Dropshipping: Advantages, Disadvantages, and How To Get Started

Dropshipping is a cost-effective and low-risk fulfillment method where the retailer keeps no inventory. Instead, the retailer purchases products from a third-party supplier (a drop shipper), who then ships them to the customer. Here's a breakdown of the dropshipping process:

• A customer places an order with a retailer
• The retailer forwards the order to a third-party supplier and pays them
• The supplier receives the order from the retailer, then packs it and ships it to the customer
• The customer receives the order with the retailer's branding (so they have yet to learn the item came from a drop shipper)

For example, a retailer receives payment from a customer for a $100 pair of sunglasses. The retailer then orders the sunglasses from a third-party supplier for $70. The third-party supplier delivers the sunglasses directly to the customer, and the retailer makes a $30 profit. 

The key difference between the standard retail method and dropshipping is that retailers who use a dropshipper become a middleman between the customer and supplier - usually a vendor or manufacturer. 

This article will help you understand the advantages and disadvantages of using a drop shipper to get your products in front of customers and how to get started.

Advantages of Dropshipping 

Low Startup Costs 

When starting an e-commerce business for the first time, you usually have to spend significant money building your inventory. This can be problematic since you have to guess which products will sell. 

However, with the dropshipping method, you don't need to stock up on inventory, pay for a location to store products, or hire employees to fulfill orders. This significantly reduces startup costs and eliminates the risk of spending money on unsold stock.

In addition, it is affordable to open a dropshipping business on e-commerce platforms like Spocket, Shopify, or WooCommerce. Although there is a monthly subscription, these costs are quickly covered when your business grows. 

No Inventory Management

When using the dropshipping method, you don't need to focus on inventory management because you don't have access to or need to maintain a physical inventory. Instead, the third-party supplier takes care of:

• Tracking inventory
• Managing the location that stores products
• Packing orders
• Shipping orders

You can also list a broader range of products on your website because you don't have to worry about where they'll all be stored.

Low-Risk 

Dropshipping is a low-risk business model because it works on a per-order basis. You only pay for a product after a customer pays you for it. So, you are never out of pocket or left with poor-performing products that won't sell.

In addition, guessing what customers want to buy is tricky for any business, but using a dropshipping method makes adding new products to your range risk-free because you offer them the product without investing.

Easy Order Fulfillment

If your sales double with a standard retail method, you and your team must do double the work. However, with a dropshipping method, your suppliers do the hard work behind the scenes.

Without the need to package or ship the product yourself, you can easily and quickly fulfill customer orders by forwarding them to the drop shipper, who handles everything else. 

In addition, you can make your job even easier with automatic order fulfillment, where the software does all the work, eliminating the need to process orders manually.

Freedom and Flexibility

With a dropshipping model, you can run your e-commerce business from anywhere. You are not bound by inventory, location, or time.

You also have the flexibility to change what products you sell if market preferences change. This is because you're listing what other suppliers already have in stock, allowing you to test out what does and doesn't work with your customers.

More Time to Focus on Business Growth

Managing and preparing stock for delivery is time-consuming, but with third-party suppliers doing all the work, you can use your time to focus on your business growth. This includes your marketing, brand awareness, and advertising campaigns.

Disadvantages of Dropshipping 

Competitive Market

Nearly 30% of all online stores use dropshipping, so competition in this industry is high. 

Not only is it easy to start a dropshipping business, but unless your business has an exclusive agreement with a supplier about specific products, your competitors can sell the same products as you.

Finding a great product boosts profits. However, a great product also creates a lot of competition because it is popular with customers, meaning fellow retailers will also want to sell it.

Many third-party suppliers charge for their fulfillment services, so you only have a small margin to change your prices to beat your competitors.

So, you may need to compete in other ways, such as offering excellent customer service, having a user-friendly website, or having an effective marketing strategy.

