If you’ve considered starting your own e-commerce business, it can be difficult to know where to begin. For those with limited space to run a business from the comfort of their home, it is important to figure out where to store your products and how to access your inventory. Traditionally, retailers will rent warehouses in order to store products. However, there is now an alternative business model available for e-commerce stores, which is drop shipping. Here, we’ll cover what drop shipping is, how it works, as well as the advantages and disadvantages of the model to give you a better idea of whether it could work for your business.
Drop Shipping Explained
As an order-fulfilment method, drop shipping allows the seller to purchase inventory as and when from a third party such as a wholesaler or manufacturer. The main difference between drop shipping and standard retail practices is that the seller does not own the stock or inventory as a drop shipper. They simply act as a middleman between the manufacturer and the customer. Drop shipping essentially relies on the supplier to deal with inventory warehousing, order fulfilment, and shipping, removing the stress of stock management from the seller.
How Does Drop Shipping Work?
There are two popular approaches when looking to adopt a drop shipping model of business. Firstly, you can seek out either one or multiple wholesalers located in the US via a supplier database. There are a number of supplier databases online such as Worldwide Brands and AliExpress, so you should not have much trouble finding a suitable supplier on your own.
Alternatively, you can use an app or online site to connect with different suppliers, saving you the hassle of researching various databases. The app DSers is one example of an application to help independent business owners find sellable products, but there are numerous similar versions on iOS or Android app stores.
Once you have found an appropriate manufacturer or wholesaler, all you will be required to do as the seller is check the details are correct on every order and forward the details to them. The product or package will then be shipped directly from the supplier to the customer wherever they may be.
Advantages Of Drop Shipping
There are a variety of reasons as to why drop shipping has become such a widespread business model and continues to increase in popularity. Drop shipping is commonly seen as a hassle-free way to get an e-commerce business up and running. Discover more advantages below:
- Easy To Start: With the requirement of dealing with physical products removed, it is much easier to start and sustain an e-commerce business with a drop shipping model.
- Flexibility: All you really need to run a successful drop shopping e-commerce business is a stable internet connection. You can therefore run your business from almost anywhere in the world.
- Minimal Upfront Capital: One of the best things about drop shipping is that you do not need to invest a lot of money in stock, instead you buy the products once a sale has been made by the customer.
- Easy To Scale: Leveraging drop shipping suppliers allows you, as the seller, to expand your business seamlessly without concern of added strain.
Disadvantages Of Drop Shipping
However, drop shipping does not come without its downsides. Like most things, flexibility and convenience come at a higher price, making drop shipping unsustainable for some sellers. Learn about the negatives associated with drop shipping in the list below before jumping into an e-commerce business:
- Slim Profit Margins: Many businesses have set up drop shipping models due to the convenience that comes with it. Competition for such products is therefore higher which can hurt profit margins if you’re not careful.
- Inventory Complexities: When managing your own stock, it is easy to keep track of your inventory. However, with a supplier who is also fulfilling orders for other sellers as well as you, the amount of inventory available can change on a daily basis.
- Limited Customisation: Another disadvantage is that drop shipping does not allow sellers to customise their products with their own branding how they might like. Instead, products will likely have the supplier’s branding.