While working from home, you can consider starting a dropshipping business.
The dropshipping business model is very simple. A dropshipping business sells products on behalf of a manufacturer or distributor. A dropshipping business does not hold any stock. The manufacturer or distributor holds the stock and ships orders to end-customers. The main advantage of a dropshipping business is that it requires very little capital to set up. The costs that a dropshipping business incurs are primarily the costs of an e-commerce website and marketing costs. Dropshipping may appear to be the perfect type of small business for a new entrepreneur. There are disadvantages to dropshipping as well as advantages. Below are the pros and cons of running a dropshipping business.
The Pros of a Dropshipping Business
Dropshipping is a great business model for a new entrepreneur to try. Low start-up costs mean that an entrepreneur can get a business up and running fast and test out their ideas without spending excessive money. Here are the main pros of starting a dropshipping business:
1. It can be run from home.
If you have a good internet connection, you can run a dropshipping from any location. You could set up your business at home, and you can market to different regions other than your own. You can do almost everything you need to do to run a dropshipping business over the internet, so there is no need to have a fixed business location at all.
2. There are low start-up costs involved.
Because a dropshipping business does not hold stock, the start-up costs are low. You don’t need to buy any opening stock of products, and you don’t need to pay for any warehousing. The main start-up costs for a dropshipping business will be the costs of the eCommerce site. The costs of the eCommerce will include domain name registration and hosting. You may also need to pay for the use of eCommerce software and website development costs.
3. You’ll have low running costs for ongoing expenses.
The ongoing operating expenses of a dropshipping business are low as well. There will be the cost of maintaining an e-commerce website. There will be general overheads, such as the cost of broadband and office supplies. There will also be the cost of any online advertising, should you decide to utilize ads. Recurring expenses will grow as the business grows. Even so, the overhead cost of a dropshipping business will be much lower than that of a conventional online retail business.
4. You can have access to a wide variety of products.
Once you have set up your dropshipping website, you can sell a vast range of products. There are lots of dropshipping marketplace websites, so there will be plenty of products that you could sell. Because you don’t hold any stock, you can experiment with products to see which items sell the best. You can also change the products that you sell to reflect seasonal trends.
5. It’s easy to cope with increasing demand as the business grows.
In a traditional online retail business, if demand increases, so do your costs. A dropshipping business is scalable at no extra cost. If your sales volumes increase, you do not need to employ more staff or buy more stock. The dropshipping supplier takes care of all the logistics of stocking and shipping the products, so you can grow your business without overhead costs and tasks growing as well.
The Cons of a Dropshipping Business
A dropshipping business will be attractive to new small business entrepreneurs. It’s the type of business that can be run from home. Start-up and operational costs are low. And, dropshipping is a type of business that needs no physical premises. You do, though, pay a price for the convenience of not holding your own stock. Below are the main disadvantages of running a dropshipping business.
1. You have little to no control over quality.
Dropshipping businesses have no control over the quality of the products that get shipped. In a conventional online store, you could prevent damaged goods from getting shipped out. A dropshipping business relies on the dropshipping supplier to carry out all quality control tasks.
2. You have no control over availability of stock.
As a dropshipping business, you will also have no control over your stock availability. A dropshipping supplier may drop the products you are selling without any notice. The supplier may also not stock enough products to be able to cope with your busiest periods.
3. Shipping can get complicated and expensive.
Most online dropshipping businesses use more than one dropshipping supplier – this can complicate shipping and make shipping more expensive. Some orders may include products sourced from several different suppliers, so the customer will receive several different deliveries. If the products come from different suppliers, the shipping costs will also be higher. You may not be able to pass that extra shipping cost onto the supplier.
4. You take the blame for someone else’s mistakes.
As far as the customer is aware, your dropshipping business is the supplier. If a customer’s order is not delivered on time, or the wrong products get shipped, it will be your fault. You have no control over the shipping process, so managing shipping mistakes can be time-consuming and frustrating.
5. You’ll see lower gross margins.
Dropshipping suppliers adjust their prices to cover the cost of their holding inventory. A dropshipping business also only buys products when they have a customer order, so you may not get volume discounts from your supplier. There is also a lot of competition in some niches of the dropshipping market. The high unit costs and the higher levels of competition mean lower gross margins for dropshipping businesses.
Overall, dropshipping is ultimately a choice a business owner needs to make.
Lack of control and lower margins are definite downsides to dropshipping. Low start-up costs and low overhead costs and tasks, though, make dropshipping very attractive. If you are looking for a business that you can run from home, dropshipping may be the best business model for you.