Dropshipping is a tempting business model for online sellers, especially with every other individual claiming to have become a millionaire within days of shifting to dropshipping.
For aspiring entrepreneurs, nothing sounds better than a successful online store with minimal upfront investment.
Before you make a hasty decision and get your store running on dropshipping, it’s important to explore the benefits and the challenges you might encounter.
In this guide, we’ll lay out the details of dropship order management, the pros and cons, and the crucial steps involved in the process.
Features of Drop Shipment Order Management
On your way to leverage the world of online selling to create a source of income? But wait, those fulfillment and logistical nightmares aren’t too far behind.
E-commerce isn’t always a piece of cake. You may need to manage multiple aspects of opening an online store, but logistics doesn’t have to be one of them with drop shipment order management.
Next up, we’re highlighting the benefits of dropshipping that can make your e-commerce journey a breeze.
Slashing Startup Costs
Back in the day, you couldn’t think of building an online store without a hefty amount of savings in your bank account.
Dropshipping is known as a low-barrier entry to online e-commerce because it minimizes your investment costs.
Forget about warehousing fees, upfront inventory purchases, and getting stuck with unsold items. You can create a store and start selling products without breaking the bank when a dropshipping retailer manages that load for you.
Don’t get us wrong – you’ll still need to spend more than you earn at the start. Although, you won’t have to spend your life savings on surplus inventory.
Test Driving a Wide Product Range
Not every seller has their A to Zs sorted when they enter the online selling game. For instance, what if you’ve landed in an already saturated product niche and want to change fields?
With traditional fulfillment methods, you’d need to purchase a large inventory for each item you bring to your store. And if your products don’t sell, you’re only looking at a significant monetary loss.
Dropshipping allows sellers to experiment with their product range without needing upfront inventory. In case you already have excess inventory, there are 7 effective strategies to counter that issue as well.
Since you’re not purchasing products until a customer buys them on your store, there’s no financial risk of buying large inventories.
Similarly, this also allows sellers to monitor what resonates with their audience and market trends.
This way, sellers can focus on products that cater to customer preferences and realign their online selling strategy and product range accordingly.
Hit the Expansion Goals
It’s been a few weeks to your online business, but what if the demand is already greater than the supply?
If you were relying on a self-fulfillment model, this would mean quickly having to manage inventory scales and physical stock. Again, this would also require investment on the seller’s end.
With dropshipping, think of it as an automated inventory scaling process. Neither do you need the capital to accommodate increased sales, nor have to worry about storage and logistics.
In other words, this method has the ability for online businesses to scale seamlessly as their customer base and sales grow with fewer hurdles.
Looking for more tips to scale your business? Our blog covers the best time and how to scale your business in a detailed guide.
Maximizing Service Potential
Starting an online e-commerce brand is almost always a one-man show in the initial phases. From finding products for your store to actively responding to customers, you’ll have your hands full.
Through dropshipping, you can dedicate more time and energy to the elements required for your e-commerce business to take off: marketing and customer service.
Many sellers fall under the burden of order fulfillment, leaving no room for targeted marketing to attract new customers and customer service to build customer relationships.
By dedicating time to these pillars, your store can grow exponentially while a dropshipping supplier manages the labor work required for getting your products to the customers.
Cons of Drop Shipment Order Management
Now that you know the benefits of drop shipment order management for e-commerce entrepreneurs, you might see it as a “get rich quick” scheme for your online business model.
However, don’t empty your savings on this model before you know the possible drawbacks that will help you make the right decision. Here’s a list of the factors that you should take into consideration:
Profit Margins Don’t Skyrocket
When overhead costs are out the window with this fulfillment type, shouldn’t you get filthy rich in profits? Unfortunately, that’s not always the case.
For starters, dropshipping suppliers will charge a higher product pricing compared to direct manufacturers. You’ll be missing out on wholesale pricing, discounts, and incentives.
Even if you do manage to source products on wholesale pricing, you’ll be bearing costs that your drop shipper will charge for picking, packing, and delivering your orders.
Don’t forget about the fulfillment fee! While you’re eliminating inventory and storage expenses, your supplier will price fulfillment to the overall cost. So, calculate those profit margins once you’ve added up all these expenses.
Don’t Underestimate the Competition
If you’re opting for a dropshipping supplier, there are dozens of online sellers selling the same products through their suppliers.
The market remains competitive, and many amateur sellers face tough luck when head-to-head with experienced sellers in the same niche.
Another disadvantage when competing with established online stores with similar products is that they may be priced lower due to a higher number of sales.
With that said, utilizing an effective mix of online selling strategies, marketing, and SEO for your store can do wonders to make your brand stand out.
Supply Chain is a Gamble
One of the most common issues with the dropshipping model is out-of-stock products.
Imagine orders coming in, but a dead-end for the product inventory and restocking on your supplier’s end. Or worse, imagine your customers leaving negative reviews due to low-quality or damaged products.
At the end of the day, when sellers have to resolve customer complaints regarding product quality, delivery timeline, and return policies, you’ll have to bear the brunt of it.
Self-fulfillment is simpler because you can get back to customer queries, complaints, and returns quicker than when relying on a supplier to answer those questions before you can answer the customer’s.
One way to tackle this and retain your brand reputation is to research suppliers, look for effective fulfillment service providers, and make an informed decision when selecting one.
Your Store, Their Name
With dropshipping, brand building is next to impossible, unless you’re upscaling through customization, which requires more bucks.
Unlike self-fulfillment where the manufacturer heeds to your commands, dropshipping means selling generic products that a customer can find the exact replica of on hundreds of other stores.
There’s a high chance a portion of your customers may not even remember your store. After all, you’re not showcasing your brand on the products.
If you consider brand building more essential for your online business compared to quick selling, exploring other fulfillment options is a better alternative.
How Drop Shipment Order Management Works for Retailers and Suppliers
Have some clarity regarding the pros and cons of dropshipping? That’ll help you make the right decision.
Now, you might be wondering how the entire process works. Drop shipment order management sounds complex, but it truly boils down to a streamlined process.
Here’s a step-by-step breakdown of the flow:
- Customer Places Order: Firstly, a prospective or previous customer lands on your online store, finds a product they want to buy, adds it to the cart, and finally checks out and places an order.
- Order Routing: Next, your e-commerce platform or order management system (OMS) automatically sends out the order details, including product, quantity, and customer details, to your dropship supplier. If you have multiple suppliers, the platform/system will transmit it to the relevant one.
- Supplier Fulfills Order: The supplier receives the order notifications and details. Now the process moves to the supplier’s end, where they verify stock available and pick and pack the product.
- Shipping & Tracking: The supplier ships the product directly to the customer using their preferred shipping carrier and provides you with tracking information.
- Customer Receives Order & Retailer Updates: Once the supplier sends the package out, the seller has to update their systems with the shipment details and send tracking information to your customers. Finally, the customer will be receiving the parcel.
- Payment Processing: Online shopping payments can either be prepaid via bank transfer, Paypal, and credit/debit cards or Cash on Delivery (COD). Based on the agreement with your supplier, you may need to transfer the amount minus your profit margin immediately or on a monthly basis.
Final Verdict
So, is drop shipment order management a shortcut to e-commerce success?
From low startup investment to potential supply chain issues, whether or not dropshipping is right for your business needs to be a calculated decision.
By now, you’d know that while this fulfillment method has many benefits, it comes with its own set of challenges.
If you’re sure that dropshipping is the way to go for your online store, our step-by-step guide will help understand the thorough process.
In that case, take that leap of faith for your online store, and don’t forget to read up on our other resources on dropshipping!
