THE PROS AND CONS OF DROP SHIPPING

THE PROS AND CONS OF DROP SHIPPING

Tuesday, September 1, 2015Kelly Nelson

For those of you who don’t know what drop shipping is, here is a quick run-down:

It is a fulfillment method that allows an online retailer to purchase products individually from a wholesaler and ship them directly to the customer.  This way, you just have to find a drop shipping supplier to partner with and list their merchandise for sale. It also saves you from buying mass quantities of inventory, and lets the supplier directly ship the product to your customer from their warehouse.

Like any fulfillment model, the success of it relies on a number of factors and variables. Make sure you do your research before investing in this type of model and ensure that it’s right for your company.

Here are a few of the pros and cons of drop shipping that may help you decide if it’s right for you.

Pro: Reducing risk

You don’t have to tie up a lot of your money and investment in inventory, and therefore, your risk is drastically reduced. So when starting a business, and things don’t necessarily work out, you can rest assured that you’re not losing your money to unpurchased inventory.

Con: Order processing can be a mess

There is no universal data format for billing, invoicing, managing multiple relationships etc. it can be very difficult to keep track, and could cause customer service issues for your store.

Pro: It is very scalable

You won’t need to manually fulfill each order using the drop ship model, so it’s easy to grow your store at whatever pace you want and continue with this model.

Con: There is an increase in competition

Drop shipping tends to be an easier option, which means that a lot of start-up eCommerce retailers choose this option. Because of this there are a number of retailers selling the same product and competing for the customer’s share of wallet.

Pro: Lower investment up front

With drop shipping, you can avoid the initial investment in product and inventory. Instead, you can focus those funds on improving your online store and marketing. You will only have to purchase the product when you have an order to fill.

Con: Low profit margin

It can be difficult to make a significant profit margin using this method. This makes it difficult for small businesses that can only compete using price. As we all know, the lower the price, the better it is on the consumer wallet, but not so great on yours as an online retailer.

Pro: Less hassle overall

As a small business, you won’t have to worry about a number of things with this method. These include: inventory, packing, shipping and of course storing products. With less headaches on the back end you’ll have more time to spend on revenue generating activities such as marketing.

We like to finish on a positive note!

Drop shipping works for many but not all; weigh your options and understand the impact each one will have on your business.

Please share your experiences with drop shipping below in the comment section.