Everything You Need to Know About Drop Shipping
The Pros and Cons of Drop Shipping
Whether you recognized it or not, odds are high that you have placed an order online that was fulfilled through drop shipping. Drop shipping is a business model that has generated a lot of success from the growing ecommerce industry. The drop shipping industry was estimated at a 17.57 billion dollar industry in 2022, with projections of reaching 27 billion by 2027. Many aspiring entrepreneurs are trying their hand at drop shipping due to the low barrier of entry into the industry.
So, what actually is drop shipping? Drop shipping is when a company chooses to outsource their purchasing, fulfillment, and shipping to a third-party vendor. This means that a company would not purchase and store their own inventory. The third-party vendor would take care of receiving and storing the inventory to then ship to the customers.
In many cases the item is purchased directly from the manufacturer and shipped form their facilities. The “Drop Shipper” is jus the middle man, findining customers and then purchasing it from the supplier.
Let’s walk through what the drop shipping process looks like:
- A customer places an order in your online shop.
- Your online shop then forwards the order onto your third-party vendor.
- Your third-party vendor then processes, fulfills, and ships the order.
- Your original customer receives the order they placed in your online store.
Although it seems like a simple way to easily capture sales, there is a lot of work that needs to be done in order to create a successful drop shipping business. There are some definite advantages and disadvantages to this process. Let’s discuss the pros and cons.
Pros of Drop Shipping
Low Overhead Costs
When an entrepreneur is looking to start a business, they face steep upfront costs. This can be discouraging to some entrepreneurs without the resources or access to the equipment and capital they need to start up a business. It can also be overwhelming to invest large amounts of money into a business before knowing exactly how consumers will respond. Drop shipping helps eliminate these barriers. An individual doesn’t have to have facilities and equipment to begin sales. With the help of a third-party vendor, they can begin selling to the market without the upfront costs and investment of time.
Storage Space Savings
With drop shipping, you don’t need access to storage area to fulfill orders. The entire fulfillment and shipping process is done by your third-party vendor. You don’t have to fill your house with inventory, or rent or purchase warehouse space.
Potential to Save Time
With no need to spend hours fulfilling and shipping orders, you can focus your time and efforts on other aspects of your business. You can spend more time on things like creating the best online shopping experience, marketing to new customers, or building out your social media. You can let your third-party vendor focus their expertise on fulfillment and shipping. There is also no need to hire and manage additional staff to help you fulfill orders.
Cons of Drop Shipping
Less Control of Fulfillment
While you don’t have to worry about the entire fulfillment and shipping process, this means that you’re trusting someone else to do it correctly. Essentially, you are giving up control of the process and cannot guarantee that the products are fulfilled according to your standards. This is why it is important to find a trusted third-party company. There are companies out there that will produce unfavorable results and leave your customers unhappy. Be sure to do thorough research to ensure that the company you are working with is reliable and reputable.
Responsible for Mistakes
Even though you are not fulfilling and shipping your orders, you are still ultimately responsible for any mistakes made by your third-party vendor. Your customers assume you are directly responsible for making sure they receive the correct order and are satisfied. If your customer receives the wrong item, doesn’t receive a package, or the item comes damaged, you are ultimately responsible for the mistake and have to take proper steps to satisfy the customer.
Lack Warehouse Resources and Skills
Your warehouse and equipment – if properly managed – can become a huge asset to you down the road. Although you have to make a large investment to begin, once you experience success with your company, you will pay off your equipment and property and have an incredible asset. You don’t have to worry about paying fees to a third-party. You will also have the valuable skills and knowledge to manage your own warehouse and fulfillment processes.
Companies like Hoj Innovations and WarehouseOS™ exist to provide you the expert advice and service that you need to operate your own warehouse in a way that will produce the best ROI possible.
In Conclusion
Drop shipping is a very profitable industry, and evidenced by the success and growth the past few years. There are pros and cons to choosing drop-shipping. If the potential consequences stop you from choosing drop-shipping and you need help designing or organizing your Warehouse, reach out to us today. We have helped thousands of companies own their fulfillment processes and find tremendous success doing so.
