Dropshipping Explained: The Pros And Cons In The Check

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ecommerce dropshipping explained

Dropshipping is a very important topic in e-commerce. Why? Because the market share in e-commerce is over 150 billion dollars. When used correctly, you can run a very profitable business with dropshipping, even without having your own products or warehouse. What may sound strange and dubious at first is actually a widespread business model! So take a few minutes and read this article.

What is dropshipping?

Let’s start at the beginning and explain what dropshipping is all about. Dropshipping describes the distribution process in which a retailer stores his goods with a wholesaler and, in the case of a customer order, sends the goods directly from there to the customer. The remaining processes, such as returns, continue to end up with the retailer. Basically, this process has been used for a long time, for example with bulk goods such as building materials that require a lot of storage space. Why is this business model so lucrative? Because you can save a lot of work and money by outsourcing part of the sales process.

Who is involved in the dropshipping process?

Because the whole thing may seem a bit confusing, we also want to highlight the parties involved again. Because there are three parties involved in the dropshipping process: the seller, the wholesaler, and of course the customer. The seller is the one who offers and manages the products in his online store. He is mainly concerned with attracting customers and selling the products. As soon as he receives an order from a customer, he contacts the wholesaler and sends him all the important details about the order, such as the customer’s address and the product ordered. The difference between the amount he owes the wholesaler for the product and the amount he charges the customer represents his profit here.

The wholesaler takes the order, packs the ordered product, and then sends it on to the end customer. He takes care of all the formalities that arise for shipping, customs and sales. The customer then receives the product he has ordered. He cannot tell whether the product comes directly from the retailer or whether it found its way to him via dropshipping through a wholesaler. A well-functioning system.

Dropshipping: advantages and disadvantages at a glance

Of course, there are also many advantages when it comes to dropshipping, but there are also many disadvantages compared to conventional eCommerce businesses. Here I would like to explain all the advantages and disadvantages of dropshipping to you in detail.

THE ADVANTAGES OF DROPSHIPPING

There are numerous benefits that dropshipping brings. Especially for entrepreneurs who are just starting their business. A decisive factor for them is that they need a small amount of start-up capital to get started with their shop. In addition, the products do not have to be sent to the online retailer first and then stored somewhere in large quantities. It’s really uncomplicated and that’s why it’s so attractive. In addition, the retailer does not have to pay for the products until the customer actually buys a product. As a retailer, you don’t have to invest a lot of money in advance to order a certain amount of products. Dropshipping is therefore also less risky.

Another advantage is that as an online retailer you can build up a wide range of products and vary this at any time. This means that rapid growth is also possible and products from abroad can also be sold. Of course, the wholesaler or manufacturer also has clear advantages from dropshipping, as they can significantly increase their order range without much effort. In short: As an online retailer, you can save costs for staff and storage of the products with drop shipping. Perfect for starting your own business as an online entrepreneur!

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In summary, dropshipping offers the following advantages:

  • Low start-up capital required
  • Easy entry into the e-commerce business
  • Products do not have to be stored in large quantities themselves
  • No need to invest large sums in advance
  • Opportunity to build a wide range of products
  • Products can be sold from abroad
  • Save costs for personnel and storage

THE DISADVANTAGES OF DROPSHIPPING

Where there is light, there is also shadow. And therefore the dropshipping model also has its disadvantages, which we do not want to hide from you. Because sometimes dropshipping is not as easy as it sounds. After all, you have your own trade to take care of. You should deal intensively with the topics of data protection, the right of withdrawal, and marketing. You have to reach your customers, convince them of your offer and assert yourself against the competition.

One of the most important prerequisites for your trading to work is a well-functioning and clear website. This should be structured in such a way that the customer can quickly find their way around, order easily and thus have a pleasant shopping experience. In addition, you should not underestimate one of the biggest disadvantages of dropshipping: the margin. This is significantly lower than for a retailer who buys its products in large quantities from a manufacturer. Although his risk is higher here, he gets a volume discount through a large purchase, which can be worthwhile from a certain number of products.

There may also be problems with logistics. Because you, as a retailer, outsource the complete logistics to an external service provider, you only have a certain degree of influence on the processes. For example, it can take longer for a product to reach your customer. In addition, there can always be delivery difficulties and problems with availability, which fall back on you. Also, you cannot always influence how the products are shipped and how they are packaged. Therefore, it is important to look for a reliable provider that you can rely on.

In summary, dropshipping has the following disadvantages:

  • Intensive marketing
  • A professional website needs to be built
  • Margin is significantly lower than in retail
  • Logistics is handed over to an external service provider
  • Little influence on the shipping processes

The Dropshipping Types

Now, if we get a little more specific, dropshipping can be broken down into different types. There are roughly two different types that you can choose from:

FULFILLMENT THROUGH A WHOLESALE LOCATION

If you opt for dropshipping via a wholesale warehouse, you can theoretically access the entire range of products from the retailer. Chinese dealer platforms such as AliExpress or Alibaba are mostly used here.

FULFILLMENT VIA A CONSIGNATION WAREHOUSE

With the consignment warehouse, you have exclusive access to a storage area that is only available for your company. This area is made available to you by a wholesaler. This allows you to benefit from the secure supply of goods. However, there are often additional costs or restrictions due to purchase obligations.

Dropshipping costs

It is not possible to say in general terms how high the costs that come with dropshipping are. Broadly speaking, it depends on the provider you choose for your business. Compare the following cost points with different providers:

  • shipping fees
  • handling fees
  • small quantity surcharges

The right product for your dropshipping business

Finding a niche is not always easy. But if you’re already interested in a specific topic or niche, why not just try offering that product category online?

