Is dropshipping legit? The answer is YES. However, there are both benefits and disadvantages to this eCommerce model like with most business models. Read through listed benefits and disadvantages with dropshipping and make a judgement for yourself.
What Is Dropshipping? A Good
Dropshipping is a retail fulfillment method where an eCommerce store does not keep any inventory on its own.
The dropshipping process in short; when a customer purchases a product from your eCommerce store or listing on Amazon / eBay, you purchase the product from a third party supplier / wholesaler for a less price, and then have the supplier ship the product directly to the customer. As a result, you as merchant (seller) never see or handle the product.
The biggest difference between dropshipping and the standard retail model is that the selling merchant does not stock or own inventory. Instead, the merchant purchases inventory as needed from a third party – usually a wholesaler or manufacturer – to fulfill orders.
Benefits With Dropshipping
#1. Easy Start Up With Less Capital Required
Probably the biggest advantage of dropshipping is that it is possible to launch an eCommerce store without having to invest thousands of dollars in inventory up front. Traditionally, retailers have to tie up huge amounts of capital purchasing inventory.
With the dropshipping model, you do not have to purchase a product unless you already made the sale and have been paid by the customer. Without major up-front inventory investments, it is possible to start a successful dropshipping business with not too much capital.
However, from experience I have noticed that you need approximately $2000 – $3000 minimum to start a dropshipping business. This is because PayPal is withholding the customer payment until you have shipped the product and provided valid tracking info. In the beginning, before you get a good track record with PayPal, they keep your money even longer.
Amazon only pays out every 14 days, so that will tie up your funds as well.
There will always be some returns and refunds when working with eCommerce. This is something you need to have a budget for also. Amazon ties up a certain share of your profits for possible refunds, which will decrease your payouts as well.
Apart from this, it is rather easy to get started. You only need to create an eCommerce store (you can do this fast and easy with WooCommerce or Shopify), and create an Amazon and / or eBay account – if you want to use their platforms to dropship along with your personal e-store.
The most common wholesale website is AliExpress, but be aware when dropshipping from AliExpress. ALWAYS order a sample of the product first. We had several bad experiences with AliExpress and lost a lot of capital. Read this article for further details:
#2. Dropshipping Is Hassle Free
Running an eCommerce business is much easier when you do not have to deal with physical products. With dropshipping, you do not have to worry about:
- Investing in costly inventory
- Managing or paying for a warehouse
- Packing and shipping your orders
- Tracking inventory for accounting reasons
- Handling inbound shipments
- Continually ordering products and managing stock level
Although, the possible hassle can be with dropship suppliers/sellers that do not ship on time, ship out low quality items to your customers, or cancel your orders when they, in turn, do not find a cheap deal to dropship from.
It seems like all eBay sellers are using dropshipping, which makes it a bit unreliable to dropship from an eBay seller. The best way of avoiding this is to use an authorized dropship supplier.
#3. Low Overhead Cost
Because you do not have to deal with purchasing inventory or managing a warehouse, your overhead expenses are quite low. In fact, many successful dropshipping businesses are run from a home office with a laptop only. All you need is basically a good Internet connection and customer service skills to manage your business.
As you grow, these expenses may increase but will still be low compared to those of traditional brick-and-mortar businesses.
#4. Go On Vacation And Still Run Your Business
A dropshipping business can be run from just about anywhere with an internet connection. You can be on a nice vacation overseas and still be able to run your business.
As long as you can communicate with suppliers and customers, you can run and manage your business from anywhere.
#5. You Can Sell Almost Anything
Since you do not have to pre-purchase the items you sell, you can offer an array of products to your potential customers. As long as you find a supplier for the product you want to sell, you can list it on your website at no additional cost.
#6. It Is Easy To Scale A Dropshipping Business
With a traditional business you will usually need to do double the work effort if you sell twice as many products. However, by leveraging dropshipping suppliers, most of the work to process additional orders will be borne by the suppliers, allowing you to expand with fewer growing pains and less incremental work.
