If executed correctly, the dropshipping business is quite lucrative. Learn more about its challenges and benefits before diving into the business.
Dropshipping: Challenges & Benefits
Starting a business, especially in the age of the internet, has become more manageable, but it comes with its share of challenges for both customers and entrepreneurs. Taking the iGaming business, for instance, you could find yourself in elaborate scams as a player if you don’t stick to licensed and regulated platforms like Vulkan Vegas. So, while gambling over the internet may be super convenient due to easy access, it requires additional vigilance on the player’s part. Moreover, operators must go the extra mile to prove legitimacy and make patrons feel secure, as there are always cybersecurity risks online.
Well, if you are looking to start a business, thinking about starting an iGaming business is a tough nut to crack, especially if you are short on resources. Thus, if you don’t have a lot of capital, dropshipping is one of the best business ideas you can follow. In a nutshell, it is a business model that allows store owners/retailers to make a profit without owning inventory; instead, suppliers or manufacturers fulfill orders on their behalf. Nothing too complicated.
So, do you want in on some dropshipping action? Stick around to learn the basics before you get to the thick of the industry expected to cross half a trillion by 2027.
Challenges of Dropshipping
Even though dropshipping allows newbies and seasoned entrepreneurs to take a cut from sales without worrying about storage space, it’s not a get-rich-quick scheme. So, before you put your hard-earned moolah into the business, here are some of the drawbacks you may face:
Low Profit Margins
In dropshipping, sellers make little profit since most money goes to the suppliers or manufacturers. Therefore, you need to make a lot of sales to cover the operating costs, including maintaining your site, pay, marketing and advertising.
Additionally, because the overhead costs are low dropshipping is a competitive niche. For example, a seller will open a dropshipping store and sell their products at low prices to grow their revenue, which, in turn, will affect your profit margin. Therefore, you may be forced to match the low prices to stay competitive.
Limited Control Over the Supply Chain
In a standard retail business, you can quickly address issues such as:
- Return policies
- Fulfillment speeds of orders.
However, addressing the said issues isn’t easy in dropshipping, where suppliers oversee shipping products and maintaining stock.
Therefore, even though a store owner is talking directly to the buyer, they are at the supplier’s mercy. All they can do is hope the supplier will address any issues regarding orders as efficiently as possible. Meanwhile, if a dropshipping supplier makes a mistake with the orders, a store owner will take full responsibility, which may lead to a loss of business.
Customer Support Headache
Everything runs smoothly when the buyer is happy, but this is not always the case. Suppose a customer claims the product was either defective, of low quality, or it never got to them because you are just the store owner. In that case, trying to handle customer support and ensure you have sorted the orders can become a nightmare.
Limited Branding and Customization
The product sent out in dropshipping is mainly designed and branded by suppliers. Of course, some suppliers can make some changes to accommodate some of your designs. However, any changes you make to the product will require you to make a minimum order quantity (MOQ), making it financially viable for the manufacturer.
Benefits of Dropshipping
Dropshipping allows you to try out different niche markets with a limited financial downside. While it has its shortcomings, here are some of its most attractive benefits:
Low Start-up Capital
If you adopt a dropshipping business model, you will not require a lot of start-up capital trying to rent a store, pay staff to fulfill orders or stock inventory. Instead, you need an online store where you direct potential clients to make sales. The online store could be an e-commerce platform such as Shopify, Amazon or your website. Additionally, you only buy a product once a buyer has made a purchase.
All operations you will undertake as a retailer are based online, and with a good internet connection and a laptop, you are good to go. Considering that you can communicate with your customers and suppliers, you can run your business from anywhere. Even on a safari!
Easy to Start
Starting an online business is easy as you don’t need to buy, maintain and supply merchandise. You don’t require prior experience to open a store, and within a couple of days, you can set up background processes that enable you to:
- Process and accept orders
- Forward orders to suppliers
- Get a cut from every sale.
Low Overhead Cost
In dropshipping, the burden of buying inventory and managing a physical store is incurred by the supplier or manufacturer, so your overhead costs are low. In addition, most dropshipping businesses are operated from home with few recurring expenses. As you expand your business, the overhead cost might increase, but it will still be less than that of a physical store.
Wide Range of Products
If your supplier has a particular product, you can add it to your list without incurring additional costs. In addition, unlike in a traditional retail business, you don’t have to think about the economics of buying an item in large quantities because it is in demand.
Like any other business model, dropshipping has its benefits and challenges. Before you get your feet wet, make sure you tackle the challenges to remain profitable.