For numerous reasons, ecommerce is more accessible today than ever before. Even if you have a modest budget and no experience, you have all the tools you need to go from a novice merchant to a top retailer — and one of those tools is dropshipping, the fulfillment system that allows you to list and sell products without needing to buy (or even see) them beforehand.
Dropshipping has been around for quite some time, and the disparity between its advantages and disadvantages has become ever starker. Used in the right circumstances, it can be superb. Used poorly, it can amount to a complete waste of time. So how do you get it right?
Let’s run through the major pros and cons of dropshipping, explaining how it might fit into your inventory strategy for the new year:
Pro: it avoids the complicated fulfillment process
The biggest strength of dropshipping is it makes it possible to sell without having to participate in the messy process of sourcing, packing and shipping products. Sourcing requires contacts and patience, packing is arduous and thankless work, and shipping invites complications with couriers, networking, and rates.
When you dropship a product, you only need the listing and integration with the dropshipping provider. Once you make a sale, the order will be handled for you. You can be anywhere in the world, and you don’t even need to be paying attention — you’re essentially the facilitator of a deal that doesn’t practically involve you.
Con: it limits you to generic products
Upon first checking out the product range of a dropshipping service, it’s easy to feel blown away by how much stuff is there. The items may consist mostly of items of clothing, consumer electronics, and appliances, but there’s plenty to be seen. Unfortunately, that positive impression doesn’t last very long. Sooner or later you’ll notice how ubiquitous those products are, and remember that everyone has access to that pool.
Lacking unique products makes marketing very challenging, because you have no selling points that are any different from those of your competitors, and nothing to offer that shoppers can’t find elsewhere. It requires you to get creative with your copy and your landing pages, fleshing them out with interactive content such as PDF flipbooks and all the rich imagery you can provide (a good way to do more with generic products is to create your own visuals from in-situ shoots).
Pro: if you don’t sell, you don’t pay
Just as using PPC advertising allows you to pay nothing if your ads don’t get any clicks, you can list all the dropshipping products you like without paying anything if you don’t get any orders. If you don’t use dropshipping, then you need to maintain a certain amount of stock to meet demand — stock that you must create in-house (costing you money) or purchase from elsewhere (also costing you money).
If you decide to operate in a niche that’s only viable at certain times of the year, or waxes and wanes in popularity, then dropshipping will allow you to keep your costs down during dry spells but comfortably meet demand whenever things pick up. This is particularly great for budding entrepreneurs who can’t be confident that the future will bring success.
Con: the profit margins are thin
The price you’re given for a dropshipped product is the same price that any other merchant gets, which can cause problems for your profitability. Not only must you add to the price of production to make the venture worthwhile, but you must also keep your prices down to compete with others selling the same things — this is a difficult balance to get right.
If you set your prices too high, it won’t matter how superior your website or copy may be: shoppers will pick cheaper routes to get those products. And if you set your prices too low, you’ll barely make any profit on each sale, and the whole thing will be somewhat pointless (you’ll also set a bad precedent that might come back to haunt you if you raise your prices in the future). To make a lot of money using dropshipping, you need to have an exceptional understanding of context and use it to set the right price at the right time.
Is dropshipping right for you?
So, with those pros and cons in mind, is dropshipping something you should pursue in 2019? Well, it really depends on what you’re trying to achieve. If you’re looking to keep the stress down and dabble with ecommerce alongside other projects (viewing any profits as bonuses, essentially), then absolutely — it’s ideal for that.
But if you’re aiming to grow your business into a major online retailer, dropshipping is something you should only use for the occasional product (maybe to pad out your range early on). It’s too restrictive and competitive to be a big money-spinner in the long term.
Whatever you do, though — and however much of your inventory you flesh out with dropshipping — be sure to keep your inventory under control with automated management. The bigger your ecommerce business gets, the more important it will be that you can keep everything under control without having to put in a lot of manual work. In fact, you may be interested to know that with automation comes higher profits.