Dropshipping is a very popular business model. You only pay for the products you actually sell, you don’t need to keep products in stock and you don’t need to ship orders. But dropshipping isn’t your ideal get-rich-quick scheme. So, what are the pros and cons of dropshipping?
- The definition of dropshipping
- Dropshipping companies (in Europe)
- The benefits
- The disadvantages
- Frequently Asked Questions
The definition of dropshipping
With dropshipping, you are selling products in your online store that are shipped from a wholesale supplier. The customer still buys from you, but the online order goes to the manufacturer or wholesaler who will then take care of the shipping. So, you don’t need to send a parcel yourself. This ecommerce method has its advantages and disadvantages.
The popularity of dropshipping
The method is getting more and more popular. And it seems to be used mostly by entrepreneurs who just started their business. Many products you see in Instagram ads for example are sold by online retailers who are active in the dropshipping business.
Customers often won’t notice that a business is selling products through dropshipping, although there are some factors that could give it away. Think of very long shipping times or generic product images you can also find on other websites (like AliExpress).
Customers often won’t notice that a business is selling products through dropshipping.
We couldn’t find any newer data, but a study from 2014 showed that between 22 and 33 percent of online retailers in the US used dropshipping as their primary method of order fulfillment. You can imagine that share has only gotten higher in the last few years. This is thanks to popular ecommerce software, which enables online retailers to go into the dropshipping business.
Another study, done by the Lehigh University, shows that dropshipping was recognized by 88 percent of retailers as being “inevitable for their long-term success”. Among the benefits, they have mentioned increased revenue and improved customer service.
Dropshipping companies (in Europe)
If you are looking for dropshipping companies, it can be hard to find the perfect one. It’s also rather impossible to list all dropshipping companies here, as there are different suppliers for different retailers, industries, and countries. Here are three dropshipping companies that might be interesting:
Oberlo is an online platform that allows online retailers to find trending products and easily import these products from suppliers directly into their Shopify store. Retailers can then ship them to their customers. Shopify acquired Oberlo in 2017.
Spocket collects dropshipping wholesalers from Europe and the United States. With more than 50,000 connected retailers Spocket has products in almost every sector.
Printful is an on-demand print & embroidery service. The company takes care of all fulfilment and warehousing. Online retailers can use Printful to sell their own custom design products online.
The benefits of dropshipping
There are many benefits to dropshipping. The most important one is that with this method, you probably don’t have to invest a lot in order to start an online store.
With the ‘traditional’ way of conducting ecommerce, you buy products in bulk, you stock them somewhere and you ship them whenever someone orders them. This means you need money to buy the products, you need warehouse storage space to stock your products and you need logistics companies to get the items shipped.
With dropshipping, you only need to make a deal with a wholesaler of manufacturer that offers dropshipping. Then, if a customer orders something you offer in your online store, it’s the company that has manufactured or bought the products, that stocked them in a warehouse and that will ship the items to the customer.
So, you don’t need to worry about buying a big stock of products, even though you’re not sure you will sell all of them. You also don’t need to rent a warehouse to store your items until they get shipped. This also means you don’t have stock that could get out of date, that could get out-of-season or that might end up even worse in case of a fire, flood, or other (natural) disaster in your warehouse.
For starters and growing online stores
Dropshipping seems like the ideal way of doing business for entrepreneurs who just started. But it could also be the solution for growing online stores. Because it’s quite easy to scale. If you’re ready to sell more items, just include more items of your dropshipping partner (or maybe close a deal with an additional one) in your shop. Scaling your online store is literally a mouse click away from you.
Dropshipping seems like the ideal way of doing business for entrepreneurs who just started.
Expanding your assortment
That’s also why dropshipping is ideal for expanding your assortment. If, for example, you’re not sure if certain products or product categories will turn out to be a success, just use dropshipping to find out. If it does not fit your online store or business model, just remove the items from your store. There’s no obsolete stock you need to get rid of!
Dropshipping can also be used for up-selling opportunities. Imagine you do have stock and you sell a very popular product. Maybe, you’re the only one in your market that sells this product. That’s great, but you could be missing out on extra revenue if you don’t do up-selling. With dropshipping this can become a quite effortless job. Just pick out the goods that perfectly accompany your unique product and offer them in your online store through dropshipping. This way, you don’t have to invest much to maximize the possibilities of your online store.
The disadvantages of dropshipping
Of course, there are also many disadvantages. And many flashy marketing websites promoting dropshipping often don’t elaborate on these drawbacks. But it’s important to know what you’re dealing with once you make the decision to operate an online shop through dropshipping.
You’re still responsible
The most crucial disadvantage of dropshipping is that you still have a responsibility to your customers. They may end up getting the products from your dropshipping partner, they still have placed the order with you. They don’t have anything to do with the fact you ‘outsourced’ your warehousing, fulfilment and shipping. As an online retailer getting the money from the customer, you’re the party that is responsible when that customer isn’t satisfied with the order.
So, if a drop shipping wholesaler or manufacturer gets in trouble and can’t manage to ship the products in time, or the products get out of stock, you are the one who have to solve this issue with the customer. Not the company that shipped the items in the first place.
Not the most original assortment
Another drawback of dropshipping is that, due to the popularity and the limited number of generic dropship provider, you probably won’t have the most original offer out there. The products you can sell through such a program, are also the products thousands of other online retailer can and will sell.
Generic product images
In line with this are the product images you may use when you enter a dropshipping program. Basically, there’s nothing wrong with these product images. But often they are not very detailed, or they are made for a different target group (Chinese consumers for example) than the one you’re aiming for.
An extra drawback with regards to these generic product images is that it’s quite easy to find the original source with tools like Tineye.com or the reverse image search feature in search engines like Google and Yandex. These can be used by both your customers and your competitors! With a simple query, customers can buy the exact same item somewhere else (maybe for a lower price), while your competitors can easily find out where you buy your products and then sell these themselves.
Frequently Asked Questions
Here are some frequently asked questions about dropshipping:
What is dropshipping?
Dropshipping is a business method in which online retailers sell products they don’t store themselves. Often it’s the wholesale supplier or manufacturer that handles the storage, fulfilment and shipping. The customer still buys from the online retailer.
How is dropshipping different from wholesale ecommerce?
Dropshipping is similar to wholesale, but there is an important difference. With wholesale, you buy the items you want to sell and you stock them. With dropshipping, another company is taking care of the storage of products and the fulfilment (getting the items to your customers). With dropshipping, you only pay for the items customers have ordered.
How to take care of returns with dropshipping?
As an online retailer in the European Union, you are still responsible for possible returns. In the EU, the rules state that customers must have the opportunity to cancel and return their online order within 14 days.
So, if you sell products online through a dropshipping program, you are responsible. If a product is broken or defective, you might consider shipping a new product to your customers without asking them to return the broken one. Otherwise, the costs could be too high for you.
For non-defective products you might ask shipping costs if the customer wants to return the items.