In any small business and eCommerce forum, you will find parties passionately on one side or the other of the debate as to whether dropshipping has anything to offer the small business. Many point out that companies like Avon and Tupperware are, in fact, dropshipping companies. Their reps take the orders, and Avon and Tupperware fulfill them. But what about other kinds of dropshipping, and how could it be a good thing for your business?
Dropshipping is not a big scary monster. For all the hair-raising horror stories, there are many satisfied business owners who dropship because it’s making them money. It’s not effortless, and there are good companies out there as well as bad, but by evaluating them carefully you can find products that will sell and a company that can mesh with your business style. Admittedly, there was a Wild West feel back in the beginning of the eCommerce dropshipping and fulfillment industry; however the market has a way of kicking out bad players. People talk, and business owners network. It pays to listen to what people have to say, good or bad, about a given company and give it careful consideration before giving anyone your money. Here are some of the basics to answer, "How does dropshipping work?"
1. Low Initial Investment:
With dropshipping, you are not personally taking ownership of the goods that you’re selling. You own the store, but are not laying out your own cash or bumping your credit limit in order to purchase the merchandise yourself. The dropshipper does that for you, without requiring you to make a minimum purchase or stipulating that you carry the entire line of a given manufacturer. Instead, you pick and choose the items that will get your shelf space, and adjust your inventory on the fly instead of waiting for certain items to sell before you see your profits.
2. Less Risk:
By not laying out a lot of cash or credit to own the actual goods, you’re reducing your risk of being stuck with a dud item. Sometimes, as much as you think that an item would sell, it just will not budge. With dropshipping eliminating the item from inventory is as easy as point and click, instead of having to reduce the item to little or no profit for your troubles. Your cash and credit situations are much more fluid when they’re not bricked into your inventory, and you’re sweating bullets waiting for your mailbox to fill with order notices.
3. Larger Selection:
Some manufacturers insist on minimum dollar amounts for orders, or even that the retailer order the entire line so the retailer is faced with a dilemma. Should they offer fewer items at a lower price or a wider selection at what might be a higher price when they can’t meet the price breaks. Being able to select the items you make available without figuring price breaks gives you the freedom to curate your store in a way that suits you. The dropshipper minds the inventory, while you are free to devote your energies into developing your store and expanding your customer base.
4. Lower Overhead:
Inventory costs more than the money it takes to acquire it. Inventory has to be maintained in good condition, shelved, counted, moved, pulled, packed, and shipped. This requires a place to house the merchandise and the staff to work with the merchandise which means real estate, rent, salary, benefits, utilities, and in many states an inventory tax at the end of the year. Using a dropshipper eliminates those factors and cuts overhead dramatically. They have the warehouse covered from wall to wall, leaving you free to run the storefront and handle the back office such as accounting and bookkeeping.
5. Faster Expansion:
Growing your product lines, establishing your signature brands, and even having multiple store fronts is easier when you can access more merchandise with a freer credit line. In addition to dropshipping, order fulfillment services allow you to purchase merchandise, ship it to a fulfillment house, and let them handle the warehousing and staffing side of things. It’s possible to expand your product lines using dropshipping now and adding in order fulfillment services when you have more of a cash flow and a more stable customer base. No venture is without risk, so consider everything carefully before you commit.
Being Your Own Boss
Starting a business now and smoothing your product offerings and shipping into a seamless experience for your clients is an investment in future sales, UPS cites in its most recent study. Internet Retailer notes that the Wild West days of dropshipping are fading into the past, as more streamlined eCommerce solutions enter the marketplace, and facilitate the introduction of dropshipping and order fulfillment to small businesses owners. With small business racking up 56 percent of sales each year, according to the Small Business Administration, and the expansion of small businesses as big business cuts jobs and downsizes, the importance of small businesses to the economy has never been higher.