The Pros and Cons of Dropshipping Business Model
Dropshipping model means selling products that you don’t manufacture, make, or physically sell. You affiliate with a dropship partner like goten.com. An order booked on your online website gets forwarded to the GoTen dropshipping partner or supplier. In return, they pack and ship the product to clients on your behalf. The labeling goes in your company name. The difference between what the dropshipping partner charges you and what you charge from the customer is your profit.
Dropshipping concept allows you to offer an extensive selection of items without any need to buy the inventory upfront as well as manage that inventory. It is a great concept that helps to diversify your product catalog and test items. The items that don’t work can get removed and new ones can get added with ease.
When you go for a dropshipping business concept, you can work with manufacturers directly. For example, websites like Aso offer a wide collection of beauