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Dropshipping – what is it and should I use it?

Dropshipping. You may have heard of the term, but not fully understood what it meant? Or you know of someone who is involved with it, but unsure of the actual process?

To put it simply- dropshipping is a method of ecommerce, where an online store sells products to consumers. Rather than holding the stock/inventory on site, it is purchased from a third party who then ship it directly to the customer. It can be seen as an attractive business model, as the store owner is not required to have a physical space, only needing a laptop and internet connection. Many established businesses with their own offices/warehouses also use dropshipping, as it can free up resources and space for other products.

Like with any business model, there are pro’s and con’s to this process. We’ve listed some below, to give you better insight and how it may/may not benefit your business.

PRO’S:

• Inexpensive to set up and maintain- holding stock in your own warehouse costs more. With dropshipping, you are leaving that responsibility with a company whom already have the product in stock and ready to go.

• Wide selection of products- you are able to offer more to your customers without the worry about prepaying for items, and as soon as a supplier stocks an item, you can list it on your website for purchase.

• Reduced losses on damaged goods- as the items are shipped directly from the supplier, the number of steps in the shipping process can reduce the risk of damaged items sent to customers.

CON’S:

• Managing the inventory can be tricky- with no onsite stock, you are solely relying on communication with the fulfilment agency to ensure your stock levels are adequate, which can see issues arise with cancellations and placing items on backorder.

• Complete liability when issues arise- given that the customer is purchasing from the retailer’s website, if the supplier makes an error, it is still the retailer’s fault as their brand is the face of the process (hence, you need choose a good supplier to work with).

• Tougher to differentiate- as suppliers have the opportunity to team up with more than one business, this may mean you aren’t the only one selling a particular product, and the more popular the product, the stronger the competition in the marketplace. One of the trickier aspects of using dropshipping is having customers visit your online store and make a purchase before they are lured in by your competitors.