When drop biscuits were first introduced, their appeal was the possibility of biscuits at the table with fewer ingredients, fewer prep tools, and less prep and clean-up time than scratch biscuits. Not mentioned were their aversion to left-over uses, the hard, lumpy biscuit exteriors, and the unpredictable concentrations of spices, bacon bits, or cheese added to the flour.
Likewise, dropshipping promises some very attractive benefits to the right online business owner, under the right circumstances. As well, there are some significant accompanying considerations.
A Promise Fulfilled Never Fails To Go Down Smoothly (Pros)
Dropshipping means that a business owner has an existing business and adds an online component to the business. Instead of purchases made in a brick and mortar store, a customer goes to the website and places an order. The warehouse inventory company or fulfillment company receives the order, and they package it and send it out.
Sound appealing? It does because start-up costs are lower whether you are adding a new line of accessories to an existing brick and mortar boutique or whether it is already an on-line boutique. The first cousin to that benefit is that of inventory handling.
A business incurs the expenses of physical warehouse and retail store space that precede the issues of inventory. One of the biggest issues involving inventory is that the business often ends up with stale inventory and tax liability; this translates to lost revenue, increased expense, and a bad taste in the owner’s mouth. Because the supplier has the responsibility of inventory, the smooth, buttery goodness of that deal is the ability to provide the items the customer wants without the inventory hassles.
They handle all of your fulfillment tasks
Whether orders originate from catalogs, an on-line storefront, or brick and mortar walk-ins, dropshipping has an enormous appeal because all of the fulfillment tasks are completed for the retailer. The owner’s primary post-website-maintenance task is to ensure the orders reach the supply and fulfillment company.
If those were not enough, an additional anticipated benefit of dropshipping is that it allows the retailer to test a product without enormous inventory investments and the risk of outdated inventory because the retailer pays only for the inventory sold. That fact in itself should increase profits because the retailer can minimize losses on slow-moving products and optimize sales of popular products or services.
An Unfulfilled Expectation Is Like A Mouth-full of Dry Bread (Cons)
First, an inferior supply partner can make a business owner feel sick to the stomach. The supplier does not hear from the customer if an error is made or an expectation is not met. And the supplier doesn’t lose anything if customers switch to a competitor who happens to dropship using the same vendor. Making sure one uses a quality partner is a decision that never disappoints. Though not commonly reported, some supply companies have illegally used the logo or intellectual property of some of their clients. Be sure to have a specific and thorough drop shipping contract.
Control is a key factor
The blessing of drop shipping is also the risk. The blessing is that the entrepreneur doesn’t incur the expenses of inventory acquisition, inventory maintenance, order fulfillment, and disposal of obsolete items. The risk is, if the supplier runs out of stock, then so does the business owner. The good news is so do the competitors if they use the same supplier.
Worth a mention is the fact that a retailer, if the space is available, can, independently of the supplier, stock items that are certain to be sold to avoid stock-outs of the supplier, move items out with a mark-up not available through the supplier, and offer items as a back-up in a natural disaster that affects the supplier.
Make more money
The money made is from traffic through the online store and not mark-up as in a standard retail setting. The supplier does not sell in huge bulk discounts to the buyer. Not only that, but suppliers also have an objective to make money and the owner has little control over the supplier using substitutes that cost less and are of inferior quality and obtained from the manufacturer at a discounted price to the supplier.
On a positive note, there are inventory management systems that can connect with those of the supplier so that the business owner knows in real-time inventory numbers.
Less customer service
The last consideration, and perhaps the most visceral one, is the merchant forfeits the opportunity for hands-on customer service; particularly for his most valued customers, this could be a problem. The supplier does not hear from the customer if the items sent are wrong, late, or damaged. Even though the business owner will deal with the customer, the owner is still dependent on the supplier to make things right, and the owner can not control the protocols or policies of the supplier that may delay resolution.
Man does not live by bread alone
The moral to this story? Man does not live by bread alone. Forgive the pun. He lives in business by smart work, hard work, sound due diligence before making decisions, and making well-informed choices.
Many of the entrepreneurs who have preceded you down that path maintain that dropshipping works best, though not exclusively, when owners have begun an online business with a store-front already, and drop shipping is simply a service dimension added to the existing business.
Dropshipping from scratch is not impossible, but it can be frustrating with benefits that rise ever so slowly to the top of the balance sheet.
What has your experience been with dropshipping? Is it something you would recommend? Let us know in the comments.
This article originally published on GREY Journal.