Dropshipping Pros and Cons - Is It Profitable?
Updated: Aug 26, 2019
Whether you're a budding or established entrepreneur, you're no doubt always on the lookout for effective and convenient ways to make money. If so, you've probably already heard of dropshipping, but you might not be sure whether it's for you or not. Creating an online store is tough, and with all the sourcing, inventory and shipping processes to consider, it can be a real headache and put many people off.
There is an alternative though. Dropshipping is one of the quickest and easiest ways to start an online business, but making it profitable isn't so simple and will take work. Nevertheless, if you're dedicated, smart, and even a bit lucky, you can grow a thriving business using this method.
What Is Dropshipping?
The concept of dropshipping is very simple. It's perfect for people who want to sell goods online, but for whatever reason don't have the funds or space for the necessary overheads and inventory. Traditionally, if you own an e-commerce store, you would either make and ship the products yourself, or buy them elsewhere and sell at a profit. With dropshipping, however, you can fulfill orders by teaming up with a third party supplier who will source and ship them for you. When you reach out to a wholesaler or manufacturer directly, you can leave many of the time-consuming tasks to them. Sound like a win-win? Well, it's not quite that simple.
Pros and Cons of Dropshipping
Dropshipping is primarily an attractive option because of just how easy it is to get started, and the relatively small financial commitment you need to make. Here are some of the main benefits:
Cost - usually when starting a business, it can be very expensive. With dropshipping, you don't have to worry about big start-up costs, a physical store (with rent and employees to consider), or buying all of your inventory. All you have to do is find a suitable supplier, and pay them when you make a sale.
Time saved - worrying about the logistics can be a real headache. From packing and shipping to inventory management, tasks like this can take up your time and stop you focusing on other areas of the business that need attention. Why not leave it to the supplier?
Flexibility - whatever you want to sell, if you can find someone who supplies it and will work with you, you're good to go. You're free to fill your online store with a variety of weird and wonderful products, and you might just find a very lucrative gap in the market. If they don't sell, you're not out of pocket anyway, so you're free to try something else.
Scalability - if you see some success, it's easy to expand your business and start making a lot more money without having to increase overheads, store the extra inventory or employ more staff.
Of course, if it was that easy to make money dropshipping, everyone would be doing it. Here are some of the possible negatives to consider before embarking on your e-commerce career using this method:
Small margins - the ease with which you can start a dropshipping business can also be a negative, since it means it's a highly competitive marketplace. Low expenses mean many people will sell very low, at razor-thin profit margins, so you'll have to think long and hard about your pricing and how you can stay competitive. You'll also need to work hard at marketing and crafting a brand image to differentiate from competitors selling the same product.
Shipping concerns - while you may just go through the same supplier with all your products, most dropshippers utilize the services of several different suppliers. If a customer buys two products from different suppliers, you'll have to account for shipping costs for both, though the customer is unlikely to be happy about this. They'll also be unhappy if the items arrive at different times.
Relying on others - while you can limit the risk by choosing a reliable supplier, you're still leaving a lot in someone else's hands. Whether it's your fault or not, you're still going to be responsible for customer service when goods don't arrive promptly, or there's something wrong with them, and it's your reputation on the line.
Is It for You?
This is just a short overview of dropshipping and what it entails, but it's a handy guide for anyone considering this method of online business. Starting a dropshipping business is relatively easy, but making sure it runs smoothly and stays profitable is a harder task altogether. If you think long and hard about the pros and cons, and some of the ways to remedy these negative aspects, then becoming an online dropshipping entrepreneur might be just the thing for you. Just remember to do your due diligence with respect to suppliers, and make sure that there is something to differentiate your website from your competitors in a cutthroat marketplace. With clever marketing and branding, and a bit of luck, you could make a lot of money through this method.