Interested in selling your products online? If so, you’ve likely heard of drop shipping. In this article, we’re going to highlight the benefits and drawbacks of drop shipping, and how it can help your business to sell product around the world.
By 2021, the Canadian ecommerce market is projected to grow to over $30 billion dollars. It’s a rapidly growing market and one your business can’t afford to miss out on. A common misconception surrounding ecommerce is that it’s difficult to set up and the logistics are a headache. This doesn’t need to be the case if you decide to leverage drop shipping.
What is Drop Shipping?
Drop shipping is a supply chain management technique in which the retailer doesn’t hold goods in stock themselves. Instead, they transfer customer orders and shipment details to either the manufacturer or wholesaler, who ships the goods directly to the consumer. This means you can set up an online store, include your mark-up price, and sell products to clients, all without ever having to hold the stock yourself. It’s an easy and cost-effective way to get an ecommerce operation off the ground. Here are five benefits of drop shipping:
Low Start-up Costs
It costs a lot to source inventory. Fact is, most start-up businesses struggle to shoulder this cost. With drop shipping, it’s possible to launch your store without having to invest thousands of dollars in inventory. Instead, you won’t have to spend any money until a customer purchases the product. This means a lower start-up cost and reduced risk.
Less Time on Logistics
With drop shipping, you won’t have to find, manage or pay for a warehouse to store your goods. You also won’t need to pack or ship your own orders. Monitoring and maintaining stock? Somebody else’s problem. Each of these small aspects together saves a lot of admin time.
Flexibility of Location
Another benefit of drop shipping is the ability to run your business from anywhere. As long as you have an internet connection, a good relationship with your suppliers and an ability to communicate with customers, you’re good to go. Always wanted to run a business while living rurally? Drop shipping makes it possible!
Diverse Range of Products
Businesses that hold their own inventory tend to list a smaller number of products and buy them in large quantities. With drop shipping, you can sell as many items as you want, at no extra cost. Your only consideration is taking a few moments to list them on your website.
With drop shipping, most of the work falls on the suppliers. If you’ve been killing it on SEO and your business doubles, your workload won’t go up with it. It means fewer growing pains as your scale up and make more money.
To provide balance, we also wanted to touch on the drawbacks of drop shipping.
Disadvantages of Drop Shipping
Low Profit Margins
The drop shipping market is crowded. Online retailers are taking advantage of the low overhead costs afforded by drop shipping to cut their prices. Can you compete with them? Make sure to research the prices your competitors are asking. If you can’t beat them, what is your unique selling point? Why should customers buy from you?
Reliant on Suppliers
When you aren’t selling products you’ve already purchased, it’s impossible to track your inventory. You’ll ultimately be at the whims of your suppliers. Sometimes they might run out of stock and your customers will be left waiting for their product. This is why it’s vital to only work with suppliers you trust with a solid track record.
Complications in Shipping
When drop shipping, you’ll be working with multiple suppliers. This can increase shipping costs. It’s not good business to pass these costs on to the customer, so you’ll face the prospect of having to absorb them. It will also mean customers receive goods in different packages at different times.
With packing and shipping out of your hands, you have little recourse for quality control. No matter the issue, the responsibility will ultimately fall on you, the retailer, to rectify and make good with the customer. This is frustrating when the issue isn’t your fault.
Find Out More
Interested in finding out more about drop shipping? Small Business BC offers regular one-on-one consultations with a customs and logistics expert as part of our Talk to an Expert series. Book today and receive answers to your burning questions!