Dropshipping has been the talk of the town ever since the internet became a household name. In simple terms, dropshipping is simply a type of internet retail business in which the seller pre-checks orders from buyers and initiates the process of delivery. The latter is facilitated by the drop shipper or the courier company. If the product is ready to be delivered, the seller will send an email to the buyer will place an online order with the dropship provider. The provider will deliver the product to the purchaser’s door at the doorstep of the buyer.
It is a very lucrative business model that promises high-profit margins. But, like any business venture, it also has its share of demerits. As dropshipping suppliers take on customers, they have to set up an efficient purchasing system in which the quality of products is guaranteed. The main demerit faced by the suppliers is the loss of profit margins.
The suppliers experience inventory bottlenecks at times that affect their profit margins. The same is true for dropshipping suppliers too. Since the entire business process involves the supply of goods, they must source the raw material and the finished goods before launching their websites. This causes a reduction in their profit margins. Again, the same is true for the dropshipping suppliers.
Also, it is challenging for dropshipping suppliers to control the prices of their merchandise. They have to make sure that the products they source meet the buyers’ needs and the demand in the market. In the final analysis, this can be termed as a disadvantage of the business model. However, it is not a major demerit.
In fact, this disadvantage is one of the strengths of the dropshipping business model. Because the business model depends on the supplier’s discretion and commitment to the customers, there is no way for the supplier to ensure that the customer acquisition process will go smoothly. There are indeed some exceptions to this rule. A dropshipping business model can be successful where the customer acquisition is very smooth and is restricted only to a handful of suppliers. In these cases, there is minimal scope for any management. Dropshipping can be learned, and there are courses you can take to understand how it works. There’s this Course Detail that can help you understand the process more.
However, if the customer acquisition is too problematic, then the whole process is affected. The inventory supplier does not have sufficient stock, or the supplier has a low capacity to fulfill orders. In either case, it leads to delays in deliveries. This could lead to customer dissatisfaction, which in turn could lead to losses. A dropshipping supplier is forced to pass on the company’s cost to its customers in both cases. In fact, in many cases, the inventory provider charges the company for the service.
The dropshipping model’s above-mentioned disadvantages are perhaps why many entrepreneurs do not try out the business model. They think that there are too many inherent problems with the business model to try it. They fail to recognize that they have overlooked some fundamental aspects of the system. They fail to realize that they have not considered all the factors affecting the dropshipping businesses before choosing to work with a drop shipper.
The other reason why many entrepreneurs fail to see the dropshipping business model’s benefits is their failure to recognize a local retail store’s value. Most retailers, tiny retailers, fail to recognize an on-site storage facility value to help them with their storage needs. Many retailers have minimal storage facilities, while others may lack the space to set up a backup inventory depot. Even more, some smaller retailers may have a difficult time convincing the suppliers that they need such a facility. If a dropshipping retailer offers to take care of the storage requirements of a retailer, the retailer can expect the drop shipper to charge a higher fee and may even require that the retailer open a storage facility on-site.