TREND PRODUCTS FOR YOUR ONLINE SHOP

Before you can start your dropshipping business, you must of course decide on a product that you can offer in your online shop. One way to find a suitable product is to jump on current trends. Here it is important that you are one of the first to recognize the trend and offer the appropriate products. The faster you are at spotting these trends, the more money you can make from them. Of course, the whole thing assumes that you are the first to spot the trend. It is always helpful to deal intensively with the latest trends from other countries. Because the trends usually start there and eventually spill over to us in Germany, which you can benefit from with your dropshipping business.

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TAKE ADVANTAGE OF YOUR BUSINESS MODEL

When choosing your dropshipping products, you can also draw on the advantages that you have in contrast to a “normal” shop in Germany. For normal online shops, it is a big risk to offer expensive products. After all, the seller has to buy them in advance and thus invest a lot of money. If these don’t sell, he’s stuck with the products. As a dropshipping retailer, you don’t have this problem. You only buy the product from the retailer when a customer has already bought the product and you have received the money. So you basically don’t take any risks.

The same applies to the sale of particularly large or heavy products that are difficult to store and sell. Here a normal retailer pays a good amount of money to have the goods sent to the warehouse, cover the storage costs, and send the product to the end customer. As a dropshipping retailer, on the other hand, you only pay for shipping from the supplier to the end customer once, which means you get away with it a lot cheaper.

Products in niche markets are also ideal for dropshipping. Again, regular traders take a risk when they decide to sell products from niche markets. After all, they never know whether they will actually be sold all the goods and can therefore remain stuck with the products. The problem does not arise as a dropshipping dealer either. In addition, niche products have the advantage that they usually have little competition. So if you choose a product that is in high demand in a niche market, you can also make good money with your dropshipping business.

Dropshipping: Finding the right supplier

Finding the right provider is one of the most important steps on the way to a successful dropshipping business. Fortunately, there are now a large number of providers in Germany with whom you can start your dropshipping business. However, you should not immediately commit yourself to one provider, but have a product sent to you first. So you can be sure that it keeps what it promises. You can also draw on the experiences of other dropshipping users and find out about different providers on the Internet. Using multiple providers for different products is not advisable in most cases. This usually only increases the shipping costs and your margin is lower.

So that nothing goes wrong, you should pay attention to the following points when choosing the right dropshipping supplier:

RANGE OF PRODUCT CATALOGUE

There are various dropshipping retailers that either specializes in very specific products or offer a wide range of products in their catalogs. Which dealer you choose here naturally depends on which products you want to offer in your online shop. However, choosing a retailer that offers a broad product catalog has the benefit of making it easier for you to scale your business. So if you want to offer a new range of products, you don’t need to change retailers.

If you want to offer a specific product and don’t want to use Chinese dealers, just search Google for “Product XY Dropshipping”.

POSSIBILITIES FOR SYNCHRONIZATION

When choosing the right dropshipping retailer, you should also pay attention to the synchronization options they offer. After all, things like orders, stock levels, and catalogs have to be kept up to date all the time. Many dealers offer different options here. Some even require certain technical know-how, such as API or CSV.

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MULTIPLE SHIPPING OPTIONS

Also, look for a dropshipping retailer that works with multiple carriers. This also gives you the opportunity to sell your products in different countries. But keep in mind that your website should also be available in different languages.

RELIABLE CUSTOMER SERVICE

In the case of queries and returns from customers, the retailer should be transparent and offer your customers good conditions. In addition, it is always useful if the customer service of your dropshipping retailer is multilingual, as this way customer questions from different countries can be reliably answered.

pre-build-dropshipping-stores

Build an attractive shop

The prerequisite for customers actually buying your product is that your shop must be attractively designed and easy to use. After all, the first impression of your shop decides whether customers stay longer on your website and ultimately buy a product. So make sure that your shop makes a professional impression and is clearly structured. If you are not familiar with design and programming, it is advisable to contact a professional web designer.

Otherwise, you can rent or buy a well-functioning shop system from certain providers. Here you can choose between different design templates and don’t have to worry about hosting the shop – the provider takes care of all that. Of course, you have to pay a monthly fee for this.

Here you have to weigh up what is more profitable for you. However, it is advisable not to save too much, especially when creating a shop. After all, this is largely responsible for the success of your e-commerce business.

From my experience, there are two good shop solutions, Shopify and WordPress. Shopify has a big disadvantage in that it is very expensive. But the advantage is that it is easy to use even for beginners.

WordPress and WooCommerce, on the other hand, offer almost unlimited freedom.

Frequently asked questions (FAQ) about dropshipping advantages and disadvantages

  1. What is dropshipping?

    Dropshipping describes the distribution process in which a retailer stores his goods with a wholesaler and, in the case of a customer order, sends the goods directly from there to the customer. The online shop operator therefore only serves as an intermediary between the buyer and the retailer.

  2. What are the advantages of dropshipping?

    – Low start-up capital required
    – Easy entry into the e-commerce business
    – Products do not have to be stored in large quantities themselves
    – No need to invest large sums in advance
    – Opportunity to build a wide range of products
    – Products can be sold from abroad
    – Save costs for personnel and storage

  3. What are the disadvantages of dropshipping?

    – Intensive marketing is needed to generate traffic
    – A professional website must be built
    – Margin is significantly lower than in retail
    – Logistics is outsourced to an external service provider
    – Little influence on the shipping processes
    – Often difficult returns processing

Founder at Datacrypt Ltd
Tim is the founder of Datacrypt.io and is an expert in web design, SEO, eCommerce, and content management. Tim loves to give you a lot of useful information in our blog about various topics.
Tim
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