Entrepreneurs are always looking out for new ways to make money. eCommerce business owners and people who are interested in breaking into the world of eCommerce have likely heard or read about dropshipping at some point. Whether it’s been positive or negative is an entirely different story. Some people think that dropshipping is a highly scalable way to get an eCommerce business off the ground that makes life easier for the person who’s running the company. Other people think it’s a great way to get ripped off by a shady “wholesaler.”
Dropshipping is a system where orders are shipped directly from the wholesaler’s warehouse rather than your company’s warehouse. Every time a customer orders something from your store you and the customer receive an email confirming that the purchase was made. You (or whoever is responsible) forwards this email to the person your company works with at the dropshipper, who takes care of packaging and shipping the product. You get the money from the customer and pay the dropshipper the wholesale price plus a few extra dollars for packaging and shipping costs. The customer receives a package that has your branding on it and won’t be able to tell that you didn’t ship it unless they look up the return address.
Sounds pretty tempting! Once you have things set up and running properly, fulfilling an order is as simple as sending an email. What could be easier? This is definitely one of dropshipping’s biggest advantages, however, there are some other pros and cons that you should be aware of before you get a dropshipper on the phone.
Pros of Dropshipping
- Requires Little Capital – Because you don’t have to place a large initial order, you can start an eCommerce business that utilizes dropshipping without much trouble. You only buy a product once a customer orders it from you.
- Easy to Get Started – It’s a lot easier to manage a business if you don’t have to deal with the physical products as well. Dropshipping gives you more time to dedicate towards managing other aspects of your business — or to spend on yourself.
- Low Overhead – Because you don’t have to rent out a warehouse space or stay on top of ordering inventory, overhead costs can be quite low. You’ll spend money on hosting, any agency or freelance services you use and dropshipper fees, but that’s it! For smaller businesses, the total of this can be under $100 a month.
- Product Selection – Because you don’t need to have the products you sell on hand, you can offer a much wider selection to your customers. If the dropshipper offers it, you can sell it too. Plus, there’s nothing stopping you from using multiple dropshippers.
- Scalability – Dropshipping offers incredible scalability. Workload will grow along with sales, but at a much lower rate. Most of the work associated with more sales will be handled by the dropshipper.
Cons of Dropshipping
- Lower Margins – Dropshipping gives you a lower profit margin than traditional shipping would. After all, the dropshipper has to make a profit somehow. It can be tempting to sell items at rock-bottom prices to try to grow a customer base, but this rarely turns out well in the long run.
- Inventory Tracking – Managing your inventory is much harder if you are using a dropshipper. They provide dozens — even hundreds — of other clients with the exact same service that you are receiving. You are unlikely to receive instant notifications that an item is out of stock, making it possible to sell inventory you don’t have. There are some software options available to make this easier, but not all dropshippers support it.
- Shipping Complexities – Once you start growing your dropshipping business, it’s probable that you will be working with a few different warehouses.
- Less Control – Even though they are professionals, dropshippers still sometimes screw up an order. You may not know what went wrong, but you will still be responsible for fixing the mistake. It’s usually not a good idea to tell the customer that you used a dropshipper if you are trying to make things right. It can come across as lazy and unprofessional.
Finding a Legitimate Dropshipper
There is also the concern of finding a legitimate dropshipper. All those friends who told you that dropshippers are a scam weren’t entirely wrong. There are a number of companies that pass themselves off as legitimate wholesalers who offer dropshipping and then sell items at retail prices. If you know what you’re looking for, it’s not too hard to tell who’s legitimate and who isn’t though. Here are some tips to make it a little easier.
FAKE DROPSHIPPING WHOLESALERS:
- Charge Ongoing Fees – Legitimate dropshipping wholesalers don’t charge a monthly fee for the privilege of doing business with them. If you see that they charge a monthly fee then chances are it’s a scam.
- Sell to the Public – If they sell to the public you aren’t getting wholesale prices. To get genuine wholesale prices you will have to apply for a wholesale account and provide some documentation that proves you are a business.
LEGITIMATE DROPSHIPPING WHOLESALERS:
- Have Per-Order Fees – Lots of dropshippers charge a per-order fee that’s usually around a few dollars. This helps cover the costs of packing and shipping.
- Minimum Order Sizes – Many wholesalers have a minimum order size that you have to exceed before they will allow you to make your first order. This is to filter out clients that aren’t worth their time. You can usually get around this by buying a minimum order’s worth of credit up front. The dropshipper will deduct future orders from this credit until it runs out, at which point you can start the process over again.
- (May) Have an Ugly Website – Wholesalers aren’t exactly on the cutting edge of web design. Don’t be surprised if their website would have looked bad ten years ago.
Signs of a High Quality Dropshipper
Just because your dropshipper is legitimate doesn’t mean they are a good dropshipper. Here are some things to look at when you are evaluating who to work with so you can determine who will make a good business partner.
- Expert Staff – High quality dropshippers employ high quality staff. The people you are working with should be knowledgeable about the products they sell and able to answer any questions to your satisfaction.
- Dedicated Support Representatives – If you pick a good dropshipper you are likely going to work with an individual support representative. Working with an individual will help ensure that problems get resolved quickly and with as little stress as possible.
- Modern Technology – Just because some legitimate dropshippers are a little behind the times technology-wise doesn’t mean the best are. Try to find a dropshipper that can offer you things like real-time inventory updates and an online searchable order history database.
- Accept Email Orders – Emailing orders is much easier than having to call every order in. They just make life easier for everyone involved.
- Central Location – In a country as large as the United States, a central location significantly speeds up shipping. Most items can be shipped from a middle state within two or three days while it might take a whole week to send something from the East Coast to California.
Dropshipping is a great way to get your eCommerce business off the ground and grow your company without having to do all the work yourself. Now that you know a little bit about how it works and what you will find in a quality dropshipper, you should be able to make an informed decision on whether it is a good business move for you or not. If you aren’t totally sold yet, it’s also a great way to test out new product ideas.