What is Dropshipping all about?

In an E-commerce store there are 2 basic options for sourcing products

1. Keep a stock of inventory, store it in a warehouse, and then package and ship the products based on the orders.

2. Second is to tie up with a Dropshipper who will ship products to your customer as per your request

So Dropshipping is a retail supply chain management technique in which web-store owner doesn’t stock any inventory/products but transfer the customer orders directly to the vendor, who then ships the product directly to customer.

All the big players in Indian market like Flipkart, Myntra, Jabong follow the same suite dropshipping. Customer places the order with them and they then process it to the vendor by keeping their profit margin and rest goes to the vendor and then vendor ships the product on behalf of the company with the name & billing mentioned with their names.

Working of Dropshipping

Dropshipping Working

  Pros of Dropshipping

1. Less Capital Required: There is no requirement of blocking of capital in purchasing / keeping upfront stock which will cost several thousand/lakhs of rupees and also no risk of dead stock.

2. More Focus on Sales: Dropshipping allows you to focus on time and effort to get the customers. All you have to do is promote your e-commerce site well and attract as many customers and convert that traffic to sales. Once the sale is completed, the back-end is vendor’s responsibility.

3. Unlimited Products to Sell: With drop-shipping you can sell any number of products. You can increase your product offering & variety without investing more in inventory only you have to tie with new vendors. You can have unlimited products on your online shop by associating as many drop-shippers possible.

4. Minimum Risk & Good Returns: Most important benefit of using dropshipping is you are minimizing the risk factor at very certain level by not stocking the inventory and spending huge money. There might be chance that you will not be able to sell the products or might got delayed to sell and gone to expiry stage so will push in financial crisis.

Cons of Dropshipping

1. Low Margins: Low margins are the biggest disadvantage of the dropshipping. There are many small players who keeps the prices such as no profit no loss basis which ultimately kills your sales or slash your margins.
2. Tracking Quality: You do not have control on what is being delivered to your customer. The quality of product may not be up-to mark. The product could be defective or the product delivered could be wrong one. This will spoil your relations with the customer and with vendor too if you are returning the product so don’t forget to mention such all terms in SLA with vendor.
3. Shipping Complexities: If working with multiple vendors then this will bring a big hurdle in handling courier companies and will also complicate the shipping cost set for the same.

Conclusion:

All in one we can say there are more of benefits of dropshipping than disadvantages. Only we have to take care the cons part by applying process controls and better pricing strategy. You can start with limited products and then learn the market and expand accordingly.

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