Drop shipping allows retailers to sell goods without shipping or keeping inventories of products. When a customer places an order with a retailer such as an e-commerce store, the retailer in turn orders the items from a drop shipper who ships the goods directly to the ultimate customer. In this way, the e-commerce store owner never has to deal with the physical goods. This means that the retailer just does the selling and the drop shipper does the order fulfillment.
In theory, anyone with a good understanding of marketing and an Internet connection can start a successful e-commerce business with minimal capital investment. The main tasks are identifying profitable markets, setting up the e-commerce website, bringing in web traffic to your e-commerce store, and managing the orders through your drop shippers.
The benefits of drop shipping include:
This benefit is a big one because inventory is expensive. Managing inventory is a balancing act between having too little or too much. Too little inventory means you can’t fulfill all of your orders which results in fewer sales and reduced profits. If you make most of your profits during critical times of the year such as the November/December holiday seasons, and you have insufficient inventory, a large part of your yearly revenue is lost. Another problem is losing valuable repeat customers to your competition.
On the other hand, too much inventory is tied up money that you may never get back. Even if the inventory is eventually sold, the tied up capital is unavailable for furthering your near term business goals.
Easy Business Expansion
If the search engines increase your e-commerce traffic several-fold or if your marketing efforts bring spectacular results, you can immediately benefit without the need for expanding your inventory and acquiring the warehousing for its storage. There’s no need for hiring people to manage and operate the warehousing and shipping of your products. Internet traffic is sometimes volatile. With drop shipping, you won’t get stuck with unneeded warehousing and personnel if you lose traffic.
Wide Offering of Products
Because there is no risk of getting stuck with unsold inventory, you can expand your product selection beyond that of your competition who are burdened with inventory. A wide offering of products give your e-commerce store increased appeal and profit potential. If a drop shipper stocks the product, you need only list it on your site. This allows you to test products risk free.
The down sides of drop shipping include:
When you have your own inventory, you can keep an exact count of what’s in stock. This is more difficult when relying on a drop shipper who fulfills orders for many merchants besides yourself. Their inventory is constantly changing and if you aren’t careful, you may be selling unavailable items. Choose drop shippers that provide inventory reports of the types and number of items they have in stock. The more ‘real time’ the reports, the better. Using multiple drop shippers instead of reliance on one will give you greater flexibility in fulfilling your orders.
Unreliable Drop Shippers
Unreliability can take many forms. Drop shippers may send inaccurate shipments that contain the wrong items or numbers of items. Shipments can arrive late or not at all. Some of their items may be chronically out of stock. Defective or damaged items may get shipped to your customers.
Always test your new drop shippers with small orders before committing to them. Another hedge against unreliable drop shippers is having a number of alternates available. Blaming your drop shipper when your customers complain isn’t an excuse they will accept. Ultimately, order fulfillment to your customers is your responsibility and this is accomplished through effective management of your suppliers.
Should you use drop shipping? The answer is a most definite yes. While it does have its challenges, they need not prevent you from enjoying its many benefits. Research your suppliers carefully, test them with small orders, select those that provide inventory information, and maintain good relationships with them.
Epic Design Labs offer website design, marketing, SEO, and e-commerce expertise. For answers to your e-commerce store questions, please contact us.