When you look to open an online store, there are always two main options that arise which will decide how you will be managing inventory and order fulfillment. These two options are dropshipping and wholesale.
In short, dropshipping allows you to outsource inventory management, order fulfillment, and shipping, while wholesale requires you to take full responsibility for these operations yourself. It’s always crucial to analyze the pros and cons of both methods to decide which business method is suitable for you and your needs.
In this blog, we will be covering the pros and cons of dropshipping.
Dropshipping Basics
Since the boom of the e-commerce industry, dropshipping has vastly grown in popularity as it allows online retailers quick and easy entry into the marketplace. Dropshipping is also a great place to start for beginners looking to learn about and scale a small business as you will not have the hassle and stress of managing inventory. In fact, you will be solely responsible for the brand itself. This is because customer orders, as well as shipping, are handled directly by the product’s manufacturer. This means they will fulfill orders and ship them on your behalf; thus, cutting out the complexities of logistics management. You would never need to interact with the actual product you’re selling – only to instigate the actual sale.
Pros & Cons of Dropshipping
Pros:
- Low start-up costs: No stock management means no upfront costs are needed to purchase inventory. When an order is placed, the merchant has to pay the items that were purchased (one unit at a time at the manufacturer’s price – while you bump up the price on the final retail sale).
- More product range: You have the flexibility to add countless products to your catalog at a risk-free expense; solely because you only pay for the items that were already ordered by your customers. You will have no stock to manage.
- Building your brand: With no backend operation hassle, you can focus on building a unique brand identity with the help of strong marketing, and strong customer retention strategies. Your goal should be to achieve longevity in a vastly competitive marketplace. With dropshipping, you can focus on improving specific areas that most businesses don’t give enough attention to.
Cons:
- Harder to reach profit: Because your dropshipping partner takes a large cut out of each sale, your profit margins will be lower. This means you would need to sell a high volume of products to make a decent profit.
- No transparency: As someone who owns a dropshipping business, you will not be involved in the order fulfillment and shipping process. This means a lot of mistakes can be made without you having the control to fix them. This can greatly impact your business’s reputation as your business will take the blame for any faults or product damages/delays.
- No customer customization: Even though you can focus on building your brand, the actual experience your customers have with your business may fall flat. Dropshippers use plain, generic packaging that isn’t unique to any particular business – meaning endless dropshippers can use the same packaging. This makes it so customers aren’t aware that the merchant has outsourced their inventory.
- Shipping speeds: The manufacturer will often be in charge of shipping – which means you will have to rely on their carriers (even though you may have never heard of some of them). Your dropshipping partner will use the cheapest options at their disposal which often results in extensive shipping times – sometimes 2 weeks or more (depending on the location of product departure). You should make it clear to your customers that shipping may take longer than expected, although many potential customers may click off your website when they see the shipping time frame. Honesty builds trust.
Conclusions
If you have a low budget, the desire to experiment with multiple products, and the determination to grow a brand by diving into the world of e-commerce, it’s possible that dropshipping is the best option for you to start with, rather than jumping into wholesale operations. You will not need to worry about inventory management, order fulfillment, or shipping – rather, focus on marketing your products and brand.
In part 2, we’ll go over everything you need to know about wholesale operations.
