The Pros and Cons of Dropshipping

E-Commerce Order Fulfilment for the Small Business

Every e-commerce business aims to operate with as low overheads as possible, maximising profit margins. Some e-commerce businesses meet this target using the dropshipping model, but whilst this logistics method can work for some companies, it is not suited to everyone.

This article looks at how dropshipping works, how it differs from a traditional third-party logistics (3PL) provider and its pros and cons to ensure you make the right order fulfilment choice for your e-commerce business

How does dropshipping work?

With dropshipping, a seller does not own the stock they are listing and relies on a supplier to produce and ship products to customers. When an order is received, the seller forwards the order to the supplier, who then directly ships it to the customer on the retailer’s behalf. This business model can be useful for some companies as it negates the need for monitoring inventory, packaging and shipping products yourself.

Whilst this fulfilment method has its advantages, it also has its drawbacks, so companies must assess all aspects to consider whether this is the right option for them.

What are the pros of dropshipping?

Some of the pros of dropshipping are as follows:

Quick start-up

Dropshipping is a popular choice for start-up firms as it is a way to quickly get your businesses off the ground. Not owning the stock you are selling removes a businesses’ need to invest in inventory or organise packaging and shipping. The reduced responsibilities can allow start-up businesses to start making money quickly.

Minimal overhead costs

Without the need for a warehouse and the costs involved when stocking inventory, e-commerce businesses that rely on drop shipping can often work from home using just a laptop, keeping overhead expenses at a minimum.

Reduced financial risks

Inventory levels can be a struggle for many small e-commerce businesses. When not monitored correctly, companies can be left with dead stock, resulting in financial losses. With dropshipping, businesses only pay for items ordered by the customer, negating the need for inventory monitoring. This model can make it easier to profit with already reduced overhead costs.

Scalability

Most of the work comes down to the supplier with dropshipping, making it more scalable than traditional business models. If increased orders come in for one particular product, all businesses need to do is order more from the supplier. Ordering from suppliers is particularly useful during seasonal surges and can allow businesses to capitalise on trends.

What are the cons of dropshipping?

Some of the cons of dropshipping are as follows:

Loss of control

Relying on a third-party manufacturer ultimately means you are at the mercy of another company, taking away your control when it comes to pricing and order fulfilment times. If your supplier ships out a product late or sends out incorrect orders, this will result in dissatisfied customers. As a result, you must choose a trusted supplier to avoid negative reviews.

Low-profit margins

Although dropshipping might make it easier to create a profit, your margins will likely begin very low. Items must be purchased as a single unit with no bulk buying option like a traditional wholesaler. There can also be dropshipping fees to cover the costs involved with shipping and logistics. Therefore, businesses have to build up considerable customer loyalty before they start making significant profits.

Inventory issues

While not having to monitor inventory can benefit businesses that drop ship, it can also lead to significant problems. If your supplier is not on top of their inventory levels, this can lead to substantial delays in items being shipped to your customers. Unlike businesses that outsource order fulfilment to a 3PL provider, you are blind to your supplier’s inventory levels, meaning there’s no way for you to know if customers are ordering out of stock items. Therefore, the lack of visibility between companies can lead to a poor customer experience.

Complex shipping

Dropship e-commerce businesses that rely on multiple suppliers can be hit with a range of shipping rates, depending on the courier that the supplier uses. This issue is another aspect you have no control over and could result in high costs, eating into your profit margins.

Whilst some e-commerce businesses can find success with dropshipping; it often takes a significant amount of time to make it a profitable venture.

Unlike dropshipping, outsourcing order fulfilment to a 3PL provider can make it easier for e-commerce businesses to create a more seamless customer experience. With complete end-to-end visibility and bespoke packaging options, you can create an order fulfilment solution tailored to your business and client needs.

If you’d like to know more about outsourcing your order fulfilment, please Pointbid a call on 0121 326 7368.

 

Or, contact us using the form below

 

Tell us your needs/requirements here...

