What is Dropshipping?

Dropshipping involves an e-commerce fulfillment method where online retailers source products from third-party suppliers upon customer orders. This model effectively delegates inventory management, shipping, and fulfillment responsibilities to external vendors, alleviating merchants from these operational tasks. When orders are received, dropshipping suppliers take charge of product manufacturing and shipping, acting on behalf of the seller. However, it’s important to weigh the pros and cons of dropshipping.

How Does Dropshipping Work?

Dropshipping is relatively simple and consists of two steps.

1. In dropshipping, an e-commerce model, inventory, warehousing, packaging, and shipping tasks are managed by a third-party on behalf of the seller.
2. When a shopper places an order, the order is relayed back to a seller’s dropshipper. Subsequently, the seller will purchase the product(s) in the order, and the dropshipper will proceed to manufacture/create the order, package it, and ship it directly to the customer.

LEARN HOW DROPSHIPPING COMPARES TO A 3PL

It’s likely that start-ups and first-time business owners are interested in the dropshipping business model because of the seemingly off-the-bat benefits.  Let’s take a closer look at the pros and cons of dropshipping.

No In-house Inventory

Managing your own inventory is stressful.  Fulfilling orders, managing returns, and overseeing customer service consume a lot of time and focus.  With a dropshipping business model, the inventory of a seller is directly managed by the dropshipper’s warehousing facility, along with order returns and basic packaging needs.  This reduces overall costs by eliminating personal fulfillment expenses, the need for employees, and the need for inventory space.

Little Start-up Costs

A significant advantage of start-up e-commerce is that dropshipping facilitates minimal initial investment. Essentially, you only need to select your products, integrate them into your store, and pay when a product is purchased. Consequently, without the burden of fulfillment processes or inventory management, start-up expenses are minimal, enabling a swift launch of your business.

No Fulfillment Responsibilities

Compared to other e-commerce, sellers who are using a dropshipping business model do not have to worry about other areas of fulfillment.  With no inventory or packaging to manage, sellers can focus on creating products and advertising them to the right audience while their dropshipper does most of the work.  This appeals to first-time sellers, new entrepreneurs, and those wanting to sell with minimal responsibility.

While there are many benefits to dropshipping, it has its equal share of disadvantages.  Let’s consider a few examples and how they compare to the upside of dropshipping.

Loss of Control

One of the disadvantages of dropshipping is the seller’s lack of control.  Since brands do not have to manage their own inventory, fulfillment, and order shipping, they lack the means to customize the customer’s shopping experience.  This often results in generic packaging, average or extended delivery times, and possible quality control issues.

Quality Control

Without control, there’s a potential drop in quality. Furthermore, if sellers are unaware of their dropshipper’s product quality, they may face customer complaints they weren’t expecting. Moreover, sellers lack the ability to inspect inventory prior to sale, potentially leading to damaged items, packaging issues, and customer dissatisfaction.

Branded Shopping Experience

Yet another downside of loss of control over certain areas of your business, is missing out on providing a branded shopping experience to your customers.  Although some dropshippers allow for some package customization, there are few options when compared to fulfilling on your own or with a 3PL.  Restricting branding narrows the perception your customers hold of your company. Without a distinct brand identity, how will you differentiate yourself from the multitude of Amazon sellers?