What is Dropshipping?
The term “dropshipping” comes from e-commerce (electronic business management). Dropshipping is the principle whereby products are sent directly to the customer (the end user) by the producer, wholesaler or supplier of the products. The webshop seller is thus an intermediary that does not have to stock up on products.
How does dropshipping work?
A customer buys a product through your webshop, which you purchase from a supplier (via dropshipping). This can be a factory or a wholesaler. The order is forwarded to the customer. This is often automatic if your webshop or accounting program is linked to your supplier’s software. The article is sent directly by the supplier to the customer and you, the webshop owner, receive a periodic invoice for the articles purchased in that period.
The customer simply orders from you, it is also your order, but you have no physical contact with the product. You have not purchased and saved anything yourself to forward to this customer. Instead, the supplier, on your behalf, sends it directly to the end user. With dropshipping, web shop owners therefore offer products that they do not have in stock themselves. This form of e-commerce is the exact opposite of traditional retail, where products are ordered in large numbers and stored before being shipped to suppliers.
The benefits of dropshipping
Especially for entrepreneurs who are just starting out with e-commerce, dropshipping has a number of great advantages.
- Little starting capital needed → little risk
This is one of the most important benefits. You need little starting capital to start a webshop, because you do not purchase products and do not need a warehouse.
- You have no stock
With dropshipping you don’t have to have any products in stock. Because you don’t have to purchase products, you don’t need a warehouse to store these products. You also run less risk of products remaining if your products are not purchased.
- New products and wide range
Because you do not purchase products, you can easily test new products. If the product doesn’t catch on and your customers don’t order it, that’s no problem. You have not purchased anything, so you have not incurred any costs for inventory and storage. You simply no longer offer the product. The same applies to offering a wide range. You will never be left with a leftover batch, so you can offer your customers a lot of choice.
Dropshipping is also an accessible way to find out if e-commerce is for you.
- No additional personnel required
Sending products often takes a lot of time. You can automate a lot with dropshipping. For example, connecting your order system to that of the dropshipping supplier via an API link. Your incoming orders will arrive directly at the supplier. You don’t have to ship yourself, your supplier does that.
Due to this automation and the time savings, you often do not need additional staff.
- You are flexible
And not only in the range that you offer. You are also flexible in terms of workplace. You can work from wherever you want, because all you need is an internet connection.
Disadvantages of Dropshipping
This business model seems to have many advantages, but there are also disadvantages that you should definitely think about.
- Little influence on customer satisfaction
This is probably the biggest drawback to dropshipping. You completely relinquish control over shipping. If the customer experiences problems with the order, you as a webshop are responsible for solving these problems. Problems such as late shipping, delayed shipping or a damaged product. The best solution is often to pay back and take the setback for your own account. In practice, it turns out to be difficult to recover this from the dropshipping supplier. Especially if it is located abroad.
- Low margins
Another big drawback is the problem of low profit margins. There is a lot of competition and often the same product is significantly cheaper to acquire customers elsewhere.
So look for and choose a market where there is little competition. Also invest time and money in marketing and branding to find loyal customers.
- Stiff competition
There is a lot of competition in the market. It is increasingly difficult to distinguish yourself, especially if the supplier also offers dropshipping for other entrepreneurs.
- Warranty and returns are difficult
Especially when the supplier is located outside the EU, it is difficult to return or to recover the warranty from the supplier. Returns are often not even possible or very expensive.
- Complex import duties and VAT rules
Web shops, consumers and suppliers are often not in the same country, which means that you have to deal with complex VAT constructions and import duties. This is difficult for you as an entrepreneur, but it can also (negatively) influence the customer’s experience. When suddenly extra VAT and / or import duties have to be paid. The customer does not like that …
Now that you know the pros and cons of dropshipping, you can make a better tradeoff. If you decide to go for it, be sure to read our next blog with tips on how to get started with dropshipping.