0 + 7 = ?

 

packaging solutions
E-Commerce Order Fulfilment for the Small Business

How to Improve E-commerce Customer Experience

, ,
With e-commerce now more prominent than ever before, find out how to deliver a high-quality customer service and why it has never been more critical in 2023
international shipping

Shipping – How to Choose the Right Carrier for Your Business

, , , ,
Read our Guide on How to Choose the Right Shipping Carrier for Your Business. For help with e-commerce fulfilment, warehousing, storage, pick and packing, call Pointbid Logistics 0121 326 7368
demand fulfillment specialist

Benefits of automating your order fulfilment process

, ,
2022/23 has significantly benefitted from the altered shopping habits of consumers, with a sharp increase in e-commerce sales and Ecommerce sales are forecast to increase by a whopping 50% from $907.9 billion in 2022 to $1.4 trillion in 2025. With…
packaging solutions

Brand benefits of bespoke product packaging

,
Consumers have always valued a perfectly packaged product. Receiving a nicely organised, dent-free package, immediately gives a positive impression of your brand to the consumer. However, since the effect of Covid-19, we have seen an upsurge…
packaging solutions

Guide to Reverse Logistics in Supply Chain Management

, , , ,
Read our Guide to Reverse Logistics in Supply Chain Management. For help with e-commerce fulfilment, warehousing, storage, pick and packing, call Pointbid Logistics 0121 326 7368
what is pick and pack featured imagehttps://www.google.com/url?sa=i&url=https%3A%2F%2Fwww.displaymode.co.uk%2Fprocess%2Fpick-pack%2F&psig=AOvVaw3eUas8A0WG4JLWHB_UzXyp&ust=1575105130409000&source=images&cd=vfe&ved=0CAMQjB1qFwoTCNDf_92Jj-YCFQAAAAAdAAAAABAW

Ecommerce Warehouse: Best Practices to Increase Efficiency

, , , ,
Read our Best practice Guide for eCommerce Warehousing 2023. For help with e-commerce fulfilment, warehousing, storage, pick and packing, call Pointbid Logistics 0121 326 7368
selling across multiple channels

What are the benefits of a multichannel distribution system?

, , , ,
In today’s retail landscape, you will notice that many e-commerce businesses do not limit themselves to just one selling platform. More online stores are selling across multiple channels to reach more customers and drive further sales...
ecommerce online shopping

How to maximise e-commerce profitability in 2023

, , ,
How to maximise e-commerce profitability in 2021 - Despite the dramatic rise in online sales, maintaining profitability within e-commerce can still be a concern for business owners, particularly given the uncertainty surrounding post-Brexit trading rules and customers seeking value for money amid the pandemic.
Fulfilment Centre Warehouse

Order fulfilment and the growing need for efficiency

,
With e-commerce business soaring in 2023, the need for a seamless consumer experience from an efficient order fulfilment process has never been greater. The number one area in which consumers demand efficiency is when it comes to order fulfilment.…
what is ecommerce shipping

Key Logistics and Supply Chain Trends to Expect in 2023

, , , ,
Read our Guide to Key Logistics and Supply Chain Trends to Expect in 2023. For help with e-commerce fulfilment, warehousing, storage, pick and packing, call Pointbid Logistics 0121 326 7368
what is pick and pack featured imagehttps://www.google.com/url?sa=i&url=https%3A%2F%2Fwww.displaymode.co.uk%2Fprocess%2Fpick-pack%2F&psig=AOvVaw3eUas8A0WG4JLWHB_UzXyp&ust=1575105130409000&source=images&cd=vfe&ved=0CAMQjB1qFwoTCNDf_92Jj-YCFQAAAAAdAAAAABAW

How to improve your order fulfilment process

, , ,
The order fulfilment process is one of the most vital areas of an e-commerce business, particularly with the rapid escalation of online orders. As the popularity of online shopping continues to grow, businesses are focusing on how to maximise…

 

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *