Many people start an online store by selling something.
Some people sell things that they create on their own. They build their own things and then sell them online as a hobby. This can be enjoyable, exciting and useful all at the same time. Some examples are homemade clothing, quilts, appliances or kindles.
Some others sell things online by using standard retail model. They purchase products first and then keep purchased products in stock. In this way, people typically have to tie up certain amounts of capital purchasing up-front inventory.
However, what if people don’t want to create their own things or spend money on inventory? Can they still launch an e-commerce store and sell something online? The answer is “Yes”, if you know about drop shipping.
Drop shipping is a growing trend in online business world. With drop shipping model, you can purchase the item from a third party only when a sale happens and has the item shipped directly to the customer. In this way, you don’t need to keep the goods you sell in stock and the third parts (a wholesaler or manufacturer) will fulfill orders rather than you.
Like standard retail model, drop shipping model also has a double-edged sword.
Benefits
You don’t need to invest in inventory – One of the biggest benefits of drop shipping is you don’t have to worry about inventory issues. When sales occur, you simply handover customer orders and shipment details to suppliers, and they ship the goods directly to the customer.
You can start an online store very easily – Without having to deal with physical product, you can launch and grow your e-commerce business very conveniently and efficiently.
You can run your business anywhere – As you don’t need physically handle the products, you can run your business anywhere as long as you can get connected with internet.
You have less additional work– As the suppliers handle all the physical fulfillment subjects, you will have less extra work like customer service and shipments.
You have various selections of products – In the standard retail model it is hard to grow an e-commerce business if you have limited resources. With drop shipping, however, you can offer various products to your customers when you don’t have to handle physical products and less cost for the inventory.
Disadvantages
Relative low profit margin – A lack of entry barriers in drop shipping model initiate a lot of competition, hence reducing the profit margin. However, you can overcome this problem if you follow a methodical approach and choose a niche that is well fit for drop shipping.
Fulfillment errors and mistakes from supplier – As you leave the entire physical fulfillment to suppliers, you have less control over the quality of products and services. If suppliers make mistakes, you have to take responsibility and apologize. This will harm your business’s reputation.
Difficult inventory synchronization – With drop shipping, you may come across this dilemma. One of your suppliers happens to run out of stock for a certain item that your customer just orders from your online store. To better sync your store’s inventory with your supplier is important.
In conclusion
Drop shipping is a very appealing model especially to beginners who just start their e-commerce store because of its benefits mentioned above, but drop shipping is not perfect and all its conveniences and benefits come with a number of complexities and problems you need to be able to address.
