Table of Contents
- 1 Benefit 1: Being independent of the position
- 2 Benefit 2: No expense of the Inventory
- 3 Benefit 3: No Handling Returns
- 4 Benefit 4: Collect data when the payment is made
- 5 Benefit 5: Easily Scalable
- 6 Benefit 6: Create A Sellable Asset
- 7 Disadvantage 1: Smaller Profit Margins
- 8 Disadvantage 2: No control of inventories
- 9 Disadvantage 3: Increased competitive risk
The Pros and Cons of Owning a Dropshipping Business
You probably have the question by now “What is dropshipping?”Trapped. So let’s go through the pros and cons of owning a dropshipping business. When it comes to your choices, it’s essential to have clarity. That way, you have the full picture, and you can decide if you want to develop a dropshipping company.
Benefits of Starting A Dropshipping Business
Benefit 1: Being independent of the position
The first advantage and probably the one with dropshipping that’s most important to you is being location independent.
“I have lived in Vietnam, South America and Thailand in the last few years. With a dropshipping company, you can live and work wherever you want “– Anton Kraly, DropshipLifestyle website founder & CEO
Dropshipping provides a degree of freedom from a location that not many other business models do.
Benefit 2: No expense of the Inventory
Another advantage is that there is no cost to the product. So when you start dropshipping, you don’t spend any of your inventory money.
The reality is when you’re a typical retailer; the highest cost is Inventory. You need to have the items for physical sale.
But you don’t go for the dropshipping. What you need is supplier approvals to get the goods. After you sell them, you pay for the products, plus there are no warehouse costs.
Now in this article, we listed how many e-sellers began by importing into e-commerce. But they already had some inventory and storage costs when they first started. They spent loads of money on stocking their goods every month.
But if you follow the business model of dropshipping, you don’t pay for those costs, someone else does. All of the vendors have their warehouses, and they pay for those things to be processed. So it’s another burden you don’t have on your hands, something you don’t have to think about at the outset.
Benefit 3: No Handling Returns
Another benefit to dropshipping is that they do not have to handle returns.
To be clear, if your customer wants to return an item, the return slip from your supplier is still to be forwarded to your customer.
But those articles don’t come to you. If you own a dropshipping business, products that show up at your house will not be returned.
They’ll be shipped back to your supplier, and then you’ll get a refund based on that supplier’s policy, or they’ll be shipping a replacement item to the customer.
One thing that could be drawn from this is to find suppliers with low rates of return. So ideally you’re not even going to have to deal with return e-mails.
Benefit 4: Collect data when the payment is made
The next advantage of dropshipping is collecting data when you get paid.
Say you want to create a brand in the niche of the chandelier; you want to sell your lighting fixtures or chandeliers. Also, let’s say you want to be an importer and develop your line of goods. We’ll even tell you’ve also got the money right now to invest in it.
Well, before you throw money at an import company, have produced goods and start trying to sell them … we would still suggest you create a dropshipping business first in that niche.
You will be learning what sells when you are dropshipping. You will find out what your customer needs and create tools you can use for your line of goods, etc. All this as they make money. When you make a profit, you try the market out.
You can discover which product categories sell better, which price point you make the most of and which features your target consumers want the most.
Then, after you’re right in that niche, you can use all that data to start an importing company with your name.
Benefit 5: Easily Scalable
Another significant advantage of a dropshipping company is how easy it is to scale out.
For example, if you’re making $100,000 a year in sales from only one dropshipping store, building more stores with similar results is very easy. And the best thing is being able to do this again and again.
We always suggest starting with one dropshipping shop, so you can learn, go through and master the process. But one time after you do it, it is straightforward to do it again and again.
Benefit 6: Create A Sellable Asset
The next incredible advantage of having a dropshipping company is that you are developing a real asset.
Now when you start this company for the first time, you may not know it, but dropshipping stores are significant to many people.
There are plenty of customers out there searching for attractive e-commerce outlets, in specific dropshipping shops since these customers will tap into your company and be making money the next day—no need to take over the Inventory or take over a warehouse.
Here is an example of what a dropshipping company would sell to:
So let’s say you are building a dropshipping business at the low end which gives you $1,000 a month in profit. That’s a quantity that almost everybody should wrap their heads around-it’s quite realistic and achievable. The store could cost as much as $20,000.
So that’s what we mean here when we say dropshipping is one of the best ways online to make money-it’s mostly because you’re building a real asset.
Empire Flippers is a great resource to sell your Dropshipping service. Buying and selling dropshipping stores in all price scales, from a few thousand to millions, are a market spot.
Here are some Empire Flippers dropshipping stores for sale. You can see that getting a dropshipping company is an enormous advantage for yourself.
The Disadvantages of Drop Shipping
Now let’s talk about some of the downsides of owning a dropshipping company as opposed to owning a brand.
Disadvantage 1: Smaller Profit Margins
Using the goods, you sell to someone else; the profits would be smaller than if you made your goods.
If you go to China and import your goods, you can obtain better prices for the price of the product since you do a lot of work and take on a lot more responsibility. Yet their gross margins are going to be higher.
But typically there are lower profit margins with drop shipping than with making your labels. On average, for your dropshipping stores, profit margins of 20 per cent can be aimed at.
Disadvantage 2: No control of inventories
Another thing about dropshipping that isn’t so perfect, and perhaps the most significant drawback in our view is that you don’t have much power over the product.
Let’s say you have one supplier on your website, whose product sells well. With them, you’re making huge money. Ok, if that supplier runs out of stock what happens? What if your trusted dropshipping supplier runs out of those things suddenly?
Your customers will always want to order from you, but these orders will not be fulfilled. In that case, you are going to lose potential money. This because you don’t have much leverage over the Inventory, or maybe your suppliers aren’t so good at running Inventory and holding every item in stock.
This is something that significant manufacturers know how to do. Regardless, if you decide to develop your own dropshipping company, it is probably something you’ll run into at least a few times.
You’ll run into vendors that don’t have excellent inventory control, and they run out of stock, leading to loss of revenue.
Disadvantage 3: Increased competitive risk
The last thing with dropshipping that one might really think of as a drawback is the increased chance of rivalry.
If you’re creating your own brand to sell online (let’s go back to that chandelier niche) and you’re making ‘Anton Chandeliers’ so no one else will go out and create ‘Anton Chandeliers’ because that’s your business and company.
When we are dropshipping, we sell the products to other people who are searching for retailers. And other entrants are likely to follow the same supplier, and therefore become retailers.
So it’s competitive, but if it weren’t competitive, that would mean that didn’t have to make money. It would mean that there is no competition for that niche and that joining is possibly a low niche.
When it comes to dropshipping, such are the advantages and downsides. But we always recommend constructing a dropshipping service, even with the drawbacks.
It’s a great way to create a location-independent company with the potential for massive returns, for little capital, and that could become a significant asset.