IS DROPSHIPPING THE IDEAL BUSINESS MODEL?
Esther Stein IT SOUNDS FOOLPROOF: RETAILERS SELL MERCHANDISE ONLINE THAT IS SENT STRAIGHT FROM SUPPLIERS TO CUSTOMERS. NO WAREHOUSES, LOW COSTS AND LITTLE RISK. BUT IS THE MODEL AS SIMPLE AS IT SEEMS? WE LOOK AT THE PROS AND CONS OF DROPSHIPPING
REPORT
WHAT IS DROPSHIPPING?
Dropshipping is a form of retailing where the seller accepts customer orders but does not keep goods in stock. The business model has many benefits: You can start with little capital, buy in small quantities, you’re not tied to a location, nor are you contractually bound to suppliers. You have a range that is constantly updated and your suppliers will take care of purchasing. On the downside, your per-item profit margin will often be lower, you have little control over the shipping quality, and a high return rate and stiff competition can eat into your profit.
PLATFORMS
In theory, all you need to get started is a website. In practice, it’s vital to find trustworthy suppliers of the products you plan to sell. Platforms such as AliExpress, Modalyst and Oberlo offer a vast and often inexpensive range – but it is vital to check the quality of products beforehand. Even exclusive products can be sourced: Sweden’s BrandsGateway supplies designer fashion, while Spreadshirt offers a print-on-demand service for customized apparel and accessories.
COSTS
To ensure a consistently profitable dropshipping business, you will need to keep an eye on costs. Some suppliers levy additional charges for handling, shipping and customs tariffs. Additionally, expenses such as admin, selling costs, website, advertising and marketing expenditure can all add up. To make sure customers know about your products, you’ll need to invest in website traffic and such ads take up a large portion of your budget. Even if manufacturers or suppliers provide POS materials, your best bet is to take your own product photos so you can be sure to stand out from the crowd.
SHIPPING
Check that your online store is regularly and automatically updated to stay in sync with the manufacturer’s inventory. Up-to-date shipping information, including tracking numbers, should be made available on your site so that the customer knows when their order is on its way. Packing slips and packaging should be simple in design; ideally, the supplier should use your shipping materials. You should ensure that only your shop/business address is listed as the sender to increase customer trust.
RETURNS
Once the end customer has purchased an item from you, any returns will be sent to your address. However, businesses cannot simply forward returned articles to suppliers, who will only accept defective items. Therefore, it’s wise to either arrange a separate returns agreement with the supplier or sell returned items via other channels.
CONCLUSION
Given the high level of dependency on suppliers, setting up a new online business based solely around dropshipping can be risky. But if you are aware of and able to overcome the challenges, dropshipping can be a valuable tool to supplement or expand your existing range. Retailers can use it, for instance, to temporarily offer trending items or to trial new product categories.