DROP SHIPPING - PROS AND CONS
What are the Pros and Cons of Drop shipping?
The eCommerce industry has taken a modernised turn for today’s creative entrepreneurs. We call it Dropshipping. India is rapidly picking up the pace for setting up their dropshipping eCommerce businesses.
Dropshipping is a technique of running an eCommerce company where the seller does not have to manage the inventory, manufacturing and delivery of any orders placed. Whenever there’s an order, the seller just has to notify his/her manufacturer who prepares the order on-demand only, packs the order and delivers it to the customer. The seller doesn’t even get to see the product in physical sense.
This sounds so relaxing for the person who acts as a seller as it seems like there’s nothing to do for that person while making a business out of it. Strange, but true, that the dropshipping business takes a lot of stress away from the hero of the show and provides for a lot of time to make strategies to market the business and get orders.
However, dropshipping, being a revolution in Indian eCommerce industry, still has a lot to discover and adapt to. It has its own benefits and drawbacks. Let’s look at some major of them that you need to know before stepping into this new found ecosystem,
Dropshipping: The Pros
1. No stress about inventory
In a regular retail type eCommerce business, there’s an obvious requirement to maintain a huge inventory of products because they have to manufacture/prepare the products in bulk and fulfill the orders by themselves. Dropshipping technique has just freed the mind of such headache.
The term ‘Inventory’ does not exist here. You don’t have to amass the products in bulk, and worry about them getting damaged over time. You don’t have to track your inventory which could take up huge time and resources. You can directly focus on expanding your business instead of looking after the products for which you don’t have buyers as of now.
2. Low budget for business
For any business in India, especially eCommerce, entrepreneurs have to have a huge budget in place which they use for manufacturing/preparing the product, packing it, maintaining the records, delivering it to the customer and also managing returns and refunds.
But, dropshipping has significantly cut down the cost of all of this. The seller does not have to invest into anything until there’s an order placed and finally paid by the customer. So, the risk involved gets minimised enormously. The little money that’s needed is only for marketing the business and paying taxes to the Indian government.
3. Numerous products and varieties
eCommerce websites that run successfully in India have this in common - they offer variety. And, dropshipping has come to India at the best time when people are willing to explore products online and look for varieties so that they can have something that matches closely to their tastes.
With no boundations on maintaining an inventory and low setup cost, the added benefit that tags along is that the seller can provide huge number of variations for a single product. Moreover, a lot of other products can also be added very easily to the eCommerce website without thinking about the overhead. So, a wide range of products and immense varieties in each product type, this is such a great opportunity for every creative person who wishes to be an entrepreneur.
4. Low risk involved
The dropshipping online store has nothing running at the background that would produce harm of any kind. The inventory in normal retail online stores tend to pressurize the seller to get it moving on a regular basis, otherwise the products would become worthless soon. If it happens, it’s a big shock for the seller as all the money goes down the drain at once when the inventory is emptied.
In dropshipping, the seller doesn’t buy the inventory, in fact, he pays for the product only when he gets an order from his online store. This is such a safe and secured system where the seller is in no way at risk. If, by chance, he’s not able to market the product well and doesn’t get any orders, still he doesn’t have to pay for anything except the bad marketing he did. So, relatively, it’s a much safer side.
5. Location independent
The one amazing dream of today’s entrepreneurs - Work From Anywhere! Dropshipping offers this benefit as one of its characteristic that it won’t really matter from where the seller is operating unless he has a bad WiFi connection.
The seller can actually travel with his laptop and build his dropshipping eCommerce store and also scale it. He only has to take care that there’s no broken communication with his customers and manufacturers/suppliers, and this business can thrive easily.
Dropshipping: The Cons
1. Lack of control
Since in dropshipping business, all the activities are taken care of not by the seller but by some third party suppliers, it’s all a game of uncertainty. You can only trust them but can’t exercise any control over their activities. If any mishandling happens for any order, they won’t come into the scene at all. All responsibility will be of the seller as the customer placed the order from his website.
2. Little profit margins
Setting up a dropshipping eCommerce store is a very low cost job. This tricks the seller into agreeing for low profit per order. Considering the amount of work done by the supplier company, they are entitled for the maximum part of the money. Now, if the product can be sold for a better price and the seller markets it in such manner with a beautiful website and great product choices, then it truly depends upon him for the price he quotes to the customer. In this case, the margins grow.
Sadly, the sellers who don’t take it seriously and try working out with a bad online presence, they have to compromise over very slim margins.
3. Unsteady demand management
Since the seller in dropshipping does not have any track of his inventory, he would undergo losses because of the unavailability of enough products at the supplier. Now, orders can’t be predicted. If suddenly the demand rises for any product, the seller won’t get to know that the stock isn’t available and it will take more time.
The third party supplier is doing the same thing for a lot of sellers together, and so it becomes difficult sometimes to monitor this scarcity. Also, all these suppliers are not that supportive in terms of updating their sellers about their inventory. It becomes a real challenge for the sellers.
4. Poor suppliers management
When the seller takes service from more than one suppliers, a major issue comes up while shipping. The seller has to get the products shipped to the customer individually even if the customer placed the orders in one purchase. Due to this, the customer will receive the orders all at different times and will have to pay the shipping charges on all the products separately.
This is just not fair for the customer, and will simply piss him/her off from your customer service. This can be solved if the seller keeps all his suppliers synced, which is very difficult. Another way to improve the situation is to identify a supplier who can handle all the orders of the products you want to sell on your dropshipping eCommerce store alone. This would reduce the confusion and the customers will receive the orders with single shipping charge.
Dropshipping an easy to do eCommerce business for any new comer in the industry but the he needs to be well aware of the technology involved and other risks that we discussed. The new entrepreneurs can try their hands in this only if they're ready to face these challenges because the positives of dropshipping attracts many at first sight.
With cautious and smart decisions, any dropshipping online business can be built and thrive.