With the pandemic throwing a monkey wrench in business logistics all over the globe, companies have been resorting to alternative methods of service delivery to meet customer demand. To avoid overstocking and understocking, a number of businesses have adopted dropshipping as an alternative means of eCommerce, especially since the pandemic has accelerated the growth of eCommerce by $218.53 billion in 2020-2021 alone. Store closures and the reallocation of consumer dollars saved on commuting and other work-related expenses increased the demand for online retail despite the negative effects of the COVID-19 pandemic. This should be taken as an opportunity to open up new opportunities for growth and expansion.
Dropshipping is a method of retail fulfillment that doesn’t necessitate a store, online or otherwise, to keep the products it sells in stock. The dropshipping model allows stores to purchase items from a third party and have them delivered directly to the customer. This removes the burden of product handling from the store’s shoulders and allows them to work with multiple suppliers to ensure that orders are always filled.
A dropshipping automation tool enhances the efficiency of your eBay dropshipping business by automating key tasks such as product listing, inventory management, and order fulfillment. This ensures that your listings are always up-to-date and that orders are processed swiftly, reducing the chances of errors and stockouts. By streamlining these operations, the tool allows you to focus more on marketing and customer engagement, ultimately helping you grow your business more effectively.
It should be noted, however, that dropshipping isn’t as easy as it seems. It may offer some benefits over traditional retail methods, but it can be hard work. That’s why it’s important that you approach it the right way and not treat it as a get-rich-quick scheme.
Dropshipping Business Considerations
Before adopting dropshipping as a business channel, you should first consider how it fits into the big picture. It will help you ship products from an online store without the hassles of stocking inventory, but it’s not as easy as it sounds. Below are a few things to consider before putting all your eggs into the dropshipping basket.
- Building a brand is hard.
Because you’re sourcing products from a third party, all credit for your work goes to them. If the product is exceptional, customers will focus on the brand instead of the shopping experience you provided, no matter how excellent that may be. This is the main reason dropshipping is more appropriate for companies that have already made a name for themselves. - Profit margins are low.
One of the main reasons companies create online storefronts is the low overhead costs. You should take note, however, that it can be hard to turn a profit because most of the money goes to your supplier. The money you put out is directly proportional to the money that comes in. The smaller the money you put out, the smaller the returns. This an important consideration because what you get from dropshipping may not be enough to cover your operating costs from marketing, managing orders, and maintaining your website. You also have to consider all the other expenses on top of these, which will affect your profit margins. Your prices need to be competitive, too, otherwise, your competition can undercut you. - You have no control over the supply chain.
Traditional retail and eCommerce allow you to control every aspect of your business so you can address issues promptly and make modifications at a moment’s notice. In dropshipping, you’re at the mercy of your suppliers when there are quality issues and other complaints about the product. The customer will talk to you, however, because you’re the one who did business with them, and they will expect you to fix any problems. All you can do in such cases is to relay the complaint or issue to your suppliers and hope that they address it promptly. There will also be an inevitable delay in communication because you will act as a “middleman” between your supplier and the customer. If suppliers are slow to reply, this puts you in a bad light and could lead to not-so-stellar reviews or a ruined brand reputation. - It’s a highly competitive market.
The low capital requirement and overhead costs are very attractive features of dropshipping, and are mostly the main reasons why many jump into it without considering the additional expenses and other factors that can affect the profitability of a business. This low requirement to get into the dropshipping business means that there’s fierce competition in the market, and more established companies are dominating it. These larger companies can afford to lower their markups and make their pricing schemes more competitive. If you’re a small business that’s just starting out with dropshipping, larger companies with more resources can undercut you, especially if you’re selling the same products. Check your competitors before jumping into the dropshipping bandwagon. - There can be legal liability issues.
This isn’t a common issue but something worth mentioning because dropshipping involves working with a third party. As such, the legitimacy of suppliers is always under scrutiny because you don’t always know where their merchandise comes from. There are some suppliers that illegally use trademarked company logos to deceive companies into working with them. Before signing an agreement with a supplier, do your due diligence to ensure that you don’t put your company in hot water.
How Dropshipping Can Boost Your Business
Dropshipping may not be enough to support a business on its own, but its benefits still make it a viable option for aspiring entrepreneurs. Because it’s easy to start and little capital is required, it provides room for experimentation of different business approaches. It also helps you learn about choosing what products to sell based on what’s in demand in the current market. By taking note of the considerations mentioned above, you can take a more informed approach to dropshipping and enjoy the following benefits.
- It protects you from overselling.
Regardless of your familiarity with the market, fluctuations can be very hard to predict at times. Some companies overstock to meet the high demand for certain products, but this raises inventory costs even if the returns aren’t definite. Dropshipping protects you from these uncertainties while also ensuring that orders are filled promptly despite demand spikes. You can even use it as a backup in case unforeseen circumstances render your warehouse unusable or if there are surprise shipping delays. - It eliminates product maintenance costs.
Depending on the products you sell, stocking and shipping costs will vary. Certain products cost more to ship than others, and in such cases, dropshipping may be a more practical approach. There are items that are considered high-maintenance products, including the following:- Valuables: high-value items require more security measures that aren’t offered in all warehouses
- Fragile products: To avoid accidental breakage of fragile products, special care is required during shipping, which incurs additional costs
- Large products: Certain products can eat up large amounts of space in the warehouse that their sale doesn’t make up for the excessive storage fees
- Heavy products: Shipping costs vary by weight, and heavier products cost more to ship
- Perishable and other products with special requirements: If your inventory comprises products that require special conditions for storage or shipping, dropshipping may be a more viable alternative
- It provides a vast product selection.
With no need to pre-purchase the products you intend to sell, you can expand your catalog and offer merchandise that’s most in-demand. Whenever your customers are looking for a certain product and suppliers have them in stock, you can list it for sale and have the item ready for shipping with no additional storage and handling costs. - It’s easier to scale.
In traditional retail, orders doubling in number means the work also doubles. Dropshipping avoids this by transferring this burden to the suppliers, who are the ones who handle production, anyway. This allows you to scale your business with minimal growing pains and incremental work. Of course, scaling any type of business entails extra work. However, it’s significantly less when you use dropshipping compared to traditional retail methods.
Dropshipping for Business Growth
Although dropshipping itself requires some hard work for it to be profitable, there are undeniable benefits for both small and large businesses. It works as an excellent complement to an established eCommerce channel and can act as an avenue for market research. Also, the challenges faced diminish and become less relevant as a company grows, and grows it will, with the help of dropshipping in these relatively uncertain times.