A drop shipping business allows you to sell products without having to worry about the stock, or the logistics.
In the drop shipping business, you get into a partnership with manufacturers, suppliers or wholesalers, who wish to sell your products using the platform provided by your business.
In this sense, drop shipping seems to be an ideal business model for many e-commerce enthusiasts.
But, with all the advantages and benefits that come with this type of business model, come a few pitfalls that you need to watch out for.
Pros Of Starting A Drop Shipping Business
- No Hassles Of Maintaining Inventory
When it comes to maintaining and inventory, drop shipping allows you to stave off the problem completely.
It can be a hassle to keep your inventory up to date, manage the selling of almost-obsolete products in stock, maintenance of quality and so on.
You do not have to maintain warehouses for storage of inventory, nor do you have to deal with the inconvenience of tracking it regularly. Drop shipping lets you shift all your efforts towards more core business problems.
- No Logistic Maintenance Issues
As a drop shipping business, you work with external support for carrying out the different logistical responsibilities. You work with a logistics and supply chain management service to execute the delivery and other logistics related to the product shipment to the end customer.
- Saving On Inventory, Logistics And Other Costs
Since you do not hold any stock of products, you do not have to bear the costs of managing and storage of the products you will be selling through your platform.
By going with a drop shipping business model, you also save by not having to invest on shipping and logistics. No matter what products you are selling, you do not have to invest on labeling, packaging or shipping costs.
You can partner with external support for carrying out the entire supply chain management and execution for the products you are selling.
This means that you do not have to keep a whole set of people on payroll to maintain the inventory, handle the logistics, and carry out the delivery of your products.
With this approach, you can save a lot on costs that would otherwise be incurred on different aspects of your business. A great way to start a business in a lean manner!
- Selling A Variety Of Products
Drop shipping business allows you to provide customers with a good variety of products. By getting different manufacturers on-board, you can offer a plethora of products across categories and showcase a wide variety.
Customers love to choose amongst variety, especially online, and this is definitely a huge plus.
- Lower Risks
You do not have to worry about stocks of inventory lying unused and the losses that are incurred as a result.
You do not have to stress over the risk of obsolete inventory lying in warehouses. You can simply put up products on your platform as and when they are available.
Drop shipping business can allow for a smooth and streamlined process for carrying out your business goals by minimizing the risk of maintaining the inventory, lowering overall business costs and allowing you to focus on responsibilities other than maintenance of inventory or shipment and delivery.
Cons Of Starting A Drop Shipping Business
- Latent Cost Of A Drop Shipping Business
If drop shipping helps cut down on costs incurred on supply chain management and maintenance of inventory among other things, a latent cost is incurred by the absence of bulk pricing.
Because you will handle each item separately in most cases, you will not be able to avail the profits you could get from bulk pricing of your products.
- Increased Shipping Costs For Customers
High shipping costs can be a turn off for your customers, which is not a good sign for your business.
As you will be dealing with multiple logistics and delivery service providers,you will have to charge a high cost for shipping to your customers in order to balance out your profits and losses.
- Lack Of Control Over Suppliers
You will not have control over your suppliers which can render your business unreliable and for which you will be held accountable.
If your suppliers are not providing a satisfactory experience to your customers, it can leave a bad impression on them for your business. It will be your business that will be held responsible.
If you want to get a feel of how an existing drop shipping business works, and the metrics involved, you should check out ExchangeMarketplace.
ExchangeMarketplace is a platform owned by Shopify, and they allow digital entrepreneurs buy and sell existing drop shipping businesses with metrics and revenues measured by the platform.
You can visit the website and see the variety of drop shipping businesses for sale, and study the performance and metrics.
Then you can check each of the individual store websites to get a sense of the products they sell.
Be sure to check out their social media pages too to get more insights into any existing drop shipping business you may come across there!