What is Dropshipping? The Pros & Cons for Ecommerce Businesses
Nearly 3.5 trillion dollars of eCommerce sales occurred worldwide in 2019, indicating that eCommerce is becoming increasingly profitable for businesses. Consequently, it is prudent that as an eCommerce business, you understand and keep up-to-date with all the eCommerce trends. We are here to decode and discuss one of the popular trends of eCommerce, dropshipping, and how businesses may benefit from incorporating this strategy.
The term “dropshipping” refers to order fulfillment in which a seller does not hold inventory of the goods they sell. In this case, the store purchases the item from a third-party supplier, who then ships the item directly to the customer. As a result of such a shipping model, the selling merchant does not stock up on goods ahead of delivery. Inventory and responsibility for the products are held by the manufacturer (referred to as the supplier in this case). Approximately 33% of online stores use a dropshipping model and it is expected that dropshipping industry is going to reach a market valuation of $557.9 billion before 2025.
With dropshipping increasingly becoming a more prevalent option for streamlining business, let’s discuss how dropshipping works and the pros and cons of dropshipping for eCommerce businesses.
How does dropshipping work?
- Customer places order: A customer orders an item on a website/application or through any other shopping page.
- The order is sent to a dropshipping supplier: Dropshipping suppliers receive the information of the customer’s order from the seller once the order has been placed.
- The dropshipping supplier prepares the order: As the dropshipping supplier has taken over responsibility for shipping, the seller no longer has to worry about shipping.
- The dropshipping supplier ships the order: After the order has been processed, the dropshipping supplier ships the order directly to the customer.
Advantages of dropshipping for eCommerce businesses
Easy and streamlined
Managing an eCommerce business seamlessly is made easier with dropshipping, as there is no inventory to worry about.
Ecommerce businesses can really cut back on the time it takes to build and maintain inventories with this system.
No shipping worries
Merchants don’t have to deal with shipping since dropshipping suppliers handle it, eliminating shipping concerns for merchants.
No huge investments
Because dropshipping relies on no-stock models, businesses aren’t required to keep stock or store goods. It also saves them from having to organize stock or hire staff to fulfill orders. This means that dropshipping has no huge investments.
Can sell anywhere
With dropshipping, there is a lot of flexibility. The merchant can operate anywhere in the world, sell a variety of products, and simultaneously have the ability to sell more products.
Disadvantages of dropshipping for eCommerce businesses
When something goes wrong with an order for a retailer whose inventory is not their own, providing customer support can be more challenging. The retailer may need to work with the third-party seller to resolve customer complaints, such as claims the product was defective or never arrived. This results in more work and problematic customer service.
Low profit margins
There is a lot of competition in the dropshipping market. It is relatively easy to get started with a dropshipping business, so most of the products are sold at very low prices. Often, this means cutting prices to compete. In addition, there are various middlemen whose fees need to be paid.
Little to no control over branding
Because the merchandise that merchants sell is sourced from third parties, it is challenging to establish branding. Sometimes people won’t remember your brand, but they will remember the brand of the product, making branding even more challenging.
Dropshipping suppliers can sometimes turn out to be fraudulent if they are not carefully
chosen. Their products may not be of good quality or may be branded falsely. Contractual
agreements are therefore essential.
How to choose a dropshipping partner
When you are starting out in an eCommerce business, it is important to be wary of a few things. Here is a blueprint to follow when choosing a dropshipping supplier.
- Research: Market research is very important before choosing a supplier. You may want to know about the trends in the market, risks associated with the products you are planning to sell.
- Contact suppliers: Aftermarket research is done, the next is to acquire a list of potential suppliers. Contact them to get detailed information about their company, terms and policies, and pricing.
- Check supplier technology: The dropshipping providers each use their own technology and delivery method to deliver products to consumers. Make sure the technology fits your expectations by doing a thorough assessment of it.
- Order samples/do a trial: As a merchant, you should be aware of the quality of the products that you are selling before you begin selling to customers. You will not only be able to avoid quality issues in the future, but you will also gain an understanding of the delivery process and mechanism of dropshipping suppliers.
- Order from competitors: Before finalizing the dropshipping supplier, you should place an order from your competitors. This way you will be able to understand how the market for your product works as well as what other things your competitors are offering.
- Choose the supplier: Having researched, tested your products, and analyzed your competitors, you are now ready to choose your dropshipping supplier.
What are the other digital must-haves for an eCommerce business? Learn about eCommerce must-haves for branding and strategy.
Top eCommerce platforms that offer dropshipping:
Now that we have understood the concept of dropshipping, here are some platforms that offer dropshipping options:
- WooCommerce: The website is very user-friendly and provides a great start to the eCommerce world with dropshipping. WordPress is required in order to use WooCommerce. After the website is set up, the plugin needs to be enabled on WordPress. An easy and intuitive user interface enables users to add customizations according to their needs.
- Shopify: Among its many unique features is a plugin called Oberlo, which is exclusive to this platform. This plugin works as a means of finding verified dropshipping suppliers. To use Shopify, a fee has to be paid monthly. It is very easy to use and has plenty of useful eCommerce features.
- Magento: This is by far one of the most powerful dropshipping platforms. The best part is it has an open-source platform, this is perfect for those who are just venturing into dropshipping. Magento provides all the features that are necessary to operate an eCommerce website.
- BigCommerce: This platform has different packages a merchant can choose from according to their needs and requirements. To set up a website on BigCommerce, you hardly need to be tech-savvy. It is easy and fast.
- OpenCart: For all those who are tech-savvy, this platform would be perfect. It is quite powerful and is free to use. It has multiple shipping options that merchants can choose from.
Keeping up with the constantly changing eCommerce current trends is imperative for your eCommerce business. With dropshipping, you can spend more time focusing on other areas of your eCommerce business. Since no inventory needs to be maintained, you can instead devote your time to planning and strategizing your digital marketing for your eCommerce business.
Need help starting with digital marketing efforts for your eCommerce business? Contact our digital experts at Pyxl. We’ve been helping eCommerce businesses like yours for years with our digital marketing services.
Updated: Apr 13, 2022