One of the biggest decisions you’ll need to make as an e-commerce business owner is also the one that could make or break your financial freedom.
How you control and distribute the products you sell through your site is a critical choice you have to make during the outset of your business development. In this post, we’re going to find out if the dropshipping method can help you attain financial freedom, or if managing the ebb and flow of supply and demand would be better handled internally.
Managing a profitable e-commerce business is a process that requires strategy, resilience, and a fair bit of trial and error. The day-to-day logistics of your business could change dramatically in the first year, depending on how much you learn and how quickly you learn it. Making changes is scary but necessary—and the more you understand about your options, the fewer changes you’ll need to make.#Dropship your way to financial freedom by guest blogger Patrick Foster from @myecommercetips #Webgility Click To Tweet
For some creative e-commerce business owners such as artists, musicians, and carpenters— dropshipping doesn’t come into play. If you make the product you sell in house, you never need to consider wholesalers. However, if you create digital designs for your products but don’t manufacture them, a big decision will be how to cost-effectively manage the manufacture and shipping of your orders.
Businesses that offer products they have no part in the design or manufacture of, have the option of never having to see or touch the product their customer receives. e-Commerce sites that sell mass-produced electrical items and accessories, or other brand’s beauty products, clothing or food and drink, have options when it comes to distribution and dropshipping often fits the bill. But don’t jump straight into the deep end without first dipping your toe in to test the water.
A good place to start when considering dropshipping for your business is to look at the various service providers who come recommended. You can find a top 10 list here, which will give you a good idea of how it all works, and what you should look out for. There are many ways to shift your products, but which method you choose comes down to four crucial elements.
The four Cs
Credibility: How will it impact your brand?
Can you stand behind the products you’re selling if you’ve not had contact with them? Are you convinced of the quality of your own product and can you guarantee it? If using dropshipping is going to damage your brand reputation, then perhaps absorbing the cost of inventory storage and shipping is something you can justify. If you’re comfortable that you can maintain a credible, trusted relationship with your customers either way, then dropshipping might give you the financial release you need to improve other areas of the business or to reinvest.
Cost: What makes your business more profitable?
What is the cost of handling your own inventory versus outsourcing that responsibility to the wholesaler? Dropshipping is a great option because it’s so easy to arrange and deploy, but it can eat into your profits if you don’t do your homework and offset the costs.
You need to consider which type of distribution model will best support your long-term profit margin. Look into specific suppliers and how much they charge. Your business might increase profit if you go for a mixture of fulfillment methods. There is no reason you can’t adopt dropshipping for larger orders and keep smaller, more bespoke orders for internal processing and handling. You may have some big clients who want to deal with your directly, and that gives you more quality control over the service of that client, so go for it—mix it up!
One of the most popular ways to start a dropshipping business for first-timers is to use an out-of-the-box shop platform like Shopify. Using a service like this means you can quickly upload products and get started with sales almost immediately with minimum commitment, closing down shop just as quickly if things don’t work out. One of the great things about using an e-commerce platform with all the bells and whistles is that they have a plethora of information available and a hub of experienced business owners talking about the sames issues you face and sharing valuable learning.
Just as dropshipping and out-of-the-box options often work well together because they allow businesses to generate income without huge investment, a custom website may suit you better if you ship everything yourself. Weigh what is more important to your business and your audience and how much it’s going to cost you to set up and maintain.
You might decide the fastest and most cost-effective way of generating some revenue might well be dropshipping, and that’s great, but do your research and look to experts for advice on how to get set up and which reputable suppliers to work with. Read in-depth resources around what the associated costs should be and learn how to evaluate supplier performance.
Cost is about much more than the short-term viability of your business and making an initial margin. Think about the bigger picture. From where are you going to operate? The cost of working from a large site that can store your product, as opposed to your home or a hot desk, can be the difference between making it and failing. Take scale into consideration, too. Managing orders now might be a breeze, but if you scale too quickly without thinking long term, the management of your inventory could lead to catastrophe.
Control: Who has final say over your customer experience?
Can you control the purchase and sale of items and manage any complaints sufficiently? Which option will allow you to control the flow of revenue through the business, and which has the better list of elements that have a direct impact on your start-up costs?
Controlling your business and the way money flows through it is vital. Accounting software like QuickBooks will help you manage your inventory and sales across multiple channels as well as really easily manage refunds and cancelled orders. If dropshipping is your preference, invest in a system that allows you to maintain control, a solution like Webgility can help you simplify and streamline processes as you grow.
Customer service: How will this impact customers?
Can you achieve a high level of customer service when using a model like dropshipping? If your customers are all local, you might prefer to manage items from within a small warehouse. On the flipside, if your business is on the larger end of the scale, you have customers all over the world and you have a huge amount of inventory held at one time—purchasing straight from a wholesaler would likely make more sense.
Make sure you always keep the customer updated with any delays or problems and that you thank them for shopping with you. It’s the simple things that cost nothing, which often make the big difference. Five ways to improve your your return process is a useful guide to implementing client-friendly processes that will help your business retain customers long-term.
One size does not fit all
Is dropshipping suitable for your niche? What does your business do and what is the relationship with your customers based on? If you have an audience who come to your site to learn about your niche and purchase branded products, you might want to keep tight reigns on how you deliver and personalize the experience. If creating highly engaging content and establishing an emotive connection with visitors is just as important as selling, then giving staff more responsibility for processes and keeping them in-house might be your best bet.
If your aim is to attract a high number of visitors to your site and get them to convert to sales quickly, integrating a dropshipping partner to deal with a large number of orders may be the most cost and time-efficient way for you to run your business.
Short-term financial freedom should not be put above long term profitability and customer satisfaction. Consider the four Cs and ultimately decide what kind of e-commerce business you are. Dropshipping may be the perfect antidote for a struggling start up enterprise, or it may be the first step in generating revenue for a company with big plans to grow capital quickly. Dropshipping is seldom going to tick all the boxes, but it may just help you move some.