Dropshipping is a method of retail sales in which a store does not store the products sold in stock. Instead, at the time of receipt of the order, the seller makes an automatic (or not) purchase from a third party — a dropshipper who takes the relevant products from stock, packs them, prepares them for shipment and sends them directly to the end customer. The role of a third party may be performed by the manufacturer, wholesaler or other retailer himself.
The main advantage of dropshipping is that it requires a small initial investment. The lack of need to fill up the store, rent warehouse space, handle inventory, warehouse handling, order picking, and handle shipments significantly reduces the amount of financial expenditure necessary to start a business. Without having to sell unsold inventory, you gain more flexibility to tailor your offering to the current market needs. You can easily change the range of assortment and take care of its attractiveness by adding new products to the offer, for which the demand is not certain. Potential bestsellers will conquer the popularity of your online store and make it stand out from others. Moreover, you do not have to worry about unsold stocks of unpopular products. The risk associated with holding inventory is minimized.
However, Dropshipping has its drawbacks. The imperfections of this model that you have to take into account involve the level of your margin. It is usually quite low due to high competition in the market and very limited impact on the management of fulfilment costs. Secondly, you have little control over the quality of the products, the shipping time, and the packaging in which the end customer will receive their order. Potential disappointments and bad customer experiences from the shopping path will fall on you and your business, not the dropshipper invisible to the customer. Moreover, reliance on third-party delivery of products can involve problems with product availability and a lack of control over the supply chain, which makes it difficult to scale the business.
All in all, dropshipping can be a great option for entrepreneurs who want to start an online business with little initial investment. However, it is important to carefully weigh all the pros and cons of such a solution before deciding.