Drop Shipping Pros and Cons for eCommerce

Drop Shipping Pros and Cons

When starting a business, eCommerce is certainly one way to eliminate overhead. And drop shipping goes a step farther letting another company handle the fulfillment on the orders you receive.

As Steve Gillman explains:

“… there are no big startup costs or expensive investments in inventory. You can sell products online, collect payment, pay suppliers, and let them send out the products — even using your company logo if you like.”

Today, a variety of businesses are turning to drop shipping as an option, as Fortune reports:

“Smaller retailers can wait until consumers order to buy product from drop shippers who then fulfill consumer orders with white-label delivery service. Small makers and manufacturers are also using drop shipping, combined with digital platforms, to generate demand, acquire capital, take orders, and then produce to order.”

With drop shipping, you don’t need a warehouse for the inventory, or to worry about the shipping or billing.

If you find the right company, the only thing you will be responsible for is taking the orders and marketing your website or external site.

But like any other business, there are pros and cons. And below are some basic issues to consider.

Drop Shipping Pros

Without a doubt, the low cost of entry is one of the most attractive features of drop shipping. If you don’t have to pay for a brick and mortar store front, along with all that entails — rent, employees, insurance, inventory, etc. — it is easy to see potential benefits.

It is easier to manage because you are not controlling inventory, which is one of the most cost and time intensive aspects of running a retail business. If you don’t have to store, ship, return and track inventory, the vast majority of the job is done.

Flexibility is another great benefit. With drop shipping, you are not anchored to any location — or even product. You can sell virtually any product from anywhere and you can scale as much as you want.

Drop Shipping Cons

While a drop shipping business model comes with a low cost of entry which is its main attraction, it comes with a profit margin that is just as low. You have to remember, the only thing you are doing is carrying out the transaction. And because of that, you will be the lowest person on the totem pole when it comes to sharing the profits. Additionally, you are competing with many different online retailers — some of them potentially selling the same products from the same supplier. So differentiating  your business is critical.

Supply and shipping can be a problem depending on the item. If the company runs out of a particular product, there is nothing you can do about it, and the order cannot be filled. Complications can take place that are out of your control.

One of the biggest disadvantages of drop shipping, in fact, is this loss of control. If you don’t have a quality company, the items they ship can be damaged, have missing components, or simply be the wrong product or number of items. Though your business may have had little or nothing to do with the issue, customers are still likely to hold you responsible.

Finding a Happy Medium

The key to finding a drop shipping solution that works well is do your due diligence in finding the right drop shipping company with which to work.

Call the company and talk to a live representative to make sure you get all your questions answered. You may also want to place an order to see if the quality of the company’s products is up to your standards.

While drop shipping can be a low cost solution for all or part of your eCommerce business, remember to give it the same careful analysis you give the rest of your operation. Make sure the benefits outweigh the risks before deciding drop shipping is right for you.

Shipping Warehouse Photo via Shutterstock

Michael Guta Michael Guta is the Assistant Editor at Small Business Trends and has been with the team for 9 years. He currently manages its East African editorial team. Michael brings with him many years of content experience in the digital ecosystem covering a wide range of industries. He holds a B.S. in Information Communication Technology, with an emphasis in Technology Management.