Surely the term already sounds familiar to you if you have seen it on a blog or website, but are you clear about what dropshipping is? It has become a business model, so today we will take a closer look at what it consists of and the advantages and disadvantages of this new way of doing business online.
What is dropshipping?
Dropshipping is a variant of ecommerce or more traditional electronic commerce that has completely transformed logistics. With this new business model, increasingly widespread, the person in charge of selling the products no longer needs to have a stock of these, but is in charge of selling products from third parties (wholesalers).
In other words, dropshipping consists of acting as an intermediary between a seller and the end customer. He never sees the merchandise, nor is he responsible for its shipping. It is only responsible for receiving orders or orders from its clients and sending them to its supplier or wholesale company.
The figure of the dropshipper
The dopshipper is the wholesale company or supplier that sells its services through an intermediary. She is in charge of receiving orders, inventory management, packaging and shipping.
What differences are there with respect to the more traditional ecommerce model?
The main difference is the lack of inventory. You do not need to have stock of the products you sell. It is your dropshipper who is in charge of having them and distributing the products to your customers in your place.
At first glance, the fact of not having inventory makes us think that it is the perfect business model: I set up a website, I do not invest in products or stock and I do not take care of orders either, what kind of inconveniences could there be?
But as always, there are many “buts” and this new variant of ecommerce does not seem to convince everyone. While it is true that some think it is a good way to start an online business, others reject it without thinking.
It is clear that not all the mountain is oregano, so let’s look in depth at the advantages or disadvantages of this type of business.
Advantages and disadvantages of Dropshipping
If you are thinking of starting an online business and this new variant of ecommerce seems like a good option to you, it is important that you do not just focus on the good part. There are some considerations that you should also take into account if you want to get started in dropshipping.
Advantages of dropshipping
Let’s start with the good part. Below we show you some advantages of this new business model.
- Very low initial investment
Without a doubt, it is one of the main advantages, especially if you are thinking of starting your own online business. You do not need to have even the minimum stock to start selling online, which this can mean for anyone who is starting their business. You are simply in charge of making the purchase from the supplier once the customer has placed and paid for the order through your online store.
The initial investment is limited only to the creation of your own ecommerce and the dissemination that you can make of your brand.
- Extensive product catalog
The fact of not having to previously invest in merchandise means that your product catalog can be much broader than in a traditional e-commerce. That is, you can adapt your offer to market trends, and not to the stock you have.
- Easily scalable
The more you sell, the more work you have: that is the same for all businesses, but not in the same proportion.
The fact that you are only dedicated to making the sale and the entire order processing process (management, packaging, distribution or delivery) falls in the hands of your supplier will free you from a good burden.
- Flexible location
Your only infrastructure: a computer and a good Internet connection. The good thing about dropshipping is that you only manage one website. And you can manage it from wherever you want! Unlike other types of businesses, you are more limited by the location of a warehouse or third-party companies.
Disadvantages of dropshipping
We have reached the “less good” part of this new business model. Let’s look at some drawbacks that may make us rethink this way of entrepreneurship online:
- Not managing inventory can work against you
We have already talked about this, the fact of not having inventory greatly reduces the risk of our investment, but it can also be a negative point for us.
It is necessary that your suppliers’ inventories and your own system work perfectly, and it is something that is sometimes difficult to achieve. Especially when you work with more than one wholesaler.
- Little control
After-sales service is essential if you want to have satisfied customers and, in this case, you will not have control over it. Everything falls into the hands of your wholesaler, so it is essential to study the possibilities they offer before venturing with the first one you find.
It is important that the customer knows the status of his order at all times and your supplier has to take into account that good packaging and order delivery times are essential for both parties. The success of your company depends on it!
If any error happens, which we believe there always will be (we are human), you have to take responsibility before the client and offer them the best alternative.
- Profit margins are low
Less risk, less profitability. The margin you earn for each product you sell is only a small part of the price, so you need to generate a considerable sales volume if you want to have a profitable project.
Some recommendations if you want to get started in dropshipping
After seeing what dropshipping is and the advantages and disadvantages it can entail, it is time for you to evaluate whether or not you want to start based on this new variant of ecommerce.
Before finishing, and if you are already clear that dropshipping fits what you are looking for, let us give you some recommendations that will not hurt you to start on the right foot.
Choose a good supplier or wholesaler
It will be one of the main pillars of your business, so you can’t take any chances. It is clear that until you try your dropshipper’s service you will not know whether or not it meets your expectations, but it is necessary that before choosing it, you do a little research about it. Make sure they use good technology that allows you to automate processes, the customer service offered: 24 hours a day or only during office hours? What are your contact methods? Does he respond quickly to your queries?
Offers good customer service
It can become a differentiating aspect of the brutal competition that you will have on the Internet. Install a chat on your website, offer personalized and fast attention, create a contact form on your website… Do everything possible so that the treatment and quality of your service are outstanding aspects.
Quality hosting service
There are some dropshipping providers that already provide you with the platform so that you can start selling online without further complications. If not, and you prefer to create your own ecommerce and do it to measure, it is important that you choose quality hosting. At first you can start with an SSD hosting plan and, if visits and sales start to grow, you can automatically upgrade to a VPS server. You will have more flexibility, independence and you will obtain extra performance for your website. Don’t even think about it!
Choose a good CMS. Yes, in addition to quality hosting, you need to get a good content manager to help you with the day-to-day running of your business. For example, Prestashop is a good option and has been the queen of ecommerce for a long time, although the WordPress option with WooCommerce is gaining ground.
Web security: hire an SSL certificate
You are going to sell online, so there are no excuses. Your customers need to feel safe when browsing your website, especially if they are going to provide you with their personal and payment information. Furthermore, with the new change that Google will implement starting in July 2018, installing an SSL certificate on your website will no longer become an option.
Invest in your page design
If you want to build a good client base, your website needs to be optimized for this, so a good design is essential to be taken seriously. Furthermore, with the new Google algorithm that is already starting to work, you have to keep in mind that a responsive website is essential. If you are already working on it, here are some tools to test your website on mobile devices.
Dropshipping is not an affiliate system
Before starting, you need to know that the dropshipping system is not the same as a recommendation or affiliation system like we have at LucusHost. Here you not only recommend the product, but you recommend it and sell it. You will be the brand you show to your customers and you will have to take responsibility if something goes wrong.
Now we would like to know your opinion about dropshipping. And, if you have experience with this new business model, it is almost mandatory that you leave us a comment telling us about your experience. We want to hear from someone who has worked with dropshipping firsthand!