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Uassist.ME Team - Sep 21, 2020

Pros and Cons of Having a Dropshipping Business

A dropshipping business is an ideal solution for those who do not want to suffer any overhead costs or maintain a warehouse while being able to make a profit. However, as enticing as the idea of simply engaging with suppliers to process your orders sounds, it requires deep consideration before the final decision.

UAM-Dropshipping

The pros and cons, ironically, weigh equally where a dropshipping business is concerned. We are going to highlight some of them below to help you make an educated decision:

Pros:

  1. When you go the traditional route, you always need a lot of capital in hand to be able to stock a warehouse. The advantage of dropshipping is that it eliminates the risk of incurring debt just to start your own business.
  2. The cost of inventory is the second menace you have to bear when you own and have to stock up your warehouse. Then, there are the other risks associated, such as ending up with too much obsolete inventory and having to devise ways of reducing it. Secondly, you may end up with very little inventory, which, too, can lead to lost revenue and stock-outs. With dropshipping, you can entirely focus on expanding your customer base and growing your brand.
  3. Dropshipping takes maximum advantage of the third party setup. Generally, the traditional operation includes warehouse ownership, organizing, tracking, labeling, picking, and packing, and then shipping the stock. In the dropshipping arrangement, you only have to ensure your customers receive their orders while the third party takes care of the rest.
  4. When physical inventory and associated costs do not constrain you, you can update your inventory more easily, quickly, and cost-effectively. If you are aware of how well a product is holding with resellers or retailers, you can simply offer it to your customers without having to wait for it to arrive in your warehouse.

Cons

  1. In dropshipping, order fulfillment control and lead times are entirely in the hands of third parties. This means that you will be safe from the warehousing stock costs, but you will have to bear the financial burden of the dissatisfied customers. If your manufacturers and wholesalers mess up somewhere, the customers will come complaining to you, and then you will be responsible for compensating them.
  2. Dropshipping allows the advantage of stopping sales of slow-moving goods or offering new products right away. However, the other side of this perk is that you have no control over the inventory of your suppliers. If they run out of stock, it means you have nothing to sell to the customers you committed to.
  3. Bulk pricing may seem like a drawback, but in truth, the lack of it is the hidden cost in this desirable form of business. When you compare the payments for a large stock of inventory and each item you sell, you will discover how you pay more for each individual item you sell. If you wish to make bigger profits in dropshipping, then you must manage to sell more products than you could have in a self-owned and self-stocked warehouse.
  4. You are entirely responsible and answerable for any damaged, incorrect, unauthentic, and inferior quality goods your supplier delivers to the customers. In dropshipping, you deprive yourself of the personal touch that retailers with their own inventories enjoy. Due to this, you cannot attend to your customer’s problems as quickly as you like, and your brand’s customer service suffers a poor reputation.

Final Thoughts

Pros and cons are a part of every business. One cannot determine that a business will be a success or a failure based on advantage or disadvantage it features. If dropshipping works well for your business needs, nothing is stopping you from making huge profits in it. All you need is to arm your operations with the right parties and tools for foolproof dealings.

 

Written by Uassist.ME Team