Sales growth will always bring some additional work and for dropshipping business it will be related to customer service. Although, a business that utilize dropshipping scales particularly well relative to traditional retail businesses. Find out more on how to scale your Amazon/eCommerce business in my recent article:
All these benefits make dropshipping a very attractive model to both beginners and established merchants (sellers). However, like anything that sounds really good, dropshipping is not all roses and rainbows. All this convenience and flexibility comes at a price.
Disadvantages With Dropshipping
#1. Low Profit Margins
Low profit margins are the biggest disadvantage to operating in a highly competitive dropshipping niche. Since is so easy to get started, and the overhead costs are so minimal, many sellers will try setting up eCommerce sites and sell items at rock-bottom prices in an attempt to grow revenue. They have invested so little in getting the business started, so they can afford to operate on very small margins.
However, these sellers often have low-quality websites and poor (if any) customer service, so that gives other dropshippers an advantage. The only issue is that this will not stop customers from comparing prices and try to get the best bargain.
This increase in cutthroat competition will quickly destroy the profit margin in a niche. Fortunately, you can do a lot to diminish this problem by selecting a niche that is well suited for dropshipping.
Also, you should focus on giving the customers additional value in form of listing comprehensive product information and specification, and also add extra beautiful user images. In this way you can win over a customer because they feel that they know more about what they are actually buying.
#2. Inventory Issues – Supplier Out Of Stock
If you stock all your own items, it is relatively simple to keep track of which items are in- and out of stock.
When you are sourcing from multiple warehouses that are also fulfilling orders for other sellers, inventory can change on a daily basis, and they may occasionally run out of stock.
However, you can always solve this misfortune with offering your customers a upgrade of the product to the same cost. Even that you may lose some money, or break even, you will get a happy end customer and keep your brand reputation up.
#3. Shipping Complexities That May Occur
If you work with multiple suppliers – as most dropshippers do – the products on your website will be sourced through a number of different suppliers / wholesale companies. This complicates your shipping expenses.
Take this scenario for example; if a customer places an order for three items, all of which are available only from separate suppliers. You will then incur three separate shipping charges for sending each item to the customer, but it is probably not wise to pass this charge along to the customer, as they will think you are grossly overcharging for shipping.
The rescue in this scenario is that more and more suppliers offer free shipping, so say that you find two of the items with free shipping and only one is charging for shipping, you will be okay. There is a but with this too though….often when sellers offer free shipping, the shipping cost is actually added to the price. If you still get a decent margin, I it does not matter.
#4. Suppliers Make Mistakes
Have you ever been blamed for something that was not your fault, but you had to accept responsibility for the mistake anyway?
Even the best dropshipping suppliers make mistakes fulfilling orders – mistakes for which you have to take responsibility and apologize to the customer. Mediocre and low-quality suppliers can cause endless frustration with missing items, botched shipments and low-quality packing, which can damage your business’s reputation. Try to research your supplier before dropshipping them.
Is Dropshipping Worth It?
As we initially warned, dropshipping is not “the all pink roses way” to build a successful eCommerce business. The model has some definite advantages but comes with a number of built-in complexities and problems you will need to be able to address.
However, The Benefits With Dropshipping Outweigh The Disadvantages As You Can See From The List
The good news is that with some careful planning and consideration, most of these problems can be solved and do not have to prevent you from building a thriving, profitable dropshipping business.
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About The Author
My name is Stina Pettersson. I am the founder of Make A Living From Home and Get Happy e-Deals. I am the author of the articles on this site. Originally from Sweden, but love the warm weather in Florida where I now reside.
I help people to start their own online business and make a living from home. I am especially fond of helping people interested in eCommerce – Amazon FBA, Dropshipping and Online Retail to get started and make a good living from home.
I hope I will get the honor to help YOU achieving your online success.
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