In this article, we are going to be discussing the meaning of dropshipping business and how its works.
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By the way What is Dropshipping? Dropshipping is a business model that allows an individual or company to operate a business model without stocking products, owning a warehouse to stock the products, or even transport or deliver the products to their their customers in persons.
The way dropshipping business works is that a Individual/retailer has a deal with a supplier that manufactures and/or has a warehouse to products, packages the products, and delivers them directly to the dropshipper’s customer, on the dropshippers’s behalf.
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This business model is very interesting and sustainable in the sense that you don’t need to have a store or warehouse of your own to stock the products, all you need is a laptop and an internet connection.
Let’s Talk About Some of the Pros of Dropshipphing Business Model?
Dropshipping as a business model, has several advantages as well as some disadvantages. Some of the Pros are:
- It very easy to set up. You can set up a dropshipping business by following some basic steps which are; know your niche, find products suppliers, buy a domain name and hosting services or use an existing E-commerce platform, set up your store and marketing.
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- Dropship business model requires little or no capital to setup. On like the traditional business models, where the majority of the costs are related to setting up and running the retail operations. Dropshipping actually eliminates that step and the cost of it, all you have to pay for is the associated costs of running your website. The fixed cost of managing the website is all that a business owner has to worry about. i.e domain name, hosting, theme, apps, etc.
- The business model requires little or no risk at all. If the business doesn’t sell products, it still doesn’t lose anything, so there is little to no pressure about having to sell your inventory.
- The business can be run from the confort of your home or anywhere in the world. You don’t need an office, a warehouse nor do you need an employee to run the business.
- As a dropshipper, you can sell any product you want with no restrictions. There is a dropshipping supplier for any product that you would like to sell in your niche.
- Losses on damaged on products are minimal in dropshipping business model. The shipment goes directly from the supplier to the customer, there are fewer shipment steps involved which decreases the risk of damaged items while moving from one place to another.
- If you are an entrepreneur that want a high level of business and product validation before investment, Drop shipping can be a great way to test new products before investing heavily into inventory that may not sell, making this the perfect business model
- Drop shipping is definitely the least expensive method of selling online because you don’t have to purchase any inventory upfront. Because of this, the drop shipping method works well for entrepreneurs who have a limited budget or would prefer to keep startup costs as low as possible.
- With this business model you have your freedom and more resources to scale your business, on like the traditional retail business models, which runs on the basis of more profits more work and investment.
Cons of Dropshipping Buisness Model
Just like any other business model, dropshipping also has its own Cons.These are;
- When you stock the product, the profit margin is definitely going to be higher compare to the profit margin of a dropshipper. There is a slight lower profit margin in comparison to sourcing from an wholesaler or manufacturer directly and stocking the products. Although, itsdepends on your niche, location or requirements. Dropship suppliers and vendors do charge higher prices for dropshipping products, which can affect your profit margins.
- As a dropshipper, you are not aware of the condition of the product before it is being shiped to your customers which makes this business model to lack some level of control.
- A dropshipper cannot control how his/her brand is presented during the delivery and fulfillment process as the supplier is the one who ships the products.
- Level of competition is relatively high in dropshipping business model due its popularity. More and more retailers are coming up daily making a whole lot of niches to be saturated already. Unless you are catering for an extremely specific segment or niche.
- When something goes wrong, it is the dropshipper that will bear the whole blame or fault even when it is the supplier’s fault.Since the customer is purchasing the product from the retailer’s website, if the supplier messes something up, it’s still the dropshipper/retailer’s fault as the brand is the face of the retail process. This is one of the reasons why it is very important to choose the right supplier in dropshipping business.
- Selling multiple products may seem like a good way to drive up sales and make a substantial profit, but this could actually be a problem in cases of multiple orders from your store. If the dropshipper has multiple suppliers for these products, it means that these products will be shipped diffenrenetly by different suppliers charging different shipping rates based on some factors like location, type of products, etc. If a customer orders multiple products which will be shipped from different suppliers, the dropshipper/retailer will have to work out and pay the shipping costs separately. Transferring these varying shipping costs on to the customer may negatively affect conversion rates and can also have a negative effect on the profit margins of the dropshipper.
- It is almost impossible to Keep track of the stock of the supplier. But there are numerous softwares now that can take care of these problems on automation. You can use softwares like Alidropship , Dropified and lot more.
How Profitable is Dropshipping Business?
In my own opinion, Dropshipping is very profitable but it depend on a lot of factors. Typically, the profit margins for dropshipping can range from 10% — 50% but there are some products that give a hopping returns of about 100%. It all depends on the niche you’ve chosen for yourself and how well you can market the products. Also it depends on finding a good supplier. A good way to ensure higher margins can be to source directly from a manufacturer instead of a vendor/supplier. Once the business has taken off, the profits is huge.
I hope you’ve learnt one or two things from this article. There is love in sharing! Do share.
