What is drop shipping and is it effective?

With the booming popularity of online retailers in the modern world, there are several logistics approaches preferred by vendors and customers. Among the prevalent options, Drop Shipping remains a popular choice. However, we find ourselves asking: why is this approach preferred? The main reason remains the lack of warehousing requirements, saving cash and a considerable amount of effort required for inventory stocking, packing, shipping, etc.

What is Drop Shipping? 

As a retail fulfilment method, the process involves the company purchasing a bulk of items from the third-party supplier and shipping them directly to the customer. The seller is exempted from direct product handling and the middleman takes his cut. Does this sound familiar? Around 33% of the online retail stores utilise the method (Cannon, 2020). 

Due to the lack of demand for the traditional retail model, Drop Shipping is a great option for entrepreneurs as they don’t need to open up a brick-and-mortar store, pay the overheads and stock it up with the needed products. The easiest approach can be to open a storefront, buy wholesale products from the suppliers and sell them to the customers (Threlfall, 2021). A logistics manager ensures the whole process is streamlined and carried out as smoothly as possible, harbouring a simple business model that can be extremely rewarding. While the approach may not be suitable for every business, it can be tricky to manage. It provides efficiency and convenience to the wholesale buyers as it behaves as the primary factor that connects the two parties. Offering Drop Shipping to wholesale customers provides a business with an edge over its customers. 

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Benefits of Adopting Drop Shipping

The approach eliminates some of the most expensive phases within the retailer’s process cycle such as stocking, storing, etc. Some of the common advantages that make Drop Shipping worth the effort include the following: 

With less risk involved, the business only has to purchase the product that the customer has bought (Ferreira, 2021). This guarantees a chunk of the profit at the end of it. 

There is the very little overhead cost involved as the inventory and warehouse expenses are eliminated from the scenario. People can even run their businesses straight from their laptop as long as a logistics manager is involved. 

While start-ups take time to jump off, Drop Shipping is a quicker start-up as they don’t need to acquire a warehouse or hire people to manage the stock stored. 

Drop Shipping operations are easy to scale as the majority of the work remains with the suppliers. Even when you decide to grow your business and register more orders, your team would not get the extra burden the comes with it. 

This particular retail approach opens doors to a considerable range of evolving products by making them acquirable to the customers. It fits even better if you intend on capitalizing over the ranging trends and seasonal outcomes of customer activity. 

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Drawbacks of Adopting Drop Shipping

While Drop Shipping may feel like a holy grail within the retail world for some, certain disadvantages are clinging to the approach as we move forward. The biggest drawback of the process is the restrictive nature of the process when the company decides to partner with a Drop Shipping firm. Not only are the prices shared through the partnership, but all the fault and failures also belong to both of the parties. This takes most of the control away from your business and, ultimately, the customer fulfilment. However, other drawbacks of the approach include the following: 

Lower Profit Margins: Since there is a low barrier to entry in the space on the digital retail system, Drop Shipping businesses are often forced to price their goods for very low-profit margins. Big money flows into the system only when the business has been scaled and a stable customer base has been constructed (Johnson, 2019). 

Inventory Complications: Keeping a record of the inventory levels is difficult when you are not responsible for them. The data needs to be synced with the records of the suppliers to update the information on your website to prevent customer disappointment when the ordered product goes out of stock. 

Complicated Shipping: Drop Shipping tends to make shipping considerably complex as the supplier would need to check the customer’s location and the logistics involved with the product itself. There might be multiple rates involved where the outrageous price tag might not be acceptable to both parties involved. 

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Drop Shipping for Full-Time eCommerce 

An online business through Drop Shipping can be as big or small as you wish for it to be. Individuals often maintain the business as a side-hustle but some people adopt it as a career path as well. While scaling your business is easy with Drop Shipping, it can easily grow or shrink while the costs are actually kept down. Once the customer base has reached a considerable size and stability through enough sales, you can shift your business between part-time or full-time investments. For an online business, people can grow online at their desired pace. This will lead to more work but the pay-offs are often worth it. Once you can figure out how to employ Drop Shipping effectively, you don’t need to worry about getting an unsteady revenue. A properly established business for Drop Shipping functions like clockwork. A functioning business can work towards generating a passive income. 

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Conclusion 

Drop-Shipping may not be considered the perfect approach for all cases as it isn’t a stress-free way to build a successful online business (Coloso, 2017). Since the business is not as time-consuming as other side-hustles, the sky is the limit considering the Drop Shipping retailers. Maybe it seems like an impossible feat to accomplish as a full-time practitioner of Drop Shipping, there are thousands of success stories from the entrepreneurs who started with small businesses of Drop Shipping that grew to considerable heights. It does not take a major degree in business or a great deal of investment to make a living from it as it is considerably effective. 

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References:

Cannon, C. (2020). Key Statistics of Dropshipping Profitability. Retrieved from Shift 4 Shop Blog: https://blog.3dcart.com/can-dropshipping-be-profitable-check-these-key-statistics

Coloso, K. (2017). 5 Benefits Of Dropshipping And Why You Should Offer It To Your Wholesale Customers. Retrieved from Wholesale Suite : https://wholesalesuiteplugin.com/5-benefits-of-dropshipping-and-why-you-should-offer-it-to-your-wholesale-customers/

Ferreira, C. (2021). What Is Dropshipping? Retrieved from Shopify Blog: https://www.shopify.com/blog/what-is-dropshipping

Johnson, T. (2019). The Pros and Cons of Drop Shipping. Retrieved from Tinuiti: https://tinuiti.com/blog/ecommerce/pros-and-cons-of-drop-shipping/

Threlfall, D. (2021, Feb 15). WHAT IS DROPSHIPPING: THINGS YOU NEED TO KNOW BEFORE GETTING STARTED. Retrieved from Oberlo: https://www.oberlo.com/blog/what-is-dropshipping

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