The term dropshipping may have caught your eye several times and you probably might have wondered what it is. If yes, then you have come to the right place. We have designed this comprehensive dropshipping guide to answer all your questions and doubts regarding dropshipping. This dropshipping guide can also come in handy if you are looking for a way to start your own dropshipping Indian business.
To begin with, let’s understand what dropshipping is.
Dropshipping is an e-commerce business model that allows entrepreneurs to start an online business and sell products to their buyers without ever actually stocking the items themselves. Instead, when a dropshipping store sells a product, it purchases the item from a third party and has it shipped directly to the customer.
The interesting part here is dropshipping sellers can run the business without having to maintain physical inventory. In addition, they are not required to deal with the fulfilment process by themselves, and nor do they have to spend any capital on stocking inventory or renting a warehouse space.
What are the benefits of dropshipping?
Dropshipping is a great business model for aspiring entrepreneurs to start with because it’s accessible. With dropshipping, you can quickly test different business ideas with limited downside, which lets you learn a lot about how to choose and market in-demand products. Here are a few other reasons why dropshipping is such a popular model.
1. Dropshipping requires less capital
Without significant up-front inventory investments, it’s possible to start sourcing products and launch a successful dropshipping business with very little money.
- Launch an e-commerce store without investing thousands of dollars in inventory up-front.
- No need to purchase a product unless you’ve already made the sale and have been paid by the customer.
- Unlike in a traditional retail business, there’s less risk involved in starting a dropshipping store.
2. Dropshipping makes it easy to get started
Running an ecommerce business is much easier when you don’t have to deal with physical products. With dropshipping, you don’t have to worry about:
- Managing or paying for a warehouse
- Packing and shipping your orders
- Tracking inventory for accounting reasons
- Handling returns and inbound shipments
- Continually ordering products and managing stock level
3. Dropshipping means low overhead
Because you don’t have to deal with purchasing inventory or managing a warehouse:
- Your overhead expenses become quite low.
- In fact, many successful dropshipping stores are run as home-based businesses, requiring little more than a laptop and a few recurring expenses to operate.
- As you grow, these costs will likely increase but will still be low compared to those of traditional brick-and-mortar businesses.
4. Dropshipping is flexible on location
A dropshipping business can be run from just about anywhere with an Internet connection. As long as you can communicate with suppliers and customers easily, you can run and manage your business. This is what makes dropshipping easily accessible for retailers!
5. Wide selection of products to sell
Since you don’t have to pre-purchase the items you sell, you can offer an array of trending products to your potential customers. If suppliers stock an item, you can list it for sale on your online store at no additional cost.
6. Easier to test
Dropshipping is a useful fulfilment method for both launching a new store and for business owners looking to test the appetite customers have for additional product categories, e.g., accessories or wholly new product lines.
7. Easier to scale
With a traditional retail business, if you receive three times the number of orders, you’ll usually need to do three times as much work.
By leveraging dropshipping suppliers:
- Most of the work to process additional orders will be borne by the suppliers, allowing you to expand with fewer growing pains and less incremental work.
- Sales growth will always bring additional work—especially related to customer support—but businesses that utilise dropshipping scale particularly well relative to traditional e-commerce businesses.
- The major benefit again is the ability to list and potentially sell products before committing to buying a large amount of inventory.
Disadvantages of dropshipping
All the benefits we mentioned make dropshipping a very attractive model for anyone getting started with an online store, or for those looking to expand their existing product offerings. But like all approaches, dropshipping has its downsides, too. Generally speaking, convenience and flexibility come at a price. Here are a few shortcomings to consider.
1. Low margins
Low margins are the biggest disadvantage to operating in a highly competitive dropshipping vertical.
- Because it’s so easy to get started, and the overhead costs are so minimal, many competing stores will set up shop and sell items at rock-bottom prices in an attempt to grow revenue.
- Since they’ve invested so little in getting the business started, they can afford to operate on minuscule margins. With dropshipping, there are no barriers to entry.
- Typically, these sellers will have low-quality websites and poor (if any) customer service, which you can use to differentiate your business. But that won’t stop customers from comparing their prices to yours.
- This increase in fierce competition will quickly hurt the potential profit margins in a niche.
Fortunately, you can do a lot to mitigate this problem by selecting a niche/vertical that’s well suited for dropshipping.
2. Inventory issues
If you stock all your own products, it’s relatively simple to keep track of which items are in and out of stock. But when you’re sourcing from multiple warehouses, which are also fulfilling orders for other merchants, inventory can change on a daily basis. Fortunately, these days, there are a handful of apps that let you sync with suppliers. So dropshippers can “pass along” orders to a supplier with a click or two and should be able to see in real-time how much inventory the supplier has.
3. Shipping complexities
If you work with multiple suppliers—as most dropshippers do—the products on your online store will be sourced through a number of different dropshippers. This complicates your shipping costs.
Understand this example step-by-step:
- Let’s say a customer places an order for three items, all of which are available only from separate suppliers.
- You’ll incur three separate shipping charges for sending each item to the customer, but it’s probably not wise to pass this charge along to the customer.
- Even when it does make sense to include these charges, automating these calculations can be difficult.
4. Supplier errors
Have you ever been blamed for something that wasn’t your fault, but you had to accept responsibility for the mistake anyway?
- Even the best dropshipping suppliers make mistakes fulfilling orders—mistakes for which you have to take responsibility and apologise.
- Mediocre and low-quality suppliers will cause endless frustration with missing items, botched shipments, and low-quality packing, which can damage your business’s reputation.
5. Limited customization and branding
Unlike custom-made products or print on demand, dropshipping doesn’t give you a lot of control over the product itself. Usually, the product dropshipped is designed and branded by the supplier.
Some suppliers can accommodate your business’s product changes, but even then, the supplier has the most control over the product itself. Any changes or additions to the product itself usually require a minimum order quantity to make it viable and affordable for the manufacturer.
So, is dropshipping worth it in 2022?
As we’ve mentioned, dropshipping has several benefits. However, hard work is always required to start a business. The model has some definite advantages, complexities while operating at scale.
The good news is that with some careful planning and consideration, most of these hurdles can be resolved and need not prevent you from building a thriving, profitable dropshipping business. We hope this post has cleared what is dropshipping and you are now in a position to start your dropshipping business.
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