8 Pros and Cons of Dropshipping

What is drop shipping?

I have already written a post on dropshipping but here are some pros and cons of dropshipping discussed in further detail. Dropshipping is a method of trade whereby the product distributor sends the purchased product directly to the customer. The seller acts as a middle man and does not come into contact with the product at all. The customer buys the product from the seller at a fixed price. The seller than buys the product at a lower cost from the distributor and makes a profit from the difference between the two prices.

Drop shipping Pros

1. No inventory needed
   You don’t have to fill up your bedroom, garage, attic with lots of boxes of goods that may or may not be eventually sold.
2. No cost of having goods delivered to you
   You don’t need to arrange and pay a carrier to transport the goods to your house / warehouse (if you run a large operation).
3. Spend more time on other parts of your business
   You don’t need to spend time on the logistical parts of your business like packing and shipping of goods. This gives you much more time to focus on getting customers for your products (marketing efforts).
4. No packaging required
   You do not need to spend money on parcels, boxes or envelopes for packing purposes

Drop shipping Cons

1. Can be more expensive than ordering an inventory
   With dropshipping, the unit cost of each product is usually higher than if you bought a large quantity in bulk. This is because the supplier needs to cover their end of the operation where packing and shipping costs are concerned. Hence, your profit margin is reduced.
2. Shipping Problems
   Although you are not the one physically packing and shipping the items, you are still responsible for loss of packages. You can’t just tell your customer, ‘Hey, I already placed the order and it’s not my fault it didn’t arrive. The supplier messed up’. You will need to appease the customer and do damage control even if you are just a middle man, or your reputation will be greatly hurt and this can affect sales.
3. A number of distributors are not consistently good dropshippers
   Some distributors refuse to dropship because of the paperwork involved. When many different sellers contact them for dropshipping, it can be heavy on manpower costs. They just prefer to sell in bulk as inventory to big-time resellers.
4. What if the distributor runs out of products?
   This can happen and in fact it happens very often. Most dropshippers just want your business and may not tell if you they are running low on supplies. If they do a backorder because they have run out of items, your customers need to wait longer. Some customers are not that understanding and may make a complaint against you for non-arrival of items / not sticking to stated delivery times.

Tagged as: Dropshipping, Suppliers