Sometimes referred to as inventory free retail or the endless aisle, drop shipping is a retail model that gets a lot of hype as well as its fair share of bashing. In reality, drop shipping probably inhabits the middle ground between effortless riches and unbearably low profit margins. Let’s look at the pros and cons of drop shipping, along with some tips to increase your chances of success.
The Auto Pilot Dream
A popular spin on the advantages of drop shipping is that once you have your system up and running, you can trade the workaday world for a beautiful white sand beach. With a mai-tai in one hand and your cellphone in the other, you’ll spend your days lazing in the sun without a care as the money pours in through a steady stream of drop ship orders. While it’s true that minimal physical involvement is required since you won’t be packing and shipping inventory yourself, smart entrepreneurs don’t get into drop shipping expecting it to be the great escape. Drop shipping has some inherit complexities and problems you’ll need to be able to handle.
The Real Advantages of Drop Shipping
Drop shipping can be a big draw for even the most down-to-earth e-commerce entrepreneurs because of its low startup cost. You don’t have to purchase expensive inventory up front or find a place to store it. By utilizing drop shipping, you can get your business up and running faster than by using more traditional fulfillment methods. It’s also faster and requires less upfront investment to explore new product lines.. Drop shipping also allows more time for what has become the drop shipper’s primary occupation: marketing.
How to Choose What to Sell Via Drop Shipping
Much of the advice on choosing an e-commerce niche says to follow your passion, since you will be spending a lot of time thinking about, discussing and marketing your chosen product niche. However, it makes a lot more sense to find out what sells, what has an existing market and what doesn’t have a gargantuan amount of competition. In fact, those who do the best tend to have a passion for building a business and for generating and executing marketing plans.
Since you aren’t directly involved in order fulfillment, you can offer value through your marketing, content and customer service. If you are exploring possible new niches, according to Business Insider, the hobby market is big for 2015. Some niches within the hobby market include:
- Model building kits
- Kites and kite flying
- Doll making
- Aquariums and terrariums
- Home brewing
There are a number of ways to find suppliers. The most basic is probably contacting the manufacturer of the product you want to sell and obtaining a list of wholesalers, and then contacting those wholesalers to find out whether they provide drop shipping or not. Some well-known drop shipping wholesalers include Worldwide Brands, Doba and Wholesale Central. You can sell drop shipped products on sites such as Amazon and eBay, or on your own e-commerce store from Shopify or Bigcommerce. You can simplify and automate selling at multiple sites by using a multichannel e-commerce inventory and order management system like Appath.
The Downside of Drop Shipping
With little upfront cost, no monotonous packing and shipping, and no need to fill up your spare room or rent a warehouse for inventory, what’s the downside to drop shipping? One major disadvantage is competition. If you’ve found a good drop-shipping source, the odds are, so have other hopeful entrepreneurs, some who will push their prices extremely low to remain competitive.
Additionally, the lack of direct control over the fulfillment process can create customer service headaches. You need to rely on the manufacturer or distributor to keep you up-to-date on correct inventory amounts, and to ship orders correctly and in a timely manner. If they drop the ball, it’s you that the customer is going to blame. Overall, while there are pros and cons to using drop shipping, don’t overlook it because it can be a low risk, low investment way to start and run a business.