Lack of Control 

Many aspects of the dropshipping business method are reliant on our supplier, which means you have no control over: 

• Product quality. In dropshipping, you never actually see or touch the inventory you sell, which means you can't be sure about its quality - even though your brand deals with the consequences as customers believe you are responsible for selling them a poor-quality product. 
• Stock. You have no control over your supplier's stock availability. If stock is running low, you could request an email or phone call from the supplier.
• Shipping times. Processing, billing, and shipping times vary among suppliers. You must deal with the consequences and customer complaints if an order is late or doesn't arrive.
• Supplier price changes. Suppliers can increase or decrease prices, which harms your profit margins.

Responsibility for Customer Service 

Although drop shipping removes the responsibility of inventory and shipping, you are left with the massive responsibility of ensuring your customers have a great shopping experience.

Excellent customer service can help you gain credibility and trust, build customer loyalty, and stand out from your competitors.

However, handling customer service issues can be stressful when you need more control over shipping times or full access to product information.

If a customer complains that a product hasn't arrived on time, you must work with the third-party seller to resolve the issue. In addition, with full access to product information, you can always answer customer queries about a product's size, ease of use, or sustainability.

Forwarding customer complaints and queries to the third-party supplier is a time-consuming process that can delay customer communication and affect their experience. 

Selling Channel Policies 

Different selling channels, such as eBay, Etsy, and Amazon, have varying policies that you must obey. These policies may affect your dropshipping business.

For example, eBay has a Verified Rights Owner (VeRO) Program that protects the rights of intellectual property (IP) owners, which may limit our product offerings. In addition, eBay has selling limits.

How to Get Started With Dropshipping

Choose a Niche

Consider choosing a business niche to make your brand stand out from competitors. You can do this by considering what you are interested in or knowledgeable about, exploring current trends, or checking out best-selling products on other e-commerce sites like Amazon.

Amazon's product research tool, AMZScout, can help you identify trending products suitable for dropshipping. Tools like Google Trends and Trendhunter are great for locating high-demand products.

After listing your potential niches, conduct market research to assess your main competitors, target audience, and market size.

Find Dropshipping Suppliers

Eighty-seven percent (87%) of e-commerce retailers struggle to find a good supplier. The drop shippers you partner with can determine the success of your online business because they provide the products and are responsible for delivering them to the customers.

The easiest way to find suppliers is through dropshipping platforms like Doba, SaleHoo, Zendrop, Syncee, and Wholesale2B, which have online directories of suppliers.

Additionally, you can:

• Search on Google. Search for the products you want to sell on Google and contact suppliers directly. 
• Attend trade shows. Attend a trade show relevant to your target market to find potential suppliers and build relationships with them.

Build Your Brand Identity 

Besides choosing a niche, a strong brand identity can set your business apart from the competition and help your target audience remember you. Here are the most essential steps for building a strong brand identity:

• Determine your brand positioning. Decide your brand values and what your customers can get from you and not your competitors, then highlight this throughout all your marketing and branding efforts.
• Come up with a memorable business name. Consumers are more likely to remember names that are easy to pronounce and type. 
• Pick a color palette. Choose colors that work well together, represent your business, and appeal to your target audience. 
• Choose your fonts. Pick a familiar and readable font for your website, social media platforms, and email newsletters.
• Design your logo. People should be able to tell what your business sells and represents by looking at your logo.

Build Your Website

Once you've determined your niche and chosen your suppliers, you can create a website that aligns with your branding and sells your products.

A well-designed website plays a crucial role in the success of an online store. While building an online store can be complicated, e-commerce website builders like Hostinger's, eliminate the need for extensive coding knowledge and provide e-commerce-ready templates and advanced dropshipping features.

Should You Try Dropshipping?

Dropshipping shouldn't be your chosen retail method without careful consideration, but after exploring the disadvantages and advantages in this article, you can now make an informed business decision.

Despite its few disadvantages—most of which can be solved with careful planning and clear communication between you and your supplier—dropshipping is a lucrative business model for the ever-growing e-commerce industry.