Nowadays, any e-commerce business must be familiar with the
concept of Dropshipping , especially if it is just starting out and has a low budget, since this type of online store greatly reduces investment.
In this post we want to make it clear to you in detail
what Dropshipping is and what its
main advantages and complexities are. After reading it you will understand why it is such a valued ecommerce model lately. Let's get started!
What is Dropshipping?
We can define Dropshipping as an
online sales service for products from wholesalers (who will own and store the products) through our online store. These wholesalers will be responsible for sending the package to the end customer once the purchase has been made; hence the term
Dropshipping: “dropping the shipment” .
That is,
dropshipping is the sale of products without investment and at retail, in which the retailer and owner of the e-commerce is responsible for carrying out the sale without owning the product. When selling a product, they buy it from a third party and have it delivered directly to the customer. The retailer does not handle the products at any time.
How Does Dropshipping Work?
The owner of the
Dropshipping ecommerce is dedicated to selling without stock and, to do so, needs to reach an agreement with the wholesale suppliers of the products (Dropshipper), so that they are the ones in charge of sending the orders to the end customers.
Therefore, if you decide to create a Dropshipping store for your online business, you will be an intermediary for the Dropshipper and your main function will be to get the sale to the final consumer. This is why we say that
the retailer does not need to store the products that he has for sale, which will be one of the advantages that we will see below.
Advantages of Dropshipping
With what we know so far about this type of online store, we can say that there are many
advantages to Dropshipping :
Low investment
One of the biggest advantages of dropshipping is that you don't have to buy a product until you've sold it. Therefore, by
not having to maintain inventory in advance or have storage infrastructure, you save a lot of money and the risk of financial loss is minimal.
You won't need to hire staff to manage the product warehouse either, as the supplier will take care of all of that. Without the need for large investments, you can
start a Dropshipping business on a very small budget .
Ease of Management
By
not having to manage the physical products you sell, you will not need to manage inventory at an accounting level, nor package and ship your orders, since suppliers will be in charge of these tasks.
You will save a lot of time by avoiding managing inventory levels and internal returns and shipments. Therefore, you can use all this time to develop effective sales techniques and fully focus on your Dropshipping online store.
Scalability
Dropshipping is an easily scalable business model , as it is very easy to expand your catalogue and you can test how the products work (if they sell more or less). Remember that you do not assume any financial risks. In this way, if the suppliers have them in stock, you can offer a wide range of products to your customers at no additional cost.
Expansion will involve less cost and work, as suppliers will be the ones processing most of the work for those additional orders that help you grow.
The benefits we have mentioned so far make Dropshipping a very attractive ecommerce model, but, unfortunately, not everything is positive.
Disadvantages of Dropshipping
It is clear that not everything can be perfect, so we consider it necessary to mention the
main disadvantages that we can encounter when setting up a Dropshipping store:
Lower profit margin
The
profit margin in Dropshipping will be lower than if you buy the products and then sell them. This is because it is a very competitive field, as many merchants are starting out in this model due to its low costs. Therefore, we cannot set prices too high and our profit margin will be reduced.
It is advisable to choose a niche with few competitors so that you can play with your prices and increase those profit margins on sales. Even so, let's remember the importance of working on web design, usability and, above all,
SEO to be able to stand out from competitors. The latter is vital for any business model, not just for Dropshipping.
Difficult inventory control
With a dropshipping store
you cannot control the products and their shipments as if you had your own stock. When selling products from different wholesalers, the available and out-of-stock items change from day to day and we cannot always have up-to-date information.
This may result in errors, delays or incidents in shipments and you will be solely responsible for dealing with dissatisfied customers.
Shipping costs
In dropshipping, when working with different suppliers,
shipping costs become more complicated . If a customer buys several items from different manufacturers, you will have to pay for shipping for all of them separately to each wholesaler. It is not recommended to pass this charge on to the customer as it would be too high a cost.
In addition, the order may arrive to the customer in parts and this can be very annoying when it comes to delivery times. They will have to keep an eye on the courier for more than one day and this will affect the image they have of your online store.
Dropshipping as a Business Model
Dropshipping can be ideal as
a complement to another existing business , so you could try selling products without investing capital in it. If it works, you buy the stock and sell it directly. At
LineaGráfica we believe that basing an entire business on this sales model can be a bad idea due to the
small profit margins it brings us (as a general rule), as well as the lack of control over shipments, stock... which make customer service and attention usually poorer than a traditional e-commerce.
Although we must remember that everything is relative and that it will depend on your sales force, how you work the store and your way of facing the competition. Its advantages are indisputable, but we cannot ignore the complexities and problems it presents.
How to do Dropshipping with PrestaShop
Although most Dropshipping models use other types of websites that end up lowering the quality, if you want your project to be durable and scalable from an organic point of view, PrestaShop is probably the best solution. In addition, thanks to the
PrestaShop module for Dropshipping , the entire process of sending emails to suppliers and carriers will be automatic with customizable emails.
If you are considering setting up a Dropshipping store or already have one, tell us about your experience in the comments!
