9th May 2022

Drop shipping is a fulfilment model where, instead of a store stocking its own products, customers who pay for a product have it shipped directly from the store’s wholesaler. The merchant never sees – or even handles – the product. Because of this, the business in question doesn’t have any inventory; instead purchasing from a third party (a wholesaler or a manufacturer) when orders have been placed.

1. Greater degree of flexibility
2. Offer a wide variety of products
3. Less revenue is needed
4. Easier to launch
5. Easier to scale
6. Low margins
7. Complicated shipping process
8. Inventory complexities
9. Strong reliance on suppliers
10. Lack of control

Read on to learn more about the advantages – and disadvantages – to this methodology.

The advantages of drop shipping

There are many benefits to the drop shipping model. Here are just some of them:

1. Greater degree of flexibility

Drop shipping businesses can be run from almost anywhere in the world – or at least, anywhere that has internet connection. This is a big tick in the “pro” drop shipping coloumn, because it allows business owners to move around whilst their business is up and running. Changing locations – whether that’s to a different city or a different country – is relatively simple. You just need to ensure that you can easily stay in touch with customers and suppliers, and manage your business effectively.

Running a traditional business, like a brick and mortar store, requires stock to kept in a warehouse. As a business that drop ships, you won’t need to buy or rent this extra space, significantly reducing overhead costs. In fact, location is an area where you can really cut costs, because all you realistically need is a laptop and a phone.

2. Offer a wider variety of products

Because you don’t have an inventory, you can commit to offering a wide variety of products, without too many consequences. This would be a risky strategy if your business had its own inventory; as the uncertainty as to whether stock will sell can be very costly. However, because drop shipping companies only purchase products once a sale has been made, that risk is eliminated. If your supplier stocks an item, you can list it on your site and wait for a sale at no extra cost.

3. Less revenue is needed

If you choose to go down the drop shipping route, you won’t need as much money to get started than if you were to pick the more traditional model. The reason for this, is you won’t need to invest thousands of pounds in your inventory. When launching an online business, all you’ll need to pay for is your domain, hosting, and investment in marketing channels. When you contact a supplier to ship an item, it’s because a sale has been made, so that revenue will follow shortly.

4. Easy to launch

Not needing a large amount of finance upfront makes launching a drop shipping business much easier, when compared to a more traditional model. You won’t have to pay for aspects like packing and sending products, handling returns and exchanges and storing and monitoring inventory, which can be costly in traditional business. This weight off your shoulders means you can spend your time on aspects like implementing your marketing strategy.

5. Easier to scale

With a traditional model, if you received twice as many orders, you would need to do twice as much work to fulfil them. Drop shipping eliminates this, because all additional work is passed over to the suppliers, as it’s them who will ship goods to the customer. This means that there is more potential for your business to expand quickly, as you won’t have the implications associated with a traditional model.

The disadvantages of drop shipping

With advantages, comes disadvantages. It’s important to weigh up both sides, before deciding if drop shipping is right for your business.

6. Low margins

The business model of drop shipping is one that a lot of businesses partake it, which means the potential margins on your products are low. Due to the low setting up costs, and the flexibility to work from anywhere, the floodgates are open for entrepreneurs launching their own business. This competitiveness results in many businesses selling products at rock-bottom prices in an attempt to increase their revenue. Standing out from the crowd can be difficult, and if you want to compete you’ll need a good USP, such as a unique origin story or a stong set of company values.

7. Complicated shipping procedures

Most drop shipping companies will have multiple suppliers as opposed to relying on one. Whilst the ability to stock a wide variety of products is beneficial, this becomes complex when a customer makes one order with multiple products, that are all from different suppliers. This will have a direct effect on your shipping costs. For example, if a customer were to order five items from five different suppliers, you will be the one who has to pay five separate shipping charges. Whilst you could charge the customer, they’ll think you’re overcharging them, and may complain. And why wouldn’t they? As far as they’re aware, you’re the one shipping the items to them.

8. Inventory complexities

As a drop shipping company, your suppliers will be managing the inventory. Whilst that has its advantages, there is a flipside too. You won’t be the only business they’re fulfilling orders for, so it can be complicated for them to keep track of their inventory. Mistakes may be made, and you’ll need to rely on your suppliers to correctly keep track, and provide you with updates.

9. Supplier errors

When you make a mistake, you apologise. However, it can be frustrating when you’re blamed for something that isn’t your fault, but you have to take responsibility as a drop shipping company. No matter how great a supplier is, mistakes will always be made. From the customer’s point of view, they aren’t aware of your business model, so if mistakes are made then it’s your fault. There will be suppliers out there who are unreliable, with items going missing, wrong orders shipped and low-quality packing. This can have a negative impact when unhappy customers start leaving negative reviews, which can drastically effect potential customers from purchasing from you. It is usually a trial and error when figuring out which suppliers are best, which means finding strategies to manage any issues in the iterim between starting your business, and finding the perfect supplier.

10. Lack of control

Ultimately, despite all the benefits, you need to accept that if you opt for drop shipping, the only aspects of your business you’ll have control over are the products you sell, your pricing strategy and your marketing. This can be a struggle for businesses owners who need to have complete control, and a comprehensive overview, of each aspect of their business.

Is drop shipping the right direction for my business?

As with anything, drop shipping has its advantages and disadvantages. It’s all a case of weighing up the options and deciding what is best for you. If capital is the only thing holding you back, then drop shipping may be ideal, so that you can start your business sooner rather than later. However, if you want to retain control, and have a strong focus on excellent customer service, then drop shipping may not be ideal. A possible option is to start your business with drop shipping, and then gradually start moving to purchasing, stocking and sending your own products; this enables you to start making money quickly, grow your audience and then move to a business model that gives you ultimate control.