Drop shipping sounds great enough. The store doesn’t keep the products it sells in stock. What happens? The online store sells a product first and purchases the item from a third party and has it shipped directly to the customer. The merchant never sees or handles the product. It eliminates the need to have an inventory. You needn’t invest in stocking up, storage, shipping etc. Sounds great, I told you! So, can this ever be a profitable business model? Let us see.
There are two sides to the proverbial coin. Let’s look at the advantages first:
The capital required is less and it’s possible to launch an e-commerce store without having to invest thousands of dollars in inventory up front. You needn’t pay or manage a warehouse, you don’t have to pack and ship orders, you needn’t track inventory for accounting reasons or handle returns and inbound shipments. All you do is order products and manage stock levels. You can ideally run your drop shipping enterprise from your living room. All you need is a laptop and an internet connection.
And now, we look at the disadvantages of drop shipping:
The most visible disadvantage is that margins are low. The seller who sells to you names his price and you advertise the goods on your site with minimal markup. So, unless you are a huge volume player, you don’t make huge profits. That is the sad truth. So, in order to make the business profitable, it is prudent to push volumes! If your markup is on the higher side, remember your competitors win the game. It is just as easy for them to set up the drop ship shop, as it has been for
You don’t own inventory. And that’s a double-edged sword. You have no idea if the wholesale seller you liaise with has stock of the said item. If you sell a product on your site and send the order to the wholesaler and if he says he doesn’t have it, you are answerable to the client. You are the interface to the client and you face the wrath of the irate customer. So, the remedy here is to make sure you liaise only with partners whose inventory management is solid.
Shipping uncertainties can crop up any time. You just trust the wholesaler to ship to the customer.
Does he really do his bit? Does he do it right? You have no idea! If a customer places an order for three items, and they are from separate suppliers, you bear the cost of three separate shipping charges. This can bite into your profits majorly.
So, it makes sense to find every single opportunity to cut down on shipping charges. Have you signed up with LateShipment for receiving your refunds yet?
