Timotheus Update: This post was originally published on 27 July 2020 on my previous website – Passive Online Revenue. Due to rebranding and consolidation of the two sites, the post is now on this website and published on 8 February 2023.
What Are the Advantages and Disadvantages of Dropshipping?
Introduction
Have you seen those many online ads inviting you to learn drop shipping?
They claim you can make a lot of money, even millions, from this online businessopportunity.
Is it true? Can you really?
I have done dropshipping. And today, from my own personal experience, I share What Are the Advantages and Disadvantages of Dropshipping?
Before we continue, if you like to know more
about making money with dropshipping,
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What Are the Advantages of Dropshipping?
Drop shipping surely has advantages.
That is why many people do this. Here are some of the benefits:
No Need To Produce Products
One of the advantages I realized about drop shipping (versus private label) is that I do not need to produce any product. Production can be a very time consuming and costly endeavor.
To create a private label product, I needed to find a good and reliable manufacturer that could produce quality products. It required me to visit the manufacturer. I had to take time to fly there if it was in another country.
Then spend time to tour their production site. When suitable, I would require them to produce samples. Most times, this would take up quite a bit of time to get the product right.
All this costs lots of time and money.
With drop shipping, all the above has been taken care of. All I had to do was shop for a product. Ask for samples. Find them good enough. Then sell them on my eCommerce store.
No Need To Stock Inventory
With private label business, I needed to buy a product in bulk.
That would be the best way because the larger the number of purchase from the manufacturer, the lower the cost. And after the items are produced, I would need to keep them in a warehouse.
First, the large number of purchase would be costly. Even though the price of each item would be lower than a smaller purchase, the total cost would still be substantial.
Plus, there is the storage fees charged by a warehouse. Not forgetting the money to ship the items to the warehouse.
When I was doing drop shipping, there was no minimum number of items to purchase from the supplier.
Plus, I did not need to store the inventory anywhere. This was all handled by the supplier.
Myriad Product Variety
As you may realized by now, when I did private label product, I could only create one product at a time. Each would have quite a large cost. As such, it was prudent to produce one and sell one at a time. This is so as not to incur too high a cost.
Drop shipping is such that you are limited only by what a supplier can produce for you. And even then, you can have many different suppliers.
As such, you can sell a myriad range of products and product types. And you can even sell a wide range of products within a product category.
No Need To Do Shipping
As the owner of a product, when it is purchased by a customer, I would need to ship it to the customer. I would need to place the product in a package. Arrange with the shipping company to collect and send to the customer. all this takes time and effort.
The drop shipping model is such that the supplier can package the product for you, and arrange for the shipping to the customer. You do not need to arrange or manage the logistics for shipping. What you do need to do is to pay for the shipping costs.
Low Fulfillment Cost
Extending the above point, your fulfillment cost is lower with drop shipping. You can choose the fulfillment company that offers the lowest cost and does the job best.
With private label, you can still choose the cheapest and most suitable fulfillment company. But there is the cost of time taken to manage this as well as the effort to do it.
Low Risk
Earlier I shared that one of the advantages is that you do not need to keep inventory. This is a major plus point. Also because with inventory there are risks.
One of the risks is when stocks do not move. What this means is that you may think a product can sell well and quickly. But the truth is it may not. When this happens, you are stuck with unsold items. Each which has cost you money to produce.
Added to that, there is the matter of warehouse costs. Every item stored incurs storage fee. At some point, when you are faced with these costs, you may decide to cut your losses, and sell the products at a loss. Even then, when you are still unable to clear the stocks, you end up with total loss.
With drop shipping, you do not need to get inventory or store them. And this can give you a lot of savings.
What Are the Disadvantages of Dropshipping?
After some time doing dropshipping, I soon discover that there are many disadvantages to this way of making money online.
Need to Find Good and Reliable Suppliers
With drop shipping, you do not produce the products you sell. The idea is to find a supplier that is already producing the product you intend to sell. First, you have to decide what product you will be selling. Then you find a supplier who produces it.
Here is where the problem is. Many courses teach you to find a supplier in China. In China, it is difficult to find a good and reliable supplier who will produce quality products for you.
It will take you time to find one. So, you will need to invest a lot of time.
After you find one, you need to find out if they are able to produce the products in consistent quality. This comes to the next point.
Need to Find Good and Quality products
After you have found a good and reliable supplier, the next thing you have to make sure is that they have products that are good and of reasonable quality. And they must be able to produce it at that quality consistently.
Some Chinese suppliers are also the manufacturers. Some are just suppliers who buy from manufacturers to sell to you. Whichever the case, you have to make sure that they produce good products. And quality products.
If not, you will be getting a lot of customer complaints. Also, if you sell on a marketplace like Amazon, this can result in your store and products getting bad reviews. This will surely affect sales and revenue.
It is best to buy the product you intend to sell. And see for yourself if the product is really of good quality.
Poorer Quality Control
As you are not in control of manufacturing the product or shipping, there can be poorer quality control. Sometimes, the supplier or the shipping can delay. As a result the product reaches the customer late.
Sometimes, due to poor packaging, the items can reach the client in damaged condition. Sometimes, the wrong product could even be sent to the customer.
All this can happen, and your customer will be very upset. As such, you will have to deal with complaints, which can be very time consuming. Also, it can damage your brand.
Watch Supplier Stock Level Closely
Nothing irks a customer more than to see a product they like to buy that is out of stock. Or worse, when they order a product online, and are informed that it is out of stock.
With dropshipping, you do not keep any inventory. It is all managed by your supplier. Problem is, you are most probably not the only customer they have. So, there are times when the stock can run out.
You can ask the suppliier to give you a heads up when the stock runs low. But, from my experience, they rarely do.
You have to be able to watch the stock level closely. So, every day, you have to check in to see if there is enough stock for you to sell at your store. If not, you must quickly put up a notice on your store that this product is out of stock.
Constant Update of Website
As you can see, you will need to monitor the stocks. And if need be, you need to update the availability of your products.
This can be quite regular, especially if you sell really popular products that are hot and in demand. And come on. We all know that these are the products to sell, right? Otherwise, the sales volume will be low.
Watch Your Shipping Costs
You have to pay for the shipping costs. As such, you have to make sure that the shipping costs are not so high that you cannot make a decent profit.
It is not easy. Most probably the products you are selling are also sold on other stores. This means that their is competitive pricing.
You have to make sure that the price you are offering is equal or lower than your competitors. And that is with the cost of the product and shipping in mind. In the end, after all the costs, are you making enough money? Is it worth all your time and effort?
Profits Are Lower
As mentioned above, the products can be bought by any store. And sold at any store. This can result in many stores selling the same popular product as you.
This leads to high competition and competitive pricing. Today, the market is overcrowded, too.
You will need to price competitively. Then there is the consideration to price it lower than your competitors. Or else consumers will buy it from a store that offers it at a lower price.
You Are The New Kid On The Block
Lastly, there is the problem of your brand being the new kid on the block. You start a new store, and no one outside of your network knows who you are.
Without brand recognition, there is very little trust in your brand. As such, you will find many people visiting your store, but not buying anything.
So, you have to spend a lot of money on advertising. This is to create brand awareness. Ultimately, you need strong brand equity to compete in this high competition market.
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What Are the Advantages and Disadvantages of Dropshipping?
Timotheus Final Thoughts
The Better Alternative – Affiliate Marketing
Why Affiliate Marketing is Better Than Dropshipping?
Now that you know all the advantages and disadvantages of dropshipping, let me introduce to you affiliate marketing.
It is a business that requires less work, and still make lots of money.
Sure, maybe you like running an eCommerce store. Maybe you love the hard work of finding and choosing products. And you love to populate products on their website, and sell them online. And you get excited when customers purchase their products.
Good for you. Then do give dropshipping a go.
But if you are like me, preferring less work, and still make lots of money, then this is for you.
And while it is not completely passive income (what is really?), affiliate marketing comes close to it. And I do this business model to make my fortune online.
What is Affiliate Marketing?
You have a website that promotes other people’s products. When visitors to your website makes a purchase, you earn a commission.
You do not have to:
- Search for suppliers or manufacturers
- Find good quality products
- Manage inventory
- Check stock levels
- Deal with packaging and shipping
- Deal with customers
Awesome, isn’t it? I wrote about how to make money with affiliate marketing. Click the image below if you like to learn more about it.
I truly recommend doing affiliate marketing.
You can join the Free Starter Package with just your email. No credit card needed for this Free Starter Package.
There is some free training as well as really powerful tools and features to help you do digital marketing for your online business.
My #1 Recommendation
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When you join the above program, I will be your mentor. I will guide you, help you succeed as an online entrepreneur, and make money.
If you have ANY questions, or anything to clarify, please drop a comment below. I will be happy to help you.
I wish everyone great wealth and success.
Timotheus
Your Online Business Coach