If you are looking to start an online retail business one option you have is to start dropshipping. However, dropshipping is not for everyone and it comes with both advantages and disadvantages. Here are the main pros and cons of dropshipping you should know about before embracing this business model.
Pros of Dropshipping
First, let’s hear the good news and what are the pros of dropshipping.
- Lower Overall Risk
As a retailer the biggest problem for you will be the need to sell all of the inventory you have in stock. What you don’t manage to sell just becomes an expense and you don’t want that. With dropshipping, these risks are gone as you get to aling your store with what your customers really want and you pay only for what you sell.
- Low Inventory Cost
If you own a warehouse you’ll find the cost of keeping your own inventory to be one of your primary money-suckers. But in a typical retail fulfillment model, there’s no way around this. Dropshipping enables you to focus more on building your brand and strengthening your connection with the customers instead of wasting time and money on these issues.
- Lower Startup Costs
Starting a retail business is not cheap.Even before you really have customers, you need to have a significant inventory and that requires a good deal of capital. This means you are getting into a big risk. What if the customers don’t like or want or need what you are selling? You’ll end up with a full warehouse of items you can’t do anything with. With dropshipping you don’t need to have starting inventory. Once you find customers, you can start thinking about inventory.
- You can Offer a Wider Variety of Products
With dropshipping you can offer a larger variety of products to your customers and not worry about warehouse space and overhead costs. Think about it. What do customers want the most? More choices.
Okay, those were the pros, now let’s talk about the cons of dropshipping to give you a full picture.
Cons of Dropshipping
- It’s Highly Competitive
You didn’t really think you were the only one to think about this did you? Dropshipping has been around for years now (since 2006) and dropshippers come and go all the time because it is so highly competitive. It all comes down to lower entry capital. True it’s lower for you, but also for everyone else, so get ready for some tough competition.
- Profit Margins can be Very Low
Great, now need to stock inventory, low entry cost, low overhead. Sounds like a perfect deal. But guess what else is low. Profits. As a dropshipper, most of the money won’t go your way, but toward the wholesaler who supplies the goods. You need a lot of orders just to get above zero and make some profit. And then you need to start thinking about how to manage sales orders, marketing expenses, keeping your own website and all that stuff.
- You’ll Have Less Control Over the Supply Chain
You win some, you lose some. If you hand over the reins to someone else, you lose much of the control over the carriage and that’s exactly what happens here when you let someone else handle your shipping process. What if the supplier screws up the shipment? Who will the customer blame, you or him?
- Potential Legal Problems
Most new dropshippers think it all comes down to finding the cheapest supplier. But what if that supplier is not legitimate? A lot of wholesalers come from way of China and Asia and there’s usually no telling where they got their inventory from. Also, what if the supplier uses a trademark or logo that is not his? The moment you try to sell these items, you become complicit. The best way to avoid this is to use a Dropshipping Agreement Contract.
As you can see, dropshipping is not all black or white. It has both advantages and disadvantages, like any other business model. Hopefully, you now understand the pros and cons of dropshipping and what you’re getting into.
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