Very few people actually know what drop shipping is and may have never even looked into how online businesses work. To someone who is new to this term and looking to break into e-commerce scene, the process of drop shipping may feel a little intimidating because it can be difficult to find a reliable source that tells everything you need to know.
Understanding drop shipping:
In simpler terms, drop shipping is a type of business model that enables a company to operate without maintaining an inventory, owning a warehouse to store their products, or shipping their products to the customers themselves. Instead, when a store sells a product, it purchases the items from the third party and gets it shipped directly to the customers. The process of drop shipping includes:
- An order is placed by the customer for a product on the retailer’s online store.
- The order is manually or automatically forwarded along with the customer’s details to the dropship supplier.
- The supplier then packages and ships the order directly to the customer in the retailer’s name.
It is an extremely attractive model because it eliminates the requirement of the store owner to actually have a physical business location such as an office space or a warehouse. Uber, AirBnb, Facebook, Alibaba, Netflix and Instagram have one thing in common. Do you know what it is?. The Internet has brought in amazing opportunities to businesses all over the world. Drop shipping is another business model that can flourish by using the internet.
Benefits of Drop Shipping:
There are several different aspects of drop shipping that prove it is really beneficial:
Not much capital is needed:
The biggest advantage of drop shipping is that it requires extremely less capital. This makes it easier to set up an e-commerce store without having to invest thousands of dollars in inventory up front. In this process, you don’t have to purchase a product unless you already made the sale and have actually been paid by the customer. This makes it possible to start a successful drop shipping business with very less amount of cash. It also does not require any insurance on your end, keeping risk at a minimum.
Easier to start:
Unlike other businesses, drop shipping is much easier when you don’t have to deal with physical products. You don’t have to worry about managing or paying for a warehouse, packing and shipping orders, tracking inventory for accounting purposes, taking control of returns and inbound shipments, and continually ordering products as well as managing the stock level.
It can be run from anywhere:
The best part about the drop shipping business is that it can be operated from anywhere and does not need a physical location. You just need to have an internet connection. You can manage your business easily by communicating with your suppliers and customers on a daily basis.
Provide a wider range of products:
In a drop shipping business, you are not required to pre-purchase the products you sell; therefore, you can offer an array of products to your potential customers. You can list the products for sale if the suppliers stock an item without any additional costs.
In a drop shipping business, the overhead expenses are also quite low because you don’t have to deal with purchasing inventory or managing a warehouse. It is the reason that many successful drop shipping businesses run from a home office with just an internet connection. This can cost less than $100 per month.
For a traditional business, for receiving a profit you usually have to do three times of hard work. But with drop shipping suppliers, most of the work involves orders that are borne by suppliers. This allows you to expand your business with less hard work. The businesses that utilize the drop shipping scale work well as compared to the traditional e-commerce business.
Just like every business, there are some disadvantages that come along with many advantages of drop shipping. Following are the few low points that may link to the drop shipping business as it has slightly lower profit margins in comparison to sourcing from a manufacturer.
- Even when it is the supplier’s fault, the entire responsibility falls on you.
- If anything goes wrong. There is significant a lower level of control in drop shipping business because, for customers, the smallest things often count the most.
- There is always a possibility of issues due to delays in shipping of the products.
Just like any other business, drop shipping isn’t just perfect. Once it gets started and becomes a little stable, it can be turned into a money making machine, that only requires little input.