Dropshipping: Pros and Cons

Dropshipping is a modified supply chain for e-commerce. Instead of purchasing and keeping inventory, you buy merchandises only after your customers buy from you. Your merchandise suppliers (dropshippers) ship the goods directly to your customers. Comparing to the conventional buy-wholesale-sell-retail approach, dropshipping has its pros and cons.

Pros of Dropshipping

With dropshipping, you do not need to keep inventory thus eliminate the risk of losing money on inventory. It also saves you the cost of warehousing, reduces the starting capital to almost nothing.

Dropshippers normally also handle RMA (Retrun Merchandise Authorization, for defects or returns). The way selling online works: customer receives item; customer emails you if there is any problems; you tell customer to return the item for inspection; you determine if the item is defective; you send replacement if the item is defective; you file (for example) UPS claims if the item was damaged during transit; you send refund if customer requests; you adjust your inventory accordingly, etc. You get to save all these hassles and leave them all to the dropshippers.

Obviously using dropshippers also allows you to sell large variety of merchandises. You do not have to spend time to write detailed descriptions. You do not need to spend time in taking high quality images for each item. You do not need to spend a lot of time trying to understand the products. Dropshippers will provide all these plus the inventory availability normally in a text file for you to download.

All you need to do is some manipulation of the product-feed spreadsheet (text file). With the website we have built, uploading the updated product feed takes care of everything. You process orders from the admin panel of your zen cart site. You identify the items ordered (by SKU, for example). You go on the dropshipper’s website to place orders. A few days later, the dropshipper ships the item, send you the tracking number. You enter the tracking number on your admin panel, mark the order as complete. Zen cart sends email notification with the tracking info to the customer. Order processing takes very little time. You have plenty of time to focus on marketing or advertising your site or products.

Cons of Dropshipping

Since the dropshippers handle the inventory as well as customer service/returns, the cost will be passed on to you (added to the merchandise pricing or handling charge if any). Therefore, you will pay more for the merchandises than the conventional wholesale prices. You will have less control over shipping (methods, costs), although many dropshippers do give you choices of shipping methods. It is also harder for you to estimate the shipping cost since the goods can be shipped from different locations.

Because of the higher cost of the merchandises, it is harder to use PPC campaign. If you are selling unique niched products, you have more freedom in marking up the price, giving you room for risk of PPC campaigns.

If you can find the particular dropshipper, most likely many others will be using them as well. There will be many people selling the same items. So you will face more competition. Along with the higher cost mentioned above, this will cut into your profit margin. However, nobody can really avoid competition in e-commerce. Even iPhone cannot avoid it. Marketing is how you win the war.

It can be a problem if you use Google Shopping because dropshipping is against their TOS. This however is all at their discretion. I cannot think of how they would be able to know if you are dropshipping. I used them for a few years without a problem.

A technical problem from my personal experience is determining the shipping cost you charge your customers. Zen cart is able to calculate shipping cost based on your location and customer’s location, as well as the weight and dimensions of products ordered. However, in reality, the dropshippers can be far from you. An extreme example is that you and your customer both are located in New York while your dropshipper is located in Los Angeles. You will be charged a shipping cost that is not taken into account in zen cart calculation. Zen cart thinks that your customer is very close to you hence the shipping charge is low. The discrepancy can be large if the item ordered is heavy in shipping weight.

Conclusion

There are pros and cons in the dropshipping approach. It is your call to make the decision for yourself. If you decide to take the dropshipping route, you can find a good list of dropshippers here: http://methinks.info/dropshippers You can also make bulk purchases from them for better pricing as well.

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