What is Dropshipping?

Dropshipping is a retail fulfillment strategy for online businesses in which eCommerce acquires merchandise from third-party suppliers as shoppers place orders in real-time. For the merchant, inventory, shipping, and fulfillment is a hands-off process managed off-site by a third-party vendor.  When a customer places an order, a dropshipping supplier will manufacture and ship products on a seller’s behalf.

What is a Dropshipper?

A dropshipper is a manufacturer or supplier overseeing a retail merchant’s inventory and order distribution.  Because the bulk of running a business is managed by the dropshipper, the merchant’s main responsibilities are marketing their brand, attracting customers, and pricing items for a healthy profit margin.

How Does Dropshipping Work?

Dropshipping is relatively simple and consists of two steps.

  1. Dropshipping is an online business model that provides inventory, warehousing, packaging, and shipping on behalf of a seller.
  2. When a shopper places an order, that order is relayed back to a seller’s dropshipper. The seller will purchase said product(s) in the order, and the dropshipper will manufacture/create the order, package it, and ship it directly to the customer.

Learn How Dropshipping Compares to a 3PL

The Advantages of Dropshipping

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 dropshippper’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 huge green flag for start-up eCommerce is the little to no start-up cost that dropshipping provides.  To get started, simply choose your products, connect them to your store, and pay once a product is sold.  With no fulfillment processes or inventory to worry about, start-up costs are low and it’s relatively quick to get the ball rolling.  

No Fulfillment Responsibilities

Compared to other eCommerce, 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. 

The Disadvantages of Dropshipping 

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

With a lack of control, comes a possible lack of quality.  If a seller is unaware of the quality of product their dropshipper is providing, a customer may contact a seller over a quality issue the seller never even knew about. Additionally, there is no way for sellers to quality control any inventory being sold to customers beforehand.  This could result in damaged items, damaged packaging, complaints, and possible unhappy customers.

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.  Limiting branding limits the perspective your customers have of your company.  What is to distinguish you from millions of Amazon sellers?

At the end of the day, dropshipping is the perfect fit for many people and night quite the right one for others.  Understanding and deciding the pros of cons of dropshipping and in what ways dropshipping could affect you and your business is important when deciding on the future of your eCommerce.  If you’ve outgrown your dropshipping business model, you’re looking to scale, or are interested in discussing what a 3PL can do for you, contact one of our agents today.

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