As online shopping continues to grow in popularity, entrepreneurs are increasingly looking to ecommerce to create a high profit, low investment businesses. Which is where drop shipping comes into play.
What is Drop Shipping?
Wikipedia defines drop shipping as, “a supply chain management technique in which the retailer does not keep goods in stock, but instead transfers customer orders and shipment details to either the manufacturer or a wholesaler, who then ships the goods directly”.
The main concept is that you’re selling products you don’t actually own. It means that you can set up an online store, include a mark-up price, and sell products to clients and forward the order to your supplier. They in return, ship the product to your customer on behalf of your company. There are many benefits and drawbacks to this business model, here are just a few:
Benefits of Drop Shipping
Low Investment. One of the biggest attractions to drop shipping is that it’s possible to launch a store without having to invest thousands of dollars in inventory in advance. Physical storefronts need large amounts of money before even opening their doors to purchase inventory, however with the drop shipping method; you do not buy the product, until a customer has made a purchase. This means low start-up costs and reduced risk.
Saving Time and Money. When you do not have to deal with a physical storefront, it’s easier to start your business. You do not have to find, manage and pay for a warehouse to store your products. You do no need to pack and ship your orders. There is no need to monitor and maintain stock levels. You do not need to handle returns or track inventory. Each of these things will save you time and money.
Flexible Location. Your business can be based anywhere. Your dining table. A pool in Cabo. A tent in Squamish. As long as you have an internet connection, a good relationship with your suppliers and are able to communicate with your customers then you have the freedom of the open road.
Diversity. When you purchase inventory it is easier and cheaper to buy a small number of items in larger quantities, however with drop shipping you can ultimately sell as many different items as you want, at no extra cost. If you have the time to list them on your site, you have the ability to sell them.
Scalability. With drop shipping the majority of the work falls on the suppliers. Yes to get those sales will require work, but if your business unexpectedly doubles, your workload will not. Meaning less growing pains for you as you scale your business.
The drop shipping model is not perfect however. Convenience, flexibility and price are all great attractions, but you must also consider the shortcomings of this method.
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