Dropshipping: Too Good to be True?
Sitting at home relaxing (because now that is what we do but prior to lockdown – “sitting on a beach in an exotic location relaxing”) while your online shop sells products that will be sent by someone else sounds like an amazing business model but is this too good to be true?
This type of business is called dropshipping and it has been a very popular model in the past. It means that a business does not have to keep products in stock in order to sell it but buys it from a third-party supplier. It is the supplier that ships the product directly to the purchaser.
It sounds like an easy way to sell; one that takes away a lot of the worries associated with the selling process and 33% of online stores make use of this option. For the business it is a hands-off sale method; it is the third-party supplier who looks after the product, orders the inventory and fulfills the orders. The supplier has the product and the warehouse. It sounds like something everyone can do, but it is not as easy as it sounds and there are definite pitfalls with this retail fulfilment method.
Some statistics show that around 90 percent of those who make use of dropshipping do not proceed past the first month. The risks associated with this model include high shipping costs, limited profit and very little control over the process and especially quality control.
There are limited profit margins because although a dropshipper purchases from a wholesaler it is not at wholesale prices. The items are bought as they are sold on a one-by-one basis, therefore, the prices are not the lowest that you could get because they are not being bought in bulk. There is also a huge amount of competition because it is relatively easy to enter and start an ecommerce enterprise using the dropshipping model. And with competition many other sellers will be trying to use the lowest price to attract customers, which will impact on the amount of profit placed on the product in order to remain competitive.
The wholesaler is responsible for the shipping which also means that the dropshipper has to pay the cost of packing and shipping to each customer and each order, this will eat into the profit margins. If multiple products are bought by the same customer from different suppliers each one needs to be shipped and the cost of shipping will add up. It can be difficult to cover these costs and it is definitely not the right choice to add these onto the costs being paid by the customer as they then become more likely to abandon their carts because of high shipping cost.
The main risk associated with dropshipping is the loss of control. Making use of this process means that the warehouse, fulfillment and shipping is all done by the supplier, the product is never in the hands of the dropshipper. This translates into the quality checking also being done by the supplier, there is no way to check what is being sent to your customer, which also means that dealing with returns becomes complicated. The time scale from click to delivery is also in the hands of the supplier which means you have no control over the time scale. All the blame will not sit with the supplier but in the eyes of the customer it will be with the online shop. Shipping products through this way means that negative customer feedback will have an impact on the image of the shop, and negative feedback has a direct impact on sales.
So before putting your feet up consider contacting a sales support company. A possible solution is to find a company that can handle the difficult components of the online shop such as one providing fulfilment services. A company that provides sales and management consulting services can also advise which business models will be the best one based on the seller’s individual requirements and expectations.
How the London Bridge Project Can Help to Deliver Success
The London Bridge Project (LBP) is a leading sales and management consulting firm that provides both amazon consulting services and amazon sales support for businesses looking to grow exponentially within the biggest marketplace in the world. We offer a complete end-to-end service for Amazon based businesses, which includes providing valuable insights into Amazon sales data and a pipeline of under-explored opportunities within your niche.
If you would like to learn more about how the London Bridge Project can help your online business, make sure to contact a member of our team today to discuss your requirements.