Dropshipping is a popular and profitable e-commerce business model. Countless people use this method of selling online because of many advantages like low cost of starting and minimum inventory management. This model of business sounds attractive but if you are thinking about starting this business, you should be aware about dropshipping challenges.
What is Dropshipping?
Dropshipping is an ecommerce business model where online seller has tie up with a supplier who procures, stores and ship the products when seller receives the order online. This sounds attractive to sellers who don’t want to invest in buying, storing and shipping products, but it can come at a cost. Before starting this business you need to be aware about the dropshipping business challenges.
Here are some of the common dropshipping business challenges faced by sellers:
- Increased Competition: In recent years dropshipping has become quite popular. As a result, competition has increased amongst sellers. It has become difficult to come with ideas that can differentiate you from your competitors. Finding a niche with less competition has also become quite challenging.
- Lower profit margins: Unlike traditional online stores, dropshippers normally have to sell products at a lower price point, which results in lower profit margins compared to traditional retail models. This is because they have to face stiff competition from established retailers and large-scale dropshipping operations. Also, in dropshipping model, sellers don’t own the products they sell, so profit margins are lower.
- Finding genuine suppliers: As sellers do not source products directly, they need reliable suppliers who will fulfill orders in time and ensure good product quality. As dropshipping business relies heavily on suppliers, it is quite a challenge to find genuine and trustworthy suppliers.
- Inventory management: Although in dropshipping, there’s no need to store inventory, you never know if a supplier has runout of stock. So, you may not be able to fulfill customer orders. As it is not easy to Keep track of product availability and inventory levels from your suppliers, you might end up selling products that are out of stock.
- Shipping Control: While dropshipping products, supplier is handling the shipping process. And, you don’t have control over shipping. Any delay and errors in shipping may lead to customer complaints. This happens especially when you are dealing with suppliers from different countries.
- Quality and Brand Control: Sellers don’t have direct control over the product quality or shipping process. Customers may face issues like bad product quality issues and damaged goods. This can have bad impact on your brand name giving you a bad reputation.
- Scaling your business: If you are selling products that you manufacture or source directly, you can scale your business with time as you have full control. But when you are dropshipping, you can scale your business to a limited extent because of dependence on other suppliers.
- Legal Requirements: You need to be aware e-commerce regulations and tax laws in different countries which can be a complex and tedious task if you’re selling internationally.
- Customer Service: As the owner of your business, it is your responsibility to handle customer inquiries, complaints, and returns, even though the supplier is shipping the products. So, it becomes difficult to provide good customer service and to build trust.
Though dropshipping can be challenging, it does not mean you should avoid it. This business model can be rewarding if you take positive steps to overcome these challenges. It’s important to thoroughly research the niche you want to choose, find good and strong supplier relationships, and focus on providing excellent customer service to overcome these challenge