To get an idea of the importance of dropshipping, it is enough to remember that some studies estimate the number of current electronic businesses that are managed through dropshipping at 33%. But what is this dropshipping thing? This technique consists of stores selling products without the need for them to pass through their hands, but instead they are sent directly from their suppliers to the end customers.
Although it may sound groundbreaking, the truth is that the first experiences with dropshipping date back almost 20 years. However, the rise of ecommerce has made it an increasingly used tool.
How dropshipping works
All stores are aware that two of their main expenses are going to be the purchase of product to sell and the cost of having to store it. Traditionally, stores buy in large volumes from leading brands to get deeper discounts. The more they buy, the more margin they can have later when putting them up for sale.
This is where dropshipping comes in, created with the idea of eliminating the cost of storage and eliminating the necessary investment in stock. If we manage to agree with our suppliers that they are the ones in charge of making the shipment from their own facilities and without the need to have previously purchased it, we will be able to continue selling while avoiding these two problems.
The question that arises is what incentive the big brands would have to accept this way of working. With the ability to secure large lot sales and more easily ship them to stores, why dropship?
For this reason, it is often second-rate or unknown brands that opt for this modality. In this way, they benefit from the image and prestige of the online store that is going to put their products on sale, being able to access customers that they might not be able to reach if they had to put up the sales force. In this way, both the stores and the suppliers benefit from each other. Due to the growth of dropshipping, some top brands are beginning to be less reticent about these ways of working.
Once the agreement is reached, the operation is simple. When the store receives an order for one of its dropshipping products, it duplicates it and sends it to its supplier. This will be in charge of preparing and sending it, but the relationship with the customer will always be the responsibility of the store, which will also be the one that receives the payment. The client will not even have to realize that a third party has been involved in the process (although their name may appear on the packaging, and even grant you the role of authorized distributor of the brand).
Dropshipping is not for everyone. Each company must study if it fits their needs.
Advantages of dropshipping
Eliminate stocks: as we have already said, stocks are a nuisance for stores. You need a large initial investment to buy enough product to get the biggest discounts possible and you also have to bear the costs of its storage. All of that gets buried with dropshipping.
Risk reduction: how much of each product are we going to sell? Which will be the winner of the new generation of household appliances, televisions or consoles? In short: how much merchandise do we have to buy. All these decisions imply risks that we have to assume with our pockets in traditional sales models.
Scalability: dropshipping is an ideal tool to be able to grow at full speed or for businesses that take time to start. By not having to buy product to start working or having to deal with the logistics of your orders, it will be much easier for you to deal with sales spikes and the growth of your online store.
Location independence: as it is a purely online store, you will have more freedom when choosing where you want to be located.
Disadvantages of dropshipping
Lower margins: it is true that your suppliers are going to take advantage of your sales force, but that does not mean that it is a completely fair deal for them. Your suppliers are going to have to assume most of the risks and costs, so you are going to move in lower profit margins for each sale.
Management of ecommerce and online marketing: competition on the internet is fierce and you are going to have to fight, literally, with the entire planet. If you want to use a dropshipping model, make sure that you will be able to fight for your space in the online world. Knowing how to position your e-commerce in searches will be vital and possible duplicate content (in product descriptions, etc.) will play against you, penalizing you in online positioning.
The importance of the brand: selling second brands is not easy. While the most recognized manufacturers make it much easier for you to gain the trust of buyers in advance, the unrecognized brands are going to be an additional obstacle to achieving your sales. You will have to work a lot on the reputation of your own brand so that people trust you and the products that your website hosts and you will always have many risks associated with your brand.
Lack of control over the merchandise: not dealing with logistics tasks does not mean that you can ignore them. Customers will claim you and that is why you have to make sure that your suppliers maintain the quality standards that you want for your brand, both in their products and in their shipping and delivery times. In addition, it will be difficult for you to know the state in which the orders are delivered, complicating the claims.
Possible remoteness of suppliers: China is the factory of the world and it is difficult to compete against its prices. However, delivery times from there -or from any other country- can be very long for your customers. Remember not to count on price as the only variable and study the various manufacturers you can turn to. There is even the figure of dropshipping purchasing centers, which are dedicated to grouping companies that work as suppliers of products through dropshipping so that it is easier for you to have access to all of them.
It will be the job of each company to assess whether dropshipping suits their needs. For example, companies that are highly focused on the value of their own brand may be reluctant to work with so many suppliers (often less well-known), with less quality control, more complexity in claims, and that all of this is associate with your signature. However, it could be very attractive for companies that are just starting out, have a reduced budget, want to offer a wide variety of products without assuming the costs that this traditionally implies, or want to immerse themselves in the world of e-commerce for the first time.