The incredibly strong growth of the internet and the market penetration of eCommerce means that the way businesses work is evolving and changing, and an interesting trend is the emergence of dropshipping retail stores. It might sound like an easy way of doing business with less risk and less cash or capital needed, but unless you have the right supply chain strategy in place, it’s also a very risky business model.
What is Dropshipping?
Simply put, dropshipping is a way of managing the stock or supply of your products to your customers without needing to keep a physical inventory on hand. This means that when a customer places an order on your eCommerce or other delivery-type stores, you will purchase that item from your supplier and the supplier will ship it directly to your customer. This means that your business isn’t actually physically handling any orders or products, which has a host of benefits.
Some Benefits of Dropshipping
Some of the benefits are obvious, but others might be less so. Here are some of the top benefits of incorporating dropshipping into your business model:
- You need less capital – Because you’re not purchasing stock and keeping an inventory, you don’t need to pay for a stock that hasn’t yet sold, so you don’t need capital to purchase this stock.
- Quicker to get to market – It also has the added benefit of getting your business up and running and starting to trade much quicker, since you don’t need to wait for stock orders to arrive. Officecrave.com has some great tips on how to start a dropshipping business that you should read before you get started.
- Lower business overheads – You need less space and you don’t need to hire stock controllers or have inventory management systems. Since you aren’t actually handling any stock, the resources and space you need for a dropshipping business is minimal.
- You can work anywhere – Since you’re doing almost all your business online, other than perhaps the occasional supplier or partner meeting, you are free to work wherever you want to.
Some Disadvantages of Dropshipping
While there are plenty of great advantages, there are, of course, some disadvantages too. You should be aware of these disadvantages so you can plan and create strategies to negate their effect on your business and the experience of your customers.
- It is volume-based – Because of the inherent nature of the business, you’ll be looking to sell volume at low margins instead of making big profits. This is largely due to the competitiveness of the space.
- You’re relying on shipping and delivery partners – Because you’re likely going to be working with a few different suppliers, you need to make sure your shipping and delivery methods and processes are absolutely watertight because if anything goes wrong here, it can have a huge impact on your ability to do business.
As you can see, if you’re looking for a low cost of entry into the business and retail market, you might consider a dropshipping business. Don’t take your supply chain and partners lightly, however, as they can make or break your success as an online eCommerce store. The benefits of a dropshipping business are many, with the primary being that you don’t have to have any stock in order to sell something. And with the internet as your tool, it is easy for anyone to get started and succeed.