Dropshipping is a retail fulfillment method, where a store doesn’t keep the products it sells in stock. Instead, the retailer transfers customer orders to either the manufacturer, another retailer, or a wholesaler.
The retailer will also transfer the customer’s shipping information, and the product is mailed directly to the customer. As a result of dropshipping, the retailer never sees or handles the product.Drop shipping is particularly common with expensive products and unique custom items.
Another common use would be online auction sites, like on Ebay. Sellers use drop-shipping as a way of selling products without having to handle stock or shipping.
Perhaps your business could benefit from the drop-shipping model? In this piece we take an in-depth look at dropshipping, including its advantages and disadvantages. We hope you find some useful information that helps you make the right decision for your business.
What are the Benefits of Dropshipping?
Cost
If you’re company opts to use the dropshipping method, one benefit is that you will require less capital. It’s possible to start a dropshipping business with very little money. This is because you don’t have to deal with purchasing inventory or managing a warehouse. It also means that you can run your business from home, needing only yourself and a laptop!
This would be the perfect set up for a one person startup in its early growing stages. To add to this, there’s no wrapping, packing or shipping of orders. As a result, your overhead expenses are quite low.
When it comes to dropshipping, the business automatically becomes low risk. This is because you don’t have to purchase a product unless you’ve already been paid by the customer.
Ease
With dropshipping, you’ll be able to start selling the same day you sign up. Products can be imported quickly, and since you don’t carry any inventory, you can start promoting them right away!
Running the business is easy, as you don’t have to track inventory or handle returns. You also don’t have to worry about continually ordering products and managing stock level. All of this leaves you with more time to concentrate on growing and developing your business.
Another way to save more time would be by doing automated business. Some tools act as a link between you and high quality, reliable suppliers. These tools offer one-click order processing and shipping for products.
Products can be imported to your store, while orders can also be processed in just a few clicks. This is a perfect scenario for busy company owners who may have other jobs or needs to attend to.
Workload
Usually when you receive more business you’ll need to do more work. This isn’t necessarily the case when your business uses the dropshipping method. Most of the work involved in processing additional orders will be the responsibility of suppliers.
This benefits you massively, as it means frees up time to focus on expansion and improvement. Sales growth always brings extra work – especially in customer service – but businesses that utilize dropshipping scale well against traditional ecommerce businesses.
Location
A dropshipping business can be run from just about anywhere. All you need is an internet connection to communicate with suppliers and customers.
This allows you to easily manage your business from home and on the go. It also saves money on renting an office, and means no time is wasted commuting.
What are the Disadvantages of Dropshipping?
Low Margins
Low margins are the biggest disadvantage that come with dropshipping. As it’s so easy and affordable to get started, many merchants set up shop and sell items at rock-bottom prices.
You can’t blame these businesses for attempting to grow their revenue and become more competitive. Oftentimes these merchants have low-quality websites and zero customer service, but that won’t stop customers comparing their prices to yours.
Supplier Errors
If you opt in to dropshipping, chances are you’ll get blamed for something that’s not your fault. Unfortunately, no matter how good your suppliers are, mistakes will be made when fulfilling orders.
This is frustrating for not just the customer, but for you as well. You will have to take responsibility and apologize.
Shipping Costs
Most dropshipping companies deal with multiple suppliers – this complicates your shipping costs. If one of your customers orders five items, chances are all five are only available from separate suppliers.
In a scenario like this, you would incur five separate shipping charges for sending each item to the customer. In this case, you may consider passing the charges onto the customer. However, doing this could leave the customer thinking you’re grossly overcharging for shipping!
Stock Levels
If you stock your own items, it’s easy to keep track of what you have and don’t have. But most dropshipping companies source from multiple warehouses.
All these warehouses are fulfilling orders for other merchants, so their inventories change very frequently, and often multiple times in a single day. There are ways to better sync your store’s inventory with suppliers, but suppliers don’t always support the technology required.
How To Get The Most Out Of Dropshipping
Grow Your Marketing Knowledge
Just like any other type of business, to be successful your marketing will have to be on point. But, with many aspects of dropshipping being automated, extra time is available for you to focus on marketing.
It’s important to use this time wisely. You can attract buyers by paid ads (search engine and social media), or by organic search.
- Paid Search: It’s crucial to learn how to master ads, grow traffic and convert your store’s visitors into customers.
- Organic Search: Learning about ads and search engine optimization (SEO) will really help drive more traffic to your online store. A company with strong SEO will rank high in search engines, bringing more potential customers to your site. Great ways to strengthen your SEO include creating blog content and optimizing product pages.
Quality Suppliers
There are so many good suppliers out there – but there’s always one that will let you down.
Avoid suppliers with poor ratings. Low-quality suppliers will cause endless frustration with missing items and botched shipments. All of this will fall back on you, damaging your company’s reputation.
For you, and your customers sake, make sure you opt for the best supplier you can find.
Special Offers
It’s so important not to be that store that doesn’t offer sales or bundles. If none of your products are on sale, customers will lack motivation to buy them. Presenting the right product with the right deal means you’re more likely to make sales.
When creating a bundle deal, you should focus on selling more of the same product. So if you sell t-shirts, your bundle would include more t shirts.
If people love your products, they’ll want more of them.
Don’t Sell Yourself Short
The goal of any business is to make profit. When pricing your products, be sure to consider the cost of goods, marketing and other business expenses.
If other brands are undercutting their prices, this doesn’t mean you have to undercut yours. If you’ve got a quality product, keep your prices within market value and you should maintain a profitable price point.
And again, don’t forget about special offers!
Be User Friendly
There are two elements you should consider to make sure your business is user friendly.
The first is to make sure you have an attractive, easy to use website.
A bad website can really scare off a customer, especially if it looks fake or is difficult to use.
Second, you should also offer excellent customer service.
Obviously you must offer refunds and respond to inquiries, but that won’t separate you from the bigger brands. Do whatever it takes to make customers feel valued, by being friendly and fun.
There are lots of ways to do this. Feel free to joke around with and get to know customers (keeping your communication light hearted and jovial).
You can write thank you cards to the ones that order from you multiple times. Run monthly giveaways exclusive to customers who’ve ordered from you in the past.
Above all, let them know you appreciate them!
What Are The Best Ways To Send And Receive Money Internationally?
When operating a dropshipping business, there’s a high probability you will have to deal with international payments.
Your suppliers may be based in another country, while your customers could be located anywhere in the world. Using banks to send money overseas can really deplete your profit margins.
Many banks charge a high fee to send money abroad. The currency conversion will also hurt your balance, as banks never offer the true foreign exchange rates. The rates are always higher, because the additional variable fees the bank is charging are included.
The best way to make an international payment is to use a technology savvy Money Service Business (MSB).
While some of these companies can charge you significant fees – here at REMITR we do not. Instead, using our service guarantees you savings. We offer you the best live foreign exchange rates – so no more losing a cut of your conversion to the banks.
You can also say goodbye to high fees, as we charge a flat fee as low as $5!
Using REMITR allows you to send money to over 150 countries worldwide 24/7. There’s no waiting around either, as funds are delivered within 1 business day.
If you need to receive money – from anywhere in the world – there’s no better way than to use REMITR Collect.
Once you register for REMITR Collect, you will receive a free REMITR Global Account. Receiving payments into this Global Account is free! You then have the ability to withdraw funds into your local bank account at any time you wish. Funds are transferred to your local bank account within 1 business day of submitting your online withdrawal request.
The REMITR platform is 100% secure, is FINTRAC-registered employs state of the art technology to protect your payments and financial information.
So if you want to save time and money, while ensuring payments go through, get in touch with REMITR today.
