The Essentials of Dropshipping

Running an ecommerce business can be very fulfilling, but it is also a great deal of work. As an entrepreneur, you are undoubtedly looking for ways to reduce the costs associated with shipping and streamline the logistics of getting your goods to their intended destinations in a timely manner. Small businesses, in particular, who are not shipping a large volume of packages daily or who have limited employee assistance, may need to look at a variety of options for their shipping needs.

Traditional options for shipping include USPS, FedEx, and UPS. It is important to weight the many considerations involved with shipping, including delivery time, the weight of the product, the dimensions of your box, envelope, or container, and whether or not you will opt for things like insurance, package tracking, delivery confirmation, or other handling and special fees.

While USPS may be one of the most economical for small businesses due to its pricing tiers, cost-effective parcel shipping options,  and commercial plus shipping, FedEx, and UPS end up being cheaper if your business ships heavy items. Additionally, FedEx has guaranteed delivery dates, while USPS’s lack of morning delivery times means that “next day service” suggested by USPS means it may not make it there by the end of business closing times. Small businesses may choose to look at shipping apps that will help them make decisions about shipping as their businesses grow and deal with the many issues related to scalability.

Since developing a shipping process that provides your customers with the best in customer service is key to consumer loyalty and repeat business, you may want to look at another option: Dropshipping.

What is dropshipping and how does it work? Dropshipping is a retail fulfillment method where the “store,” in this case, your ecommerce business, does not keep the products it sells in stock. When a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. The biggest difference between dropshipping and a traditional retail model is that, because the selling merchant doesn’t stock or own the inventory, he will never see or handle the product.

Dropshipping means that you will not need to worry about paying for a warehouse or supervising its operations. You will not need to hire employees to pack and ship the orders. You will be free of accounting issues regarding the tracking, loss, or recovery of inventory. You will not be responsible for handling returns, ordering products for housing, or managing your stock level.

What are the advantages of dropshipping? Not purchasing inventory or managing a warehouse means that your overhead expenses are low. Most successful dropshipping ecommerce businesses are run from with a laptop for less than $100 per month. Because all you need to run a dropshipping business is a laptop and an internet connection, you have the flexibility of working from your home office or anywhere you can communicate with suppliers and customers. Running and managing your business will not tie you to one location.

Because you do not make or own the inventory and do not have to pre-purchase any of the products you sell, you can offer a wide range of products to your consumers. You can list for sale anything that dropshipping supply companies stock, making scalability even easier as your business grows. With a brick and mortar business, the more orders you receive, the more work you will be required to do, but most of the work in a dropshipping business will be shouldered by your suppliers. This will allow you to grow your business quickly and efficiently, with fewer product development or shipping logistic issues.

What are the disadvantages of dropshipping? Nothing can be perfect, and the same can be said of running any ecommerce business. For small businesses that use dropshipping, there are some disadvantages.

Inventory can become an issue. If you are making and stocking all of your own items, you are able to keep track what items are in and out of stock. Sourcing from multiple warehouses will mean that you will need to stay on top of the inventory changes of these suppliers on a daily basis. Remember that these places are also fulfilling orders for other entrepreneurs, so the process won’t always be seamless, and by working with multiple companies, you create added complexities of your own as your customer base grows and more product orders need to be filled.

Also remember that because you do not produce the goods, you have little control over costs, including the cost of the goods themselves and expenses associated with fulfillment. Planning will help alleviate some of these concerns, but understanding your limitations related to your dependency on others is important as you embark on your entrepreneurial endeavor.

What are some questions you have about the dropshipping process? Feel free to share your thoughts.

Mike John
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