The past year has been a challenging year for many of us. Most of us lost our jobs, and, thus, we encountered severe financial problems.
So, if you are looking for an online business opportunity, you have heard about dropshipping.
Dropshipping is a form of online business that can make a prospective eCommerce entrepreneur much money. You can start a dropshipping business with minimal initial capital and some sweat equity.
Once you’ve had some success, you can increase your business by devoting more good resources to advertising, marketing, and brand building.
But what is dropshipping, and why should you use it to achieve your business objectives?
Before you jump into it, learn about the model and see if you have a gem hidden that may take you to financial freedom in the future.
This article will guide you on all you need to know about dropshipping to understand it better.
Table of Contents
What is dropshipping?
Dropshipping is a type of online retail fulfillment in which merchants acquire items from third-party suppliers when customers place orders rather than storing inventory.
Following that, the third-party supplier will deliver the products to the customer.
This way eliminates the seller’s need to handle the merchandise directly. Are you still following me?
The retailer or online store owner has a relatively hands-off role in shipping the products and order fulfillment.
There is no need for the merchant to stock goods, and there will be no bulk orders or physically fulfilling orders. A third-party supplier will instead do all this for you.
Dropshipping benefits entrepreneurs because it requires less operational capital than the traditional retail model.
You are not required to establish a physical business. So you already save on costs related to renting brick and mortar stores. You can also skip hiring employees as you can initially do all the administrative tasks.
Managing inventory is also a gigantic task that requires a lot of record-keeping and monitoring. Add to that are the overhead expenses related to inventory storage.
Dropshipping eliminated all of the above for you.
Instead, you open an internet store and display products for your customers to see. You market and advertise them to entice buyers. If they are convinced, they check out your products. And that’s the only time you’ll make an order from your supplier.
Is dropshipping legal?
The answer is a big YES. Dropshipping is entirely legal as long as you secure all required seller permits. (just like in a typical eCommerce store)
After all, a dropshipping business is similar to any other online store except that a third-party provider handles the shipping while you take the orders. Many giant retailers have now allowed dropshipping, including Target, Wayfair, and Crate & Barrel.
However, dropshipping is not allowed on specific platforms like Amazon and eBay. For instance, the two platforms prohibit the dropshipping of goods from Amazon to eBay and vice versa.
Advantages and disadvantages of dropshipping
There are advantages and disadvantages to this business model, and it’s critical to consider them before starting your own dropshipping eCommerce business.
Advantages of dropshipping
A dropshipping business is simple to establish
A dropshipping business is simple to establish— you do not need prior business experience to get started with dropshipping. If you take the time to learn the fundamentals, you may launch your business quickly and learn the nitty-gritty stuff as you go along the way.
Dropshipping is simple because start-up costs are low, especially compared to other retail business models.
For example, you don’t need a warehouse to store your products or a team to assist you. Plus, you don’t have to think about inventory or shipping.
It’s surprisingly hands-off once you get started.
All of this means you can start your business right away. Everything can be up and running in a matter of hours. You will need some basic knowledge and the right tools and resources.
Dropshipping is scalable
As you grow, your business model doesn’t have to change much. You’ll have to put in more work in sales and marketing as your company expands, but your day-to-day operations will mostly remain the same, save from the processing of additional orders.
One advantage of dropshipping is that infrastructure costs do not skyrocket as you scale.
As a result, you have more funds to devote to your company’s marketing efforts. The more you concentrate on marketing your company and providing excellent customer service, the better off you will be.
Dropshipping does not need a physical location
You can efficiently run a full-fledged business from your laptop without any significant investments.
Advertising will be the most expensive part of your budget, which you can increase as your store’s popularity grows.
Even as your business expands, your operating costs will remain low, especially compared to traditional business expenses.
Dropshipping is adaptable
This reason is one of its most significant advantages. You can be your boss and make your own rules. It is by far one of the most adaptable careers available to anyone.
Working from home with merely a laptop allows you to work whenever convenient. It is perfect for business owners that want to run their operations from home.
To fulfill your responsibilities, you won’t have to lean over backward. After all, you are in charge of your schedule.
Dropshipping is also adaptable, allowing you to make the best decisions for yourself.
You may quickly add new products to your store at any time, and you can change your methods on the fly.
If you are going on vacation, you can automate things to create passive money while you are gone. You get the idea – the options are limitless.
Dropshipping is less difficult to manage
You can manage everything with little difficulty because it does not necessitate making significant commitments such as hiring staff or renting warehouse space. You are primarily responsible for managing your online storefront once you’ve found suppliers and set everything up.
Disadvantages of dropshipping
Dropshipping has slim margins
One of the downsides of dropshipping is that you should expect low returns at the start. That’s not to say it can’t be profitable, but you should be aware that product margins in some niches can be meager.
This issue is especially problematic when dropshipping to a super competitive location.
When you’re fighting for your customer’s attention, achieving the profits you desire can be challenging. However, if you select the right niche and target the right audience, you will gain more significant profit margins.
Margins are better in less competitive regions, but sales may peak at some point.
For this reason, the success of many dropshipping stores relies on highly optimized advertising to generate high volume sales.
Dropshipping can complicate order processing
Dropshipping seems easy. The customer places the order, edits it, and the supplier fulfills it. And in most cases, it’s easy.
However, there can be some issues when procuring products from multiple suppliers. Different suppliers may use other delivery solutions, which can be a problem for you and your customers. Depending on your shipping configuration, shipping costs can be high, especially if shipping multiple items.
Different providers have different processing and billing structures. It can sometimes be complicated because we need to manage our interactions with our suppliers.
Dropshipping doesn’t give you much control
One of the downsides of dropshipping is that you don’t have control over some aspects of the dropshipping process, such as product stocking, order fulfillment, and shipping.
You must rely on your vendors to get everything right and work seamlessly. This lack of control can cause some entrepreneurs to fail, but it’s more an exception than the norm.
It just means that it’s hard to solve when there’s a problem. While supplier issues can sometimes lead to custom\er retention issues, you can reduce them and minimize customer disruption with proper damage control.
Is dropshipping right for you?
Dropshipping is not for everyone. And this is certainly not a get-rich-quick ploy. But if you’re willing to accept the good with the bad, this can be an exciting endeavor.
When considering starting a business, you may have these reservations, but don’t let them hold you back.
If you think dropshipping can be a way for you to make more money and enjoy your newfound freedom, then give it a try.