The pros and cons of drop shipping

Some of you may have heard the term drop shipping; others may have never heard of it. So what is it? A simple and straightforward definition is: “to provide goods by direct delivery from the manufacturers to the retailer or customer.” In other words, drop shippers do not hold the stock they sell (usually online), which reduces costs. Obviously, our motives in the business world always revolve around making money, but what are the consequences of introducing practices such as this one? This blog post aims to explore the disadvantages as well as the advantages of implementing drop shipping into a business environment. Let’s explore!

Pros

  1. Reduce costs: By not having any inventory costs, you are able to reduce your overall expenses. You also don’t have to be concerned with any warehouse issues, costs or commitments.
  2. Big and bulky items: When it comes to big and bulky items, they are normally very difficult and expensive to store as well as to receive and send out. Therefore, it is logical to drop ship these types of items directly from the manufacturer.
  3. Location: Drop shippers can operate from anywhere. However, if a particular supplier’s warehouse is located in an area that is close to consumers, you will find that drop shipping provides a geographical advantage, especially if your company is located very far from consumers. In this particular case, drop shipping will be very beneficial to your company.
  4. Saves you time: Your average retailer is responsible for certain duties such as: accepting and receiving stock, storing and packing stock, retrieving stock when sold, packing stock and shipping it off. All these duties are time consuming and costly and you would probably need staff to execute them. Drop shipping eliminates all these duties, thereby saving you valuable time and money you could use to focus on other aspects of your business.
  5. Ability to try out new product lines: Drop shippers have the luxury to try out new product lines without having to commit large amounts of money to test it out. In this way, drop shipping allows retailers to test new products and they don’t need to bring in any inventory whatsoever.
  6. Wide variety of products to sell: Some retailers might not be able to sell a wide variety due to the high cost of increasing inventory. Drop shipping allows retailers the luxury of offering as well as selling more products without having the burden of the additional inventory costs. More products mean more exposure and therefore more customers.

Cons

  1. Limited product selection: We mentioned that drop shipping allows sellers to offer a variety of products, but this depends on the suppliers. If your suppliers decide to cut the supply of certain items, this means you are limiting yourself in terms of the variety you can offer your consumers.   
  2. Customer service challenges: A huge issue with drop shipping is the magnitude of customer service problems. These types of issues can be difficult to sort out,  because orders can get mixed up and inventory levels can change quickly and unexpectedly. With regards to product returns, they can often be complicated and time consuming. One of the biggest problems encountered is stock availability .
  3. Costs: Above we mentioned the fact that drop shipping reduces your costs. However, there is a downside to drop shipping that results in a long term increase in costs. Let’s examine these costs further. Remember, you are paying your supplier not only the real cost of shipping, stocking, packing etc., but  also quite a large markup. Consequently, as your sales start to increase, so will your drop shipping costs.
  4. No perks of a direct relationship with the manufacturer:  There are a number of perks such as better pricing, marketing incentives, access to deals, knowledge about the product lines as well as additional bonuses that allow retailers to save costs. All these perks are not available to retailers who drop ship.
  5. Limited product information: Since you are actually not touching or handling any items you sell, it is quite a challenge to resolve customer queries and complaints, especially if you don’t have a very detailed description of various product details.
  6. Large amount of competition: Finding suppliers willing to drop ship unique products for you can be quite a challenge. This means that you are more  likely to encounter competition from the other retailers in your area.

With as many pros as cons, you will need to weigh your options to determine if drop shipping is the way forward for your business. At the end of the day, you need to choose what works best for you.