Dropshipping is a new modality of e-commerce that is increasingly fashionable, especially in stores that use eBay as a platform.
In the US they have been taking advantage of this formula for years, and for a while now companies have also signed up, especially from China with really adjusted prices.
In this article, you will know why we recommend creating your online store with dropshipping. At least until the sales volume is quite high.
What is dropshipping?
The dropshipping is an e-commerce business model with the big difference that the seller does not need to store the products or have stock since all logistics management is the responsibility of the wholesaler.
In other words, 3 participants come into play in this business: customer, seller and wholesaler or dropshipper. In a typical e-commerce business, the process to follow would be for the seller to buy the products from the distributor and store it at their facilities, at the time the seller receives an order from a customer, the seller will process the product. order and send the product to the customer.
On the other hand, in the dropshipping mode, the seller does not have stock by himself, but has the wholesaler or dropshipper at his disposal, then at the time of receiving the order instead of processing it and sending it as we would in a normal case, the seller contacts the wholesaler so that it is he who sends the product to the customer.
Advantages of dropshipping
1. The necessary initial investment is minimal
Thanks to the numerous savings in infrastructure and consequently in personnel, the only costs come, in the beginning, from the hand of the web design, which you can start very cheap and easy using a platform like Shopify , in addition to the costs of have a company or be registered as a freelancer. Later we will have to add promotional and customer service expenses, as in any store.
2. You do not need to have an infrastructure for product storage and shipping processes
Being the wholesaler in charge of logistics we save the need for space and personnel to handle it.
3. You have all the stock that your wholesalers have
You are no longer limited by the stock of your warehouses nor should you be aware of stock breaks, you will always have the stock of your supplier. The larger the supplier size, the smaller the stock problems.
4. Your list of products is always updated
Many of the dropshipping providers have fully updated systems available with the product catalog, from which we can automatically feed our website to always be up to date. In some cases, the process must be manual.
5. Do not take care of the logistics process
You forget to negotiate with courier companies and have to contact them every time an order arrives. The dropshipper will do it for you.
6. You partially disregard the issue of returns
In some cases, the problems regarding changes and returns are solved by the wholesaler himself, with a certain cost obviously.
Disadvantages of dropshipping
1. Very limited margins
As the dropshipper handles most of the processes associated with distribution, the price of the products is higher, so if you want to be competitive, you will get limited margins. Depending on what you save in logistics, the play may go well or badly.
2. Customs problems if your supplier does not reside in the same country
Finding distributors that offer the dropshipping modality in your country is quite difficult, and if you are also looking for a specific sector, the search is much more complicated. In the US and China, there is a good offer of dropshippers but shipments must go through customs and there is a certain probability of encountering problems.
3. Delivery times if your supplier does not reside in your same country
It is quite common to find stores that serve in 24 or 48 hours maximum, and if your provider resides in your country, it will surely offer these terms. The problem comes when the dropshipper resides outside your country, which in addition to lengthening delivery times, possible delays come into play that can cause your customers to back down.
4. Extra work in terms of taxation if your provider does not reside in the same country
Making operations outside your country means an increase in work to have your accounts in order, this can mean a higher cost of your accounting-tax agency and the need to have some paperwork in order depending on the country.
5. Suppliers of doubtful reputation
There are quite a few suppliers that directly turn out to be fraudulent companies or that do not comply with what was agreed, so there is a high risk of fraud if we do not document ourselves well and go to specific listings, such as Salehoo, of dropshippers that have verified the legality of the suppliers that list.
6. The cost of transport is usually not negotiable
The transport cost per order is usually set by the supplier, according to their negotiations with the courier company, and is usually not negotiable. Here we lose the factor of choosing the courier company that best suits our characteristics.
7. Legal loopholes and liability issues
In South America, there are many sellers who take advantage of the benefits of dropshipping to sell on eBay, but many of them are not even within the law. There is great legal ignorance by entrepreneurs around the world about the conditions they must meet to operate normally, so it is more than advisable to seek professional advice in this area. In addition, there are risks in terms of liability for misuse or for a product in poor condition, so it is necessary to have civil liability insurance.
As we have seen, setting up an e-commerce business based on dropshipping has a number of advantages and disadvantages compared to common e-commerce businesses. Although a thorough study is needed to assess whether we are interested in this modality, dropshipping is a very attractive business for the novice or no-capital entrepreneurs, since it is possible to start the business with really tight costs.