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Drop shipping as a supplemental income, opportunities and threats…

If you are exploring e commerce, the possibility is higher that you have already become familiar with the word drop shipping. It so happened that every e commerce entrepreneur who loves to start their own business would fall for this idea when they explore more on the topic. If it is so, why is it so?

How does drop shipping work?

Drop shipping is an e commerce fulfillment where instead of keeping inventory, the seller directly purchases the product from a supplier who, then, ships it to the customer, and the seller avoids keeping the inventory and earns money without any hassle by simply being a facilitator, sounds good!. Indeed, a large number of new e commerce users tend to use drop shipping as their business model to kick start their business.

From the seller’s perspective, it’s a smooth process as the seller doesn’t want to store inventory, nor does he want to pay overheads, store products or set up a warehouse. A third party supplier will take care of all these aspects, and the seller only needs to act as a middleman. Moreover, a large chunk of profit will remain with the seller, with products marked up. It’s a very simple model and can be rewarding in a way.

Advantages of drop shipping

Drop shipping expands faster: since you don’t have to pump in a lot of money into your business, business grows much faster than you would expect. Moreover, your day to day operations shall remain same owing to the flexibility of this model. The business doesn’t show many changes although investment in terms of advertising or marketing should be done to boost up the expansion process.

• Quick head start
• Agility
• Cost effective

Quick head start: This is one of the major advantages of drop shipping. You don’t need to worry too much about anything at all. If you get the basics, then you can get the store up and running on the spur of the moment. It demands very little from you once you get going-after all, you don’t need to set a warehouse, store or shipping.

Agility: you don’t need to make any form of commitment that you make for other types of business models. You can sit anywhere and manage your business. Apart from marketing and advertising, fundamental to expanding a business, you can be as relaxed as someone who is not into a retail business.

Cost effective: you can strengthen your business from the scratch with low funds. Drop shipping requires so little, you don’t need to make any huge investments. Indeed, business only requires an active internet connection and a responsive device.

Disadvantages of drop shipping

• Low profit margins
• Others holding the reigns
• Supplier on boarding
• Customer satisfaction
• Ambiguity

Low profit margins: profit margins show little spikes in drop shipping. To achieve a considerable profit level, you have to reach a fair amount of sales. Things are even more difficult if you find yourself in a competitive marketing environment. Finding the right niche for your business would help you overcome this blip to some extent.

Others holding the reigns: Although you are the master and decide what to sell or how to sell, you don’t get full control of your business flows. You are bound to work within the ambit set by your co participants, such as supplier, shipping partner etc. as you are out of the supply chain process, playing a pivotal role in the e commerce business.

Choosing right suppliers: You are at the receiving end of flak even if you do everything right, but your supplier ditches your promise. Customers need quality service, but it all depends on how your supplier behaves. Supplier performance should be evaluated timely and non performing suppliers should be weeded out to save your business.

Boarding of a supplier can also be cumbersome as the supplier should agree to do shipping including delivery returns and adhere to the rules of the game.

Customer satisfaction: Because your shipping is managed by a supplier, you should be wary of calculations. Assumptions would land you in trouble. Customer satisfaction and retention is determined by the timely delivery made by your supplier.

Ambiguity: since you have taken multiple suppliers on board to ship your products, managing them would be challenging. Different suppliers using different shipping methods, you get confused as to how can SLA(Service Level Agreement) be kept intact. Costs that you pay to the supplier would also increase as the shipping method changes.

Drop shipping: a supplemental income

The biggest myth attached to drop shipping is that you need to dedicate too much time and energy for your business, failing which you will have to bear losses. In reality, you could spend at least a few hours on your business, and still succeed.