Dropshipping seems a good way to earn extra income with less effort. But is it worth your time? Find out the advantages and risks of this new e-commerce business model.
Over the years the eCommerce has vastly evolved. The advancement of computers and the digital world are some of the primary contributing factors that lead to this development. As eCommerce is evolving, many are looking for ways to earn without spending much effort. And this thought gave birth to new business models in eCommerce, like dropshipping.
Dropshipping: An Introduction
Dropshipping is one of the many eCommerce business models which involves non-storage or shipping of seller inventory. In the conventional selling method, it is the seller’s responsibility to ship the product the consumer purchased. However, in this business model, the seller does not ship the product, but the supplier does. Hence, it is the supplier who ships the product, and the seller gets paid but does lesser work.
This scheme became popular in a short period because of its minimal effort, which is attractive to many sellers and aspiring online sellers who dislike too much work. Although the seller gets paid less, the scheme is profitable enough to make a living out of it.
Is it Profitable?
Yes, it is profitable when done correctly. You can even find many dropshipping companies online that became successful over time. When coupled with incredible marketing tactics, branding, and customer services, one can guarantee a good future in this business.
However, be warned that this type of business has many risks. While some who ventured on this business gained success, there are quite many who failed. Also, not all dropshipping methods are accepted in major channels. One example of a banned dropshipping method is arbitrage because of its numerous risks to both seller and customers.
What are the Risks of Dropshipping?
Dropshipping has many risks. Here are the most common hazards of this business model that you must avoid.
#1 Fraudulent Suppliers
Beware of swindler suppliers. Take note that being a dropshipping merchant means you’ll have to make a contract with a supplier. Though some suppliers are legal and sincere, others are scammers.
To avoid getting scammed, get to know your target supplier first. Communicate with them and run a background check on them. Also, inspect their terms; if you notice that their terms are quite vague and the supplier can’t explain them to you, it is enough of a red flag.
Likewise, you can avoid this issue by creating a dropshipping agreement contract. Familiarize yourself with dropshipping legal requirements to ensure a good business.
#2 Undercutting Prices
You can earn profit from dropshipping, but there’s also a risk of thin profit. Remember that dropshipping suppliers are working with several merchants. Therefore, the price competition is stiff that often results in excessively undercutting prices.
You can avoid this risk by selling products at Minimum Advertised Price. This method protects you from suppliers who take advantage of their sellers by cutting commissions and price war.
Those who are new to this business model might find it overwhelming. One way to effectively manage a dropshipping business is by using automation software. This technology helps the sellers manage their sales, monitor the sales channels, track the shipments, and many more. Thus, it takes a lot of load off from the shoulders of the seller.