There are 3 basic cons of drop shipping that you have to face before you even start selling. But before you turn away and look for a different business model, know that every one of them has at least this many drawbacks of its own. You may have already heard a lot about the cons of drop shipping, and this may have discouraged you. Remember however, that drop shipping is an undeservedly notorious model. It’s really not a bad way to go, if you know what to look out for.
Find here not just the 5 cons of drop shipping, but how you can turn them around with some good business sense, practiced PR skills, patience and attention.
(1) Lower margins than wholesale
No sugar coating here, drop shipping undoubtedly has lower profit margins than the more traditional wholesale business model. It’s one of the major cons of drop shipping that puts off a lot of entrepreneurs. Primarily, because you are not purchasing in bulk, you are not going to get a sizeable discount from product manufacturers. This leaves sellers about 15-20% to work with, and that’s before you start chipping away at it to cover drop ship fees, shipping costs, and listing fees.
The good news is that you can still make good profit overall if you manage your business well. Focus less on how much you are making per item and more on how much product you can move. Your only concern when you increase orders from 10 to 1000 is the time it takes to send this increased number of orders to your supplier. Your narrow margins can then still bring in substantial profits for just a little more effort on your end. If your market can tolerate higher prices, by all means, raise them to widen your margins. The key is remaining competitive.
You aren’t going to get rich overnight, but slow and steady wins the race. Besides, you have financial benefits on your side like miniscule capital requirements and less risk involved where inventory in concerned, plus being a highly scalable model. And don’t discount the advantage of being location independent, which wholesaling cannot easily support.
(2) More communication needed with supplier network
You definitely need to be a people person to do well with drop shipping. At the very least, you need to develop the skill of reaching out and building relationships. If you aren’t a great communicator, this is one of the cons of drop shipping that could place a heavy burden on you.
Your suppliers are the lifeblood of your business. They are responsible for producing what you sell, and getting it to your customers as well. You need to be in constant contact with them, without going to the point of annoying them. If you are able to build ties with them and learn the knack of following up in a nice way, you can succeed. It’s definitely more effort than with wholesale, but well worth it when you think about how your suppliers are taking care of packing and shipping for you.
If you have more than one supplier for each product you sell, and you can organize yourself to get regular updates from them, then you should not run into issues. If you simply don’t have the time or the patience for it, you can always get someone else to do the follow-ups and keep track of the updates for you.
(4) No control over the fulfillment process
With the wholesale model, the only think you have no control over is manufacturing lead time. With drop shipping, your suppliers are taking care of everything apart from your retail listings. This means that you are not going to be able to do much to improve the efficiency of the packing process or the speed of shipping and delivery. The lack of control over inventory can be the most worrisome of all the cons of drop shipping.
Potential stock outs more common
Drop shipping always comes along with the high possibility that your listing will show that a product is in stock, and you will be accepting orders only to find out later on that your supplier doesn’t have it to ship. This opens up that can of worms that every retailer dreads – having to tell the customer that they can’t have their order when you said they could, and anticipating poor reviews and a damaged reputation over something that wasn’t your fault.
Typically, slower shipping times
Because you don’t have any products on hand, you have to first inform your supplier of the order, and this takes time. Then, if you haven’t yet built up good supplier relationships, you may find yourself with one who doesn’t care when the order ships. Even if you have done your due diligence, there will be times that suppliers will prioritize other shipments over yours.
To lessen the blow or avoid these issues entirely, you can make it known to customers that they should expect a longer lead time on their orders. They will not be annoyed when they have to wait more than a day, and if they get their order early, that’s extra points for you. You can also list inclusive of shipping and offer free shipping. Customers love this, and they will tend to complain less about longer waits if they didn’t pay for the service.
This model can furthermore be seen as an advantage despite the cons of drop shipping fulfillment. First, having fulfillment taken care of by someone else leaves you with more time to look into other opportunities. Drop shipping also leaves you free to move around and work from anywhere you want to. If you have responsibilities other than this one business, it can be a huge benefit.
Shift the Cons of Drop Shipping to Your Advantage
You can still make good money despite the cons of drop shipping if you look at them from a clean perspective and find workarounds to alleviate any ill effects. Where there’s a problem, there’s always a solution. With these simple solutions, the pros far outweigh the cons of drop shipping. You just need to know what you’re facing and prepare for every potential issue so it can’t sneak up behind you and bite you where it hurts most.