Insight to Dropshipping eCommerce : Pros & Cons
Dropshipping is a new concept of a online store which does not have any products in stock. Products are listed on you eCommerce website but third party suppliers completes the sales order and ships on behalf of you. Sounds easy and low risk? lets discuss further the advantages and challenges on drop shipping industry. Said that, with right strategies and carefully selecting the products to sell you will still find success on this online business.
“If you are a startup, it is difficult to just start with dropshipping. But if you have an established online store or an eCommerce business, drop shipping can expand your product range and boost your profit.”
5 key facts you need to know before starting a Dropshipping eCommerce business
- Less profit margin
You already know that the investment for a drop shipping business is quite low with compared to standard eCommerce business. The main cost is setting up your eCommerce website. No overheads at all. But the universal truth is you put less money in you take less out. This most probably not going to cover your Google or Facebook ads / marketing costs.
Most dropship wholesalers discount less than 20%. Yet this is not the net profit. You have to further discount to be competitive in the market.
As mentioned earlier, you need minimum funds to kick off a drop shipping business. Because of this exact reason of low barrier to enter, there are many on this business and you will find 100 of similar product sellers online. You can keep cutting your margin to be sustainable but not for long.
3. Minimal control over the supply
You a the contact person for the customer if there is any complains or questions such as shipping policy, return policy or quality. Yet you have to depend on the supplier before come to a conclusion. This process takes time for the back and forth discussion which often puts the customer in a uncomfortable position.
All the dropshipping companies aren’t legit. There are some cases some supplier use logos and trademarks without the consent of the owner. In local context you will be selling the product and ultimately liable for any consequences comes out as result of the sale.
5. Hard to build your own brand
Your are basically selling someone else’s product and spending thousands of dollars to develop their brand. End of the day the customer will remember the brand of the product not your business.
4 Important tasks to complete before jumping in
- Market research
You can trial as many products as you wish. But to secure any sale you will have to do marketing which you will have to carefully find out which products to focus on.
2. Backup suppliers
Once you realized best selling products, have couple of alternative suppliers lined up. This is to make sure you have a reliable supply chain if one fails. You can find suppliers from a directory such as SaleHoo.
3. Shipping costs
Most of the dropshipping eCommerce owners falls on to this trap. Or neglect completely that they have to pay for the shipping. Based on the product you sell, it may be not worth the cost of sending that far. Or higher charges due to the nature of the product such as hazardous goods.
4. Store some products
It is much profitable to store some of the products you sell. These could be small low value items.