Dropshipping: Pros and Cons

Dropshipping is a very popular method of selling products online. Once you have found a suitable wholesale dropshipping distributor it is a way of making money without much cost. However, there are a few aspects to dropshipping you may want to consider before starting to use this method. This article provides readers with insight into the advantages and pitfalls of dropshipping.

The principle of dropshipping is as follows: a merchant-dropshipper offers a certain product on the market. He needs resellers to advertise the merchandise and bring in buyers. You can become a dealer for this product and offer it on eBay or your own website. When you sell an item you notify your dropshipper, pay the wholesale price and the dropshipper will send the product to your customer under your own label.

The main advantage of this model is obvious. You don't have to invest in stock. So you can start up business relatively easy. You don't have to worry that you're left with a garage full of merchandise that won't sell. The extend of your assortment is only limited by the amount of effort your willing to put into it. Furthermore you don't have to spend time and energy on packaging and shipping products to customers.

One of the main disadvantages comes with using dropshipping on eBay: The winning bidder thinks that the product he bought is an item you have shelved, waiting to be shipped. Not being able to deliver because your dropshipper ran out of stock will make dropshipping backfire on you. Your customer will be dissatisfied and possibly give you a negative feedback. If this happens too often you can kiss your eBay business goodbye.
To prevent this kind of trouble you would have to maintain in close contact with your dropshipper, maybe even have insight in his stock. Or, if you want to be absolutely sure, you would have to buy a pallet of product in advance and have the dropshipper store it in their warehouse. This will obviously eliminate some of the advantages of dropshipping.

Another thing you may want to consider is dropshippingcosts. Some dropshipper charge you a sign up fee for the privilege of selling their products and obviously a fee for shipping the product to your customer. The latter will usually be higher than the gross cost charged by a parcel service. You will want to take this in account when you set your (minimum) price and your own shipping costs. Finding a suitable product will take a thorough evaluation of wholesale price, dropshippingcosts, expected sales price and marketing costs.

And then there is market saturation. Like in any business it is vital to distinguish yourself from the competition. This will be harder when dozens of other people are selling the same products, supplied by the same dropshipper. No doubt, you give your product added value with great product support and you may have a rock solid marketing approach, but comparison shopping sites are ruthless. When being presented in a list of different suppliers of the same product you will only stand a chance when you are the cheapest. The same principle applies to eBay. When everybody is trying to sell the same product the profit margin drops. The art of successful dropshipping is finding the products that have good profit potential and that have not yet been overexposed on the internet.

In conclusion, setting up an internet business using merchandise of dropshippers can be an attractive opportunity. It is however by no means a guarantee for success. You have to choose your products and dropshippers carefully and always be aware of your costs.

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Gert-Mark ter Wee is the founder of Webshopsupply. This site contains a directory of dutch wholesalers and dropshippers.