Have you heard of dropshipping and want to learn more about it before embarking on your adventure?
Often seen as the ideal solution for a budding entrepreneur, dropshipping can nevertheless prove to be more complex than expected.
In this article, the experts at the Montreal web agency My Little Big Web present the dropshipping business model and weigh the pros and cons to help you make your choice.
Dropshipping, also known as direct shipping, is a business model that involves a company selling a third party’s products without ever handling the goods.
Quite simply, the seller partners with a dropship supplier who supplies the products and ships them directly to the seller’s customer on the seller’s behalf.
As illustrated below, the dropshipping business model is rather simple:
- The Internet user buys a product on the seller’s online shop,
- The seller transmits the order and the customer’s information to the supplier,
- The vendor sends the order directly to the seller’s customer.
One example is the AliExpress dropshipping platform. Since its creation in 2010, the Alibaba Group’s e-commerce platform has been connecting sellers and suppliers to offer its customers millions of products from over 40 different categories. Naturally, this is a highly developed dropshipper, and it is also possible to offer only one category of products.
Whether you are a self-employed person or a company that specializes in dropshipping, this business model will offer you a considerable range of advantages.
- Setting up a business model like dropshipping requires almost no budget. In fact, when embarking on this business model, you don’t need to pursue retail activities such as buying or renting a physical store or warehouse to store your inventory, for example. Any fees you will have to pay will be related to the creation of your online store and the promotion of your products.
- Dropshipping is easy to set up. You don’t need to be a customs official in the e-commerce industry to set up a dropshipping strategy. All you have to do is find the supplier, create your website and sell the products. You can use a CMS (Content Management System) such as WordPress or Shopify to do this.
- Dropshipping is easy to test. This is a very good method for testing customers’ appetites for a certain category of product, and then maybe sell your own products. With direct shipping, you don’t have to commit to buying a large amount of inventory. If you find that a certain category isn’t really successful, you can switch to other products.
- Dropshipping doesn’t require premises. Direct shipping can be carried out anywhere as long as the location has an Internet connection. The important thing is that you can communicate with your customers and the wholesaler so that you can run and manage your business without any problems.
- Dropshipping lets you sell a wide selection of products. As explained above, with direct shipping, there is no need to buy products in advance. You can therefore easily diversify the products you offer and follow trends by offering your customers seasonal products, such as Halloween costumes or Christmas decorations, for example.
Like any business model, dropshipping has drawbacks that should be taken into account before creating your online store.
Profit margins from dropshipping are generally low. The main disadvantage of this business model is the competition offering items at prices that can challenge yours, which can therefore affect your niche profit margins. In addition, note that in order to promote the products you sell, you will need to invest in an SEO strategy and/or a web marketing strategy. So you are investing time and money. You also need to factor in the cost of after-sales service whenever there is a problem with the product or shipping, which is unfortunately quite common.
- The dropshipping supply chain can be complex. If you decide to work with multiple vendors, which is what most sellers do, the products you sell will come from multiple sources, which could complicate tracking and shipping costs. For example, a customer orders 2 items via your online store, from 2 different suppliers. As a seller, you will have to pay 2 separate shipping fees, which can be a difficult calculation to automate.
- You are partly responsible for any errors made by the supplier. Since you are the intermediary between the wholesaler and the customer, you will have to deal with errors from the vendor if the customer complains about them, such as a product in poor condition or a problem with the delivery of the product, for example. Even if you are not the cause of these disputes, you will have to accept responsibility for them and this could damage your company’s reputation. That’s why it’s important to work with trusted, high-quality partners.
- The seller has no control over the products they sell. Dropshipping gives you almost no control over the product itself since it is usually designed and marked by the vendor. Any changes to the product require a certain order quantity to keep it profitable for the manufacturer.
As you can see, dropshipping can be an interesting business model if you want to develop your first online business and presents a perfect solution to sell products online while avoiding all risks.
However, dropshipping also has many complexities and hidden costs that you should be aware of before you start developing your online store.
If you have any questions on this subject, or need help developing your online store, we welcome you to contact our experts!