Find out what it is and how to create an e-commerce in the Drop shipping model – WAU
Drop shipping emerged as a solution to simplify the online selling process. In this model, e-commerce operates without the need for stock, since the supplier is responsible for this step, not the retailer.
Everyone who works with e-commerce faces the constant challenge of achieving more and more results. However, some managers do not have enough budget for this. At these times, it is necessary to resort to different solutions, such as drop shipping.
And if you are not sure what drop shipping is and the advantages and disadvantages of applying it in your business, don’t worry. We made this article just for that.
What is drop shipping
Drop shipping is a business model in which a company is allowed to operate without maintaining inventory, since it has a warehouse to store your products and send them to customers. In its operation, the retailer associates with a drop shipping supplier that manufactures and / or stores products, packages them and sends them directly to the customer on behalf of the retailer.
In simpler terms, this is how drop shipping works:
- The customer places an order for a product in the company’s online store;
- The reseller automatically or manually forwards the order and customer details to the dropship supplier;
- The dropship supplier sends the order directly to the customer on behalf of the company.
This type of business model is extremely attractive, as it eliminates the need for the store owner to have a physical place to store products, such as a warehouse or warehouse. Instead, all they need is a laptop and an Internet connection.
In this content you will know the pros and cons of drop shipping so that you can evaluate the application of it in your company.
Advantages of drop shipping
1. Less investment
This is probably the biggest advantage of drop shipping, as it is even possible to launch an e-commerce without having to invest in stock in advance.
If before companies needed to invest in large quantities of stock to meet the initial consumption demand, with the drop shipping model, it is not even necessary to buy a product.
Thus, without large initial investments in stock, as is the case with traditional models, it is possible to start a successful business through drop shipping.
2. Location flexibility
A drop shipping business can be run from anywhere that has an Internet connection. After all, the most important thing is that you can easily communicate with your suppliers and customers, in addition to managing your online business.
3. Wide selection of products
Since you don’t have to buy the items you sell in advance, can offer a wide variety of products to its customers. It is enough for a supplier to have these products available for you to put them up for sale on your website.
4. Easy escalation
With a traditional business, if you increase sales, you will increase the work proportionately. However, when opting for drop shipping, the part of the job that requires order processing is supported by the suppliers, allowing you to scale the business with less financial and operational resources.
Although the growth in sales always brings additional work – especially in customer service – those who use drop shipping particularly well in relation to traditional e-commerce businesses.
All these benefits make drop shipping a very attractive model for business owners and managers looking to sell through digital channels.
But, as not everything is flowers, let’s talk now about the side of drop shipping that is not so beneficial.
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Disadvantages of drop shipping
1. Low profit
Low profits are the biggest drawback to drop shipping. In addition to being a highly competitive niche, indirect costs are so small that many products end up being offered at low prices aiming to increase income due to the higher sales volume.
This ends up affecting the reality of your company that needs to sell a lot to have an acceptable income.
And on the internet, something customers always do is compare offers and prices. Therefore, those who do not have a strong online branding job may find it more difficult to sell to the point of paying off.
2. Inventory problems
If you stock up on all your items, it is relatively simple to control which items are in and out of stock. But when you have third-party inventories, which are also fulfilling orders from other companies, inventory changes occur daily.
While there are ways to synchronize your business inventory with those of suppliers, these solutions do not always work perfectly, which can bring problems to the end customer, such as delivery delays.
3. Shipping complexity
When opting for drop shipping, you work with several suppliers, so the products on your website will be delivered through several different shippers. This complicates your shipping costs.
Let’s look at an example: imagine a customer placing five orders at your store, each offered by a different supplier. Soon, you will have five separate shipping charges for the same customer.
But sending five different charges to the customer makes them have a poor shopping experience, and can cause confusion. And even if you want to pass those charges on, automating these calculations can be difficult.
4. Supplier errors
Do you know when you are guilty of something that was not your fault, but you still have to bear the consequences? This type of situation can happen when working with drop shipping.
After all, even the best suppliers make mistakes when carrying out orders. And, in the eyes of the customer, you are the one who will have to take responsibility and apologize.
Common problems that can happen, such as lost items, missed deliveries and poor quality packaging, can damage your company’s reputation, since the image that the end customer will have is not of the supplier, but of you.
5 companies that work with drop shipping
Amazon was one of the first companies with any relevance to sell products on the Internet. It also includes Alexa Internet, A9.com and the Internet Movie Database.
EBay is an e-commerce company seen as one of the largest sites in the world for buying and selling products on the Internet, as well as one of the pioneers in this type of work.
AliExpress is an online retail service owned by Alibaba Group.
4. Free Market
MercadoLivre is a technology company that offers e-commerce solutions so that people and companies can advertise and send products through the internet.
Alibaba is a group that brings together several Chinese companies whose businesses are based on e-commerce, acting as a search engine to buy online.
Now you know what drop shipping is, in addition to the advantages and disadvantages of applying it to your business. Regardless of the business model you adopt, it is essential to ensure that sales conversions are effective.
To find out how to achieve this, check out the e-book we wrote on how to reduce cart abandonment!