Dropshipping. Advantages and disadvantages of such a business

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Dropshipping is one of the simplest options for online trading, which requires minimal start-up financial costs, and allows almost anyone to create their own business from scratch.

It has gained popularity all over the world because it is beneficial for both the buyer, the dropshipping seller, and the manufacturing company or wholesale supplier for dropshipping. Arabesco Sideral Portugal offers useful tools for running a successful business. 

It provides

  • delivery of goods to the buyer from the manufacturer directly,

  • making a profit for the seller on the difference between the retail price in the online store and the wholesale price,

  • increase in sales from the supplier.

Dropshipping scheme: how it works

Dropshipping  is a trading option when the seller provides the buyer with information about the goods, accepts payment from him at the price posted on his website and uses these funds to pay the manufacturer the wholesale price of supplies. The manufacturer undertakes to send the goods to the buyer on behalf of the  dropshipping online store .

In this case, the seller does not need

  • warehouse premises,

  • additional staff

  • places of trade.

The work is carried out from a computer, and the product, in general, is information about the goods provided by the supplier. In fact, the dropshipper works as a kind of additional “external sales department” for the company that makes up the product.

Benefits of dropshipping

The main advantage  of dropshipping  is its simplicity and convenience for all parties of interaction. The buyer receives information about products that he might not have noticed. The seller receives profit from sales. The manufacturer has effective sales.

For a  dropshipping merchant  , the advantages are the absence of significant initial capital investments in the business and the relative simplicity of its organization. After all, to get started, he only needs a computer and Internet access. There may also be costs for a website and advertising. But this is a disproportionately smaller investment than when creating a regular store.

Another advantage is maintaining mobility. Dropshipping  can be done anywhere you have access to the Internet.

It is important that in this business it is quite easy to make a profit simply from the ability to organize interaction between the buyer and the owner and/or manufacturer of the product.

Benefit for the manufacturer

  • in increasing sales of goods,  

  • the ability to analyze the market if a new product is launched for sale through dropshipping,

  • in reducing the costs of organizing sales, because the seller takes it upon himself.

There is also an advantage for the buyer, who gets the opportunity to get to the product he needs, which he could otherwise miss due to the low popularity of the brand. And if we are talking not about widespread, but about specific products, for which the dropshipping sales strategy is often used, it may generally be the only opportunity to get the desired product.

Possible difficulties when organizing dropshipping

Of course,  dropshipping is  one of the simplest options for organizing a business from scratch; it quickly begins to generate profits. But when organizing it, you may encounter a number of difficulties. 

  • The first problem is, in fact, the issue of trust. After all, the company and the dropshipper who interact must be confident in each other. Because otherwise, due to ineffective or fraudulent behavior of any of these parties, the other will be a loser and will suffer financial and image losses.
  • Another problem is poor quality logistics. A dropshipper in his online store receives payment from the client, but does not send the goods. It is also quite difficult for him to control the availability of remaining goods in the supplier’s warehouse to protect the client from the risk of falling into missing sales positions. After all, if payment is made, it is necessary that the client receives the goods.

  • If an online store works with several dropshipping suppliers, it is necessary to ensure consistency in the dispatch of goods if the customer purchases goods from different manufacturers.

  • The third problem is related to legislation and payment of taxes. When creating a new business, there will not be many clients at the initial stages. Profits, respectively, too. At the same time, registering and paying taxes even as a sole proprietor may not be profitable for the seller, although these costs should be regarded as an investment in the further development of the business.

  • Another element of risk is unprofessionalism in the selection of goods or in advertising, or unsuccessful website design. In this case, either a small number of customers will initially come to the store, or their outflow will form over time, when the store’s shortcomings begin to appear.

  • Dropshipping does not bring exceptionally large incomes, therefore it often serves only as the first stage for business development, an opportunity to accumulate capital to open a full-fledged store or even production.

Interaction between dropshipping supplier and seller

In order for an online  dropshipping store  to work effectively, it is necessary to create your own database of dropshipping suppliers, which will allow the seller to ensure that the store is filled and the buyer has the opportunity to find the necessary goods .

However, some large enterprises often prefer to work with large wholesale quantities, and sending out single shipments is unattractive for them.

At the same time, there are companies that invite you to collaborate on dropshipping, because this allows them to increase sales and distribute goods more widely at minimal cost.

Therefore, during the period of organizing an online store, the seller should study dropshipping partnership offers and choose the most reliable partners. By the way, paying special attention to protection against fraud.

Conclusions

1. Dropshipping  is still a fairly uncompetitive segment of online trading, so it makes it quite easy to start your own business and quickly begins to make a profit.

2. To organize effective dropshipping, you need good interaction between the manufacturer of the product and its seller, high-quality advertising and logistics.

3. Problems in dropshipping - poor-quality logistics, dishonesty of one of the cooperation participants, insufficiently effective advertising. With the right selection of partners and a well-thought-out system of work, dropshipping turns out to be an effective business, although not without its drawbacks. 

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