Ecommerce drop shipping is a business model that serves well many ecommerce owners out there. However, it’s type of model that may be a great solution for some people while others will not profit much from it – depending on the marketplace they’re operating in.
To understand better who benefits the most from drop shipping and in what cases this model makes you earn more that you would by resourcing another type of shipping, we put together a straight forward guide to the advantages of drop shipping, how it earns you money and who profits most from it.
How does drop shipping work?
Drop shipping works pretty smoothly in terms or organising your ecommerce since you don’t really own an inventory. You put the products you want to sell on your ecommerce website and once you get an order, the order is passed to the drop shipping company (or a manufacturer) you have partnered with. The drop shippers pick up, pack and deliver the product ordered by a customer on your website.
In terms of earnings, you get what you charge for the product minus what the drop shipping company charges you for their services.
When it comes to partnering with an external company who will be packing and shipping the products you included in your website, one important decision concerns whether you choose a drop shipping company or a specific manufacturer. The main difference between the two is that a drop shipping supplier will own an inventory of a wide array of products and brands while a specific manufacturer is basically a one-brand man.
What are the advantages of drop shipping?
The number one benefit of this business model is the low cost of starting an ecommerce with drop shipping. Basically you don’t need to worry about purchasing an inventory and managing it upfront. You pay for the product as you get the order which means you get the money to pay for the product by your customer.
Wide product selection
Purchasing products in advance means that you will have to make a decision based on your budget. With drop shipping you can include a wider selection of products on your website since you don’t really have to invest anything upfront when it comes to inventory.
The fact that you don’t need to invest money in products before selling them means that there is less risk in starting up an ecommerce business money wise.
Even if things go wrong, you don’t have to deal with all the unsold products and perhaps sell them for less than what your investment was worth.
Since you are not the one who will have to fulfill each order, nothing really changes for you in terms of number of products sold. If you start selling larger amounts of products, the time you put into it is always the same.
Location is not an issue
Not having to purchase specific products and store them somewhere locally means that you can work from any place. All you need is a laptop and you’re good to go.
Sounds like a pretty advantageous deal setting up an ecommerce drop shipping business, right? However, before you venture in it, we would like you to consider a few more things.
If on one side drop shipping you enables you to do business faster, easier and on a larger scale, margins will tend to be lower. Unless your sales increase significantly over time, you may not see a real advantage in profits with this model.
Moreover, since this model attracts a lot of sellers, you may risk to have very similar offerings as so many other ecommerce owners who chose to partner with the same drop shipping suppliers.
Another issue is the lack of control over the packing and shipping of products. You will not be able to oversee this part of your business and that can affect the overall brand experience.
If you’re a first time ecommerce business owner or you are low on budget, drop shipping is the perfect solution for you. Starting an online business is a risk so if you don’t have a lot of experience in managing such type of business, setting up your ecommerce using the drop shipping model is great to lower the risks of investments gone wrong. If your business proves to be viable, you can always opt for another type of ecommerce model when the time is right.
However, if you are all about the brand experience and a more personal approach to customer care is your main brand value, drop shipping may pose more than one hurdle in building a successful business. Unfortunately the limitations of drop shipping make it difficult to customise the shopping experience for your clients. If you operate in a highly creative marketplace and you want to distinguish yourself for your brand’s uniqueness and great service quality all the step of the way, drop shopping will not suit your business vision.
How to do drop shipping the right way
If you want to be a successful entrepreneur with an ecommerce website relying on drop shopping, we advise you to select a smaller marketplace to play in. Even better, find a niche to specialise in. By doing so, you will be able to target specific customers looking for specific products and that means that it will be easier for you to focus your marketing efforts to these people’s needs.
Also, narrowing the field you’re in will allow you to partner with a manufacturer as you will be offering products that are likely produced by one or two manufacturers instead of a dozen. This reduces the cost of the “middle men” – the drop shipping supplier.
Finally, remember that drop shipping is a great way to test the ecommerce waters without risking too much. Once you’ve established your brand and profit is growing, you can start thinking about more sophisticated ways of managing your ecommerce business.