It is definitely a common misconception that dropship business is a shortcut way to success. The scheme itself sounds like easy money: sell goods from other people without having to deal with the management. In reality, there are still obstacles and drawbacks that one has to face when diving into this venture. So, what is dropship exactly, and what advantages and disadvantages that come with it?
What Is Dropship and What Are the Pros and Cons?
If you are not familiar yet and wonder what is dropship, it is a method in retail industry where one sells item without keeping stock of a product. In lieu, they purchase the goods from another party who shipped the products to the customer directly. This way, the sellers do not need to handle the product themselves. For novice entrepreneurs, it’s a great and accessible model to start their business.
Despite being an ideal way to learn and test business ideas by knowing and choosing products demanded the most by market, dropship has its own pros and cons. To know about what is dropship beyond the definition, read about the benefits and drawbacks of it below:
It requires less capital
One of the biggest pros of dropship business is that you don’t need to invest considerable amount of money to launch store as inventory. In this model, you don’t even have to buy the products to be sold, unless the transaction with customer is already done and you’ve sold the said item.
It’s easy to start
When you aren’t dealing with the goods physically, running a business store becomes far easier. There is no need to worry about using service or managing warehouse, organize orders by doing packing, shipping and returns, keep a track of inventory stock, and doing accounting work on stock level.
It requires lower overhead costs
Related to prior point, person who perform dropship spend lower amount of overhead expenses because they don’t have to manage warehouse or buy inventory items. Of course, as the business grows in the future, chance is the operating costs will increase too, but it’d still lower than conventional business type.
It allows you to choose flexible location
As long as you have internet connection, you can run dropship business from anywhere. Most dropship sellers are based on their home. You just need decent communication with your customers and suppliers.
It offers less profit margins
As mentioned before, overhead costs of dropship business are low, but it has low returns as well. Most dropship business owners have to do a lot just to keep it alive, much less to turn high profit – which often is hardly enough to cover the spending of business expenses.
It is extremely competitive
It’s not rare to find entrepreneurs with intense optimism that they ignore the low profit evidence and only focus on low overhead. Due to the fact that dropship business field is easy to enter, there are more competitions within and there are more owners that suffer more than ones who are not.
It doesn’t give you control of supply chain
In conventional business type, you can immediately and directly handle if there is complain about your products. However, you depend entirely on the supplier if you choose dropship type even though you’re still the one who has to handle the customers’ complaints. It’s not entirely wrong to refer it as trapped because you have no control over the problems on the sold products.
Now that you know what is dropship and the pros and cons of it, you can conclude whether it’s the right of business type for you to run. Sure, it is a low-risk model and can be profitable business. However, it also isn’t wholly perfect. Just like other venture models, it still requires hard work.