, and we can get into chaos when trying to manage interactions with our suppliers.
- Dropshipping doesn’t give you much control
We need to be prepared to take away control over some aspects of the dropshipping process, such as product storage, order processing and shipping. We need to rely 100 percent on our suppliers, trust that they are doing everything right and that they are running smoothly.
After learning the absolute minimum basics about dropshipping, you should consider whether this model suits your needs and expectations. If so, it’s time to roll up your sleeves and turn your business plan into action.
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