Drop Shipping: Ups, Lows, And Everything You Need To Know
With the continuous growth of e-commerce, geographically-constrained consumers no longer restrain today’s market flow of demand. One of the perks of having the Internet is allowing retailers, regardless of how big or small, to market and sell their items to pretty much anybody, anywhere in the world. Among the fast growing trends of today’s e-commerce is drop shipping.
But what exactly is drop shipping?
Drop shipping is a form of retail fulfillment wherein the retailer does not keep their products in stock. Instead, the retailer transfers the customer’s orders to a third party who will then fill in and ship the items directly to the consumer. The third party could be any of the following: a manufacturer, a wholesaler, a distributor, or another retailer. As a result of using this method of retailing, the retailer does not handle stocks or own inventory of the products being sold.
The Supply Chain Of Drop Shipping
The supply chain is a term used [in any businesses] to define the sequence of or production and distribution of a particular commodity. In simpler words, the supply chain is the process a product undergoes from conceptualization to manufacturing, before finally landing in the hands of a consumer. In drop shipping, there are three supply chain players involved: the manufacturers, the wholesalers, and the retailers.
Manufacturers – are the ones who create the product and don’t usually sell them directly to the consumers. Instead, they offer their goods to wholesalers and retailers. Buying straight from a manufacturer is the cheapest option to buy items for resale, but most of them require a minimum amount of purchase that you have to fulfill.
Wholesalers – typically buy products in bulk from the manufacturers and sells them to retailers. They mark the products up slightly, and they rarely have minimum purchase requirements.
Retailers – or merchants are entities that sell marked up goods directly to the public.
Having just discussed the supply chain of drop shipping, you will notice that “drop shipper” is not listed above. Why? It’s because drop shipping is more of a service and not a role. To put things into a simpler context, any of the three mentioned above can be the drop shipper.
The Process Of Drop Shipping
Drop shipped items undergo four steps before they are fulfilled. In this section of the article, we will have a look at the step-by-step process of drop shipping.
Step One: The customer places an order through an online store. The website will accept the order, and the customer will then pay for the item. The payment will be deposited directly to the online store’s account.
Step Two: The online store will fulfill the order for the customer, and forward it to the supplier (could be a manufacturer or wholesaler) and pay the wholesale price of the item and shipping. The supplier will then generate an email confirming the [online] store’s purchase, and the store will forward a closely identical confirmation email to the customer.
Step Three: Assuming that the item being purchased is in stock, the supplier will then prepare the package and ship it directly to the customer. The online store will receive an email from the supplier, stating that the order has been shipped along with its tracking number.
Step Four: The online store will inform the customer that the order has been shipped and will forward the tracking number via email. After having collected the payment for the item, on the way for shipping, and the customer informed, the fulfillment process of drop shipping is complete.
The Advantages of Drop Shipping
1.Drop shipping does not require a huge capital
This is most likely the biggest advantage that comes along with drop shipping. You can start your very own e-commerce site without the need to invest thousands of dollars in your upfront inventory. Additionally, as drop shipping basically works by taking orders from customers and passing them onto a supplier to be filled in and shipped, you won’t have to make a purchase unless the sale has already been made and paid.
2.Drop Shipping is easy to set up
Any type of e-commerce business becomes a lot easier to handle when you don’t have to get yourself involved with physical products. With drop shipping, that is about the entire case, as:
There is no need to manage or pay a warehouse where you keep your stocks
There is no need to worry about item packaging and shipping
There is no need to continually order products and maintain a distinct margin of stock level
3.Drop shipping can be done anywhere
You can run your own drop shipping business anywhere, as long as you have a reliable Internet connection. All you need to do is communicate with your suppliers and customers, and you can manage your drop shipping business wherever you want.
4.Drop shipping offers a broad range of products
Without having to purchase the products you offer prior to listing them, you have the freedom to market a wide selection of different items to your customers. Moreover, if your supplier stocks an item, you can have it listed on your website at no extra cost.
5.Drop shipping comes with lower overhead expenses
Since drop shipping does not require a warehouse to maintain nor an inventory to stack on in the first place. As a result, your overhead costs are also significantly lower compared to most traditional brick and mortar businesses.
The Disadvantages of Drop Shipping
1.Drop shipping is prone to having inventory issues
When you stock all of your products, keeping track of what’s available and what’s not would be easy. However, in drop shipping, it is the exact opposite. Since you are sourcing from different warehouses which may also be fulfilling other merchant’s supplies as well, the inventory always changes. And while there are many ways in getting sync with your suppliers, they won’t necessarily guarantee a seamless solution.
2.Drop shipping is prone to having customer service issues
Drop shipping is a method wherein you rely on a third party to pack and ship your products. That said, it means you have no control over a large part of the customer engagement. If by any chance, a shipment gets delayed or encountered a problem along the way, you won’t have the necessary details and information on hand once your customer calls for query or support. It will take a little longer to fix the problem as the query would have to go through your third party supplier before it can be given a solution.
3.Drop shipping has low margin profit
Having low margins is possibly the biggest disadvantage of drop shipping in a highly competitive environment. Because it was so easy to get started with, and the overhead costs are very minimal, most merchants set up this kind of business and tend to sell their items at the lowest price possible while attempting to grow their revenue. More than that, you can’t keep consumers from comparing your prices to others, which can eventually destroy your profit margin.
Drop Shipping And How It Would Benefit Your Website
- Drop Shipping Provides Practicality For Websites That Sell Big and Bulky Items
Among the sellers that benefit the most on drop shipping are the ones who sell big items, such as car parts, furniture, and the like. Drop shipping is convenient for these merchants as they get to sell bulky products without having the need to store them in a warehouse. Doing so saves them not just the hassle of purchasing and shipping stocks into the warehouse, but also saves them a good amount on overhead expenses.
- Drop Shipping Allows A Seller To Have Inventory In Different Warehouses Across The Globe
Since drop shipping does not require a specific retail location or storage facility, a merchant can have access to different inventories across the globe. This benefit of drop shipping allows the seller to have a wider variety of products to sell and the opportunity to have the flexibility to ship pretty much anywhere in the world.
Drop Shipping And Why You Should Try It If You’re Looking To Sell Products Online
Just like everything else in ecommerce, drop shipping comes with its own pros and cons. But what makes drop shipping stand out is the fact that it provides convenience, practicality and flexibility in more aspects compared to an ecommerce business that doesn’t drop ship. Drop shipping has very minimal risks when it comes to monetary investments (as you don’t have to pay for a huge amount of money for upfront supplies), and provides lower costs in terms of product launching and shipping. Additionally, drop shipping can be easily started and done anywhere – even at the comfort of your own home. It’s a business that provides good profit at the most practical and convenient way possible.
Have a question ?
Let us help you !