Pros and Cons of the Drop Ship Model

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When a new online businessman or businesswoman first gets started with an internet retail shop, drop shipping can seem like the obvious choice for order fulfillment. But, like all business models, drop shipping isn’t for everybody. Before jumping on the bandwagon, there are a few things you should consider first.

Drop Shipping Defined

Before we get started, a quick definition of what, exactly, drop shipping is should be discussed. Essentially it’s a product-supply method which prevents the retailer from having to warehouse products, instead simply having the wholesale distributor ship the order directly to the customer.

What Are The Advantages?

The main advantage should be clear at this point: you — the retailer — don’t spend any money until you’ve actually received payment from your customer. The reduction in risk is a big part of drop shipping’s advantage because you never have to worry about dealing with unsold inventory.

Another great advantage is that your product offering is limited only by the inventory of your suppliers rather than your ability to sell enough of a product to warrant a bulk purchase. If you only sell a few of a particular item per month, it’s probably not economically feasible to warehouse the product yourself. Drop shipping, however, allows you to target a whole new market of customers with little risk to yourself.

Considering that many of the Web’s largest online retailers use this model to fulfill on a majority of customer orders, you might wonder, “Is there any reason to not use it?” The truth is, drop shipping is not without its caveats.

Product Cost

Bulk purchasing will usually have a cost advantage. The “bulkier” your order, the lower the cost. When you drop ship, however, your order size per shipment is smaller. What this means for your wholesale supplier is higher costs which is recovered in the form of higher wholesale pricing.

Loss of Inventory Control

Drop shipping means giving control of inventory levels over to your drop ship supplier. If your supplier is out of stock on an item, you can’t ship it.

As you can see, the drop ship model doesn’t suit every business. Before jumping in, be sure that it will be a suitable fit for the way that you plan to do business.

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