The world is getting diverse with each passing day. New methods of doing business are being introduced. The pandemic has urged businesses to go online. According to research, the market share of online retailers in the United States has increased up to 10-15% during the covid-19 pandemic.
The entrepreneurs have used this rise as an opportunity to dig deep into online retail and have created a new way of doing business that is, dropshipping.
Dropshipping is a technique in which the retailer does not actually hold the inventory but passes the order to a third-party supplier who then ships it to the customer.
Pros to Drop Shipping
Lower start-up cost
Almost every individual wants to be their own boss. People are constantly searching for ways to start a business with little or no investment.
Dropshipping reduces the cost of starting an online business since the entrepreneur does not have to acquire a warehouse to hold inventory and does not have to invest in buying inventory as well. Hence, overhead cost remains low.
Flexibility
Dropshipping business can be started from anywhere. It is not restricted to any physical location or geographical boundaries. All you have to do is find the right supplier for your target market who can carry out the shipping process swiftly.
Broad Product Offerings
Dropshipping is an easy to enter the market, attracting more entrepreneurs towards it. Businesses do not develop their products. Rather they partner with suppliers to cater to their demands.
Due to this reason, retailers can search the market they want to cater to and arrange for their respective products.
Cons to Drop Shipping
Finding the right supplier
One of the biggest challenges in dropshipping is maintaining a reliable network of suppliers. Building and maintaining trust with suppliers is crucial in this business, as it will determine the success of your business.
Also, you need to find a supplier that cultivates the same quality as you do. Since you cannot physically monitor the product quality, you have to rely on your supplier for this part.
Low-profit margins
Since suppliers and middlemen are involved in the process, profit margins are shared. Profit margins become less if you choose a super competitive niche.
Managing Inventory
When you are in charge of your inventory, you’ll always know the exact figures of products available. In dropshipping, your supplier manages your inventory for you. Hence it is very crucial to work efficiently with your supplier so the inventory issue does not occur.