Whether you’ve been in the wholesale industry for months or years you’ll no doubt have heard of dropshipping.
But if for some reason you haven’t, here’s some basic information on it:
Dropshipping is where you source stock from a wholesale supplier and they deliver it directly to your customer. If you use dropshipping for an item you won’t actually buy the item and take delivery of it. Instead, if you list this item to resell and a customer buys it, you will receive payment for the product from the customer despite not actually having it! Once the sale has gone through you will place an order with the supplier and you’ll pay them the product fee before they send it out.
A lot of people use dropshipping as it’s easy to use and requires very little effort. The downside to this is that the profit margins are usually quite low – as a rule you can make more money by buying items in bulk from wholesalers and reselling them to your customers.
So dropshipping isn’t for everyone. If you are considering using it and aren’t quite sure if it’s the right choice for you here are some reasons why you might want to use dropshipping – if they fit with your business set up then it could be worth investing.
You Don’t Have Much Capital
If you don’t have much capital to invest in your business this is a prime reason to use dropshipping as you don’t need it. If you source stock from wholesalers to resell then you’ll need to make the payment for your products up front so obviously you need some money to invest in stock. However by using dropshipping companies you can avoid this. You will only pay for your stock from a supplier offering dropshipping once a customer has purchased it from you, so you don’t have to wait months to make a return on your investment.
You Don’t Have Much Storage Space
Storage space is a big problem for most wholesale buyers. Most wholesale buyers operate a small business, usually from home, so storing large quantities of stock can be tough. If stock has to be stored somewhere then most resellers will hire out a space in a warehouse or a storage unit to store the stock until it’s sold to a customer. This can obviously take up time and money. With dropshipping you don’t take delivery of the item – the item is delivered directly to your customer’s door once you pay the supplier. So it’s hassle free for you as you never need to worry about storage or taking delivery of the item from the wholesaler.
You Want Variety
When you are buying wholesale products and storing them you’ll usually want to focus on products that are popular or on trend as these are the products that are more likely to bring in a sale. And whilst you should still focus on products like this when using dropshipping, dropshipping does give you a bit more choice when it comes to product selection. If you use dropshipping you don’t pay for the stock so there’ll be no chance of you investing in stock that stays sat in storage. So you can take more risks – choosing products and items you might not normally if you were to buy in stock for your business.
Before you start contacting suppliers and using dropshipping as a part of your business model you should think about the negatives too – because there are some. Your opportunity to make money is less as the profit margins are usually smaller. So if you’re trying to make a big return on investment it may take a few sales before you get there with dropshipping. There’s also the fact that you never see the product. If you use a trustworthy dropshipping company this shouldn’t be an issue but if you don’t you could find an unwanted item reaching a customer or an item in poor condition and you can sometimes experience customer queries and returns if this happens.
Whatever you decide is right for your business ensure you do some research on the company you are going to use and read reviews to ensure you are picking a reliable source.
The Wholesale Scout team have found a number of reliable dropshipping companies – check out our dropshipping page for more information.