Selling on Amazon comes with overheads. The basic functions of storing and fulfilling customer orders make up a significant part of a seller’s costs. Dropshipping outsources these and other functions to third parties, such as suppliers, that would handle the production, storage, and fulfillment for you.
Usually, it’s not a great option for sellers trying to differentiate themselves and establish a brand name with wider margins, but if you are selling generic products where you compete on price, dropshipping can shave off your outgoings.
The customer experience will be largely the same. They will make an order, the seller will receive it, and then, once confirmed, the order will be forwarded to the dropshipper, who will then deliver it to the customer.
Who your dropshipper is can also depend on who your customer is. Some product manufacturers offer dropshipping services and can serve both retailers and direct customers, though they may require bulk purchases that make it difficult to start or grow a business at scale.
Similarly, some wholesalers also offer dropshipping services, but only to retailers.
Some dropshipping deals allow you to have control over the customer service and marketing aspect of the business while the dropshipper will take care of the actual delivery and handling.
Benefits and Drawbacks
Several things need to be taken into consideration when deciding whether to use a dropshipper or to do it yourself
Pros:
- Costs: Dropshipping will let you lower your fixed and operational costs that may come from handling the shipping and keeping a storage facility. For the same reason, startup costs will be a good deal lower if you kick off your business with dropshipping, allowing you to defer blogger investments such as storage arrangements to when your revenue flows are stronger.
- Can be automated: Sellers that dropship have numerous tools, plugins, and apps like Oberlo, Printful, and Spocket to help them take a more hands-off approach to running their business.
- Scale: If your dropshipper is your supplier, you can take on more orders without the additional headache of needing to store more inventory or shipping it, as that is all taken care of for you. Additionally, a dropshipping business is quick to set up because you don’t have to wait for your inventory to be produced and sent to the fulfillment center - they are shipped directly to the end buyer.
- Multiple channels: One clear advantage of relying on third parties to fulfill your orders instead of FBA is that it lets you use the same service to sell through other channels, such as your own website or social media.
- By a similar token, dropshipping means you’re not tied down to a single location and can run your operation from anywhere in the world.
Cons:
- Margins and brand building: Dropshipping is not a great option if your strategy is to stand out from the crowd and differentiate your product - they will be more generic and will not provide a unique selling point or much to build a brand identity with. This means you will be competing on price, so margins are low and volume is crucial.
- The fact that dropshipping lowers costs and is a popular option for beginner sellers also makes it a highly competitive space.
- Control and delivery times: Outsourcing important pillars of the business means you will have less control over them. This includes order selection, packaging, shipping, and the actual timelines of the shipping process, which means you often can’t give customers a precise timeline of when they will receive their orders, potentially putting them off buying from you.
- A large part of the actual inventory management process could also be out of reach, as you won’t have constantly updated insight into how much stock you have at any given time, which can also translate into items being out of stock without you knowing it.
- Promotions and quality: If you dropship, certain tools you have in your marketing arsenal, such as offers based on bundling products or offering free shipping, may be unavailable to you because you don’t handle fulfillment.
- Not being as involved in the fulfillment process also means that you won’t be able to keep an eye on product quality.
Whether or not you go the dropshipping route will depend a lot on what kind of business you want to build, and what level you want to compete at. If your strategy is to be a low-margin, high-volume seller then it would be a good option, or if you wanted to have a boost to start-up and gain revenue traction before making your brand more robust through other avenues like FBA.
If, on the other hand, you want to put your mark on the products and carve a niche out for your brand, you would be better off looking for fulfillment options where you have more oversight and more options to create a connection with your customers.
A few best practices to keep in mind when you set up a dropshipping operation:
- Customer service: Not having to worry about fulfillment frees you up to spend more time getting to know and please the customer. With dropshipping, customer service is one of the areas where you can differentiate yourself. Anything you can do to make customers prefer your brand to competitors is crucial in such a low-margin environment.
- Try many products: Not having startup costs means you have a relatively low risk of trying out new products to see what will work. You are working on low margins anyway and don’t necessarily need to bulk buy. If the products work, great! If not, there’s no real harm done.
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