Dropshipping: What it Means, it's Benefits and Shortfalls
Of all the existing business models, dropshipping is probably the cheapest to start up. Little wonder, it has growing increasingly popular over the past few years even more so during the pandemic.
In this enlightening short 2 minutes read, we'd demystify dropshipping, explore what drop shipping is, how it works, it's benefits and shortfalls.
What is Dropshipping?
Dropshipping is a retail fulfilment model where online stores sell products for a third party (usually a wholesale store or manufacturer) without actually stocking up or buying the products.
Dropshipping is a great way to build your online store and test how products would do in the market without the risk of losing money.
Photo Credit: Dreams time
So, how does dropshipping work?
The most distinct factor about dropshipping is that the seller does not own any of the products being sold. Infact, in most cases the order is placed to a third party after payment is made.
First of all, the customer places an order on your (the seller's) online platform (website or social media handle) for a product.
The seller then contacts the supplier (wholesaler or manufacturer) of the product, requests for the product.
The supplier then sends the product either directly to the customer or to the seller.
How then, do you earn money from this?
For every product sold on the drop shipper's online store, he/she has a cut or percentage from the payment. Let's say you for instance drop ship for a fashion store online, the store supplies you mean jackets at NGN3,500 and you sell them on your online store at NGN5000. Therefore, you make NGN1500 for every Jean jacket sold.
Benefits of Dropshipping
1. It requires very little startup capital
According to Neil Patel, it takes around $29/month to run dropshipping in the US. In Nigeria, you can start with as little as hundred thousand (shipping takes a larger share).
2. It is a great way to build your e-commerce website
Drop shipping is a risk free way to build your online store if you are planning on going into e-commerce in the future. As the products are not yours and you don't need to have inventory
3. Want to see if a product would do well in the market?
You can start out by dropshipping for a supplier before stocking up.
4. You don't need a physical location
You can run your dropshipping business anywhere so long as you have a smartphone and connection to the internet. You do not need a fixed location like brick and mortar businesses.
5. You have a variety of products
With drop shipping, you can keep up with trends in the market, you are not limited by your stock and inventory. You only sell once you are paid.
6. It brings profit
Of course, you'll agree with me that this is the most important benefit of any business model. Drop shipping is not exempted either, it generates good profit as evidenced by it's growing popularity.
Draw Backs of Dropshipping
Yes, dropshipping requires little start up capital and brings good profit, these advantages have made it a very popular business model. As a result of this, every one is going into dropshipping these days and the competition is fierce, getting loyal customers might be a problem.
2. No control over the availability of products
Since the products don't belong to you, you have no control over the availability of the products. You might have a product on your online store and it would be out of stock with the manufacturer or supplier.
3. You are basically promoting another brand
Every praise for a product goes to the owner of the product not you the dropshipper. From the advertising efforts, to the flawless customer service, every effort goes towards promoting the supplier's product.
4. Profit margin might be slim
The profit margin might be slim especially for beginners in Nigeria. After removing the cost for shipping and sometimes taxes, you'd have precious little left as profit. Also, due to the heavy competition, you might have to reduce the price of the product. Bigger dropshippers can afford to sell at lower prices but this might be difficult for beginners who would want to cut down their own profit to meet up and make sales.
In situations where there is a problem with a customer's order, the dropshipper is stuck in the middle, mediating between the customer's complaints and the supplier's response to the problem. This might make problem solving real slow and lead to the loss of that customer.
Dropshipping is really profitable despite all the shortfalls of the business model. People are cashing out big time and you can too. I'll leave you with a qoute from a young successful nigerian dropshipper to me today "start from somewhere, nothing is too small".
Do you plan to start up a business soon or later? Have you just started a business? You need to read this piece. It explains bootstrapping in simple terms, explores in details, it's advantages and disadvantages for business start ups with examples.
In order to launch and hold a successful brand promotion, a firm and sound knowledge of the target market is imperative. The target market constitutes your potential costumers. This can be determined based on age, sex, occupation, etc. Running brand promotion without your target audience in view can lead to huge losses. A good example of such is the Abercrombie and Fitch company; they were boycotted severally by their consumers, for sexualized statements, racy taglines and at a point body-shamin