A drop shipping company can be a lucrative business to start. With this type of business, products are sourced from a third party manufacturer for your audience, and you then list them on your website using the technology provided by the manufacturer.
The products look as if they come from your business, but when an order is placed and paid for, you’ll order the product from the manufacturer and the manufacturer then ships the product directly to your customer. To the customer, it will look as if the product comes from your business, since they’ll put your business name on the packaging.
It all sounds great, but you should be aware of the pros and cons of starting a drop shipping company.
Pros of Drop Shipping
Low Cost of Entry
You don’t have to have much money to start a drop shipping website. There are plenty of services that you can use, such as Volusion.com, Shopify.com, and even WooCommerce.com. These can help you get started with drop shipping for less than a hundred dollars.
No Need for a Bricks and Mortar Store
Along with a physical store comes a lot of cost for the owners, like insurance, rent, and so much more. With drop shipping you don’t need any of that; you only need a website as a storefront on which to list your products.
No Need to Store Inventory
Keeping track of and storing inventory is an expensive and difficult process, and the taxes are difficult to keep up with too. With drop shipping, the manufacturer takes care of that for you so you don’t even have to think about it.
Flexibility with Time and Location
You don’t have to man a store because it’s all online. In fact, most of the entire process can be automated using the software. You will mostly be responsible for marketing and distinguishing yourself from the competition.
Cons of Drop Shipping
Low Profit Margins
While the expenses are lower than other business models, the profit margins are also very low with drop shipping. That means that you’ll need to sell a higher volume of products to earn enough money to stay in business.
Lots of Competition
There are many people trying to start a drop shipping company due to the low cost of entry. That means that you have that competition, plus the manufacturers also sell the same brands to big box stores. You’ll need to differentiate yourself to beat the competition.
Shipping and Supply Issues
If there are any issues with supply, someone might make an order and then it can’t be filled due to the manufacturer being out of inventory. The reason this happens is that so many people are ordering at the same time that it’s hard to keep accurate inventory counts. Also, something can be ruined in shipping and you may have to replace the item.
Loss of Control
Since you’re just one person in the entire business, but also the front line, it can be hard not to have full control over inventory, shipping, quality… or anything really. But remember, you do have control over choosing the right companies to work with.
Before embarking on starting a drop shipping company, check out all manufacturers who you’ll do business with. You want to ensure that they not only offer high-quality products but they also offer above normal customer care. After all, it’s your business that will take the hit if something isn’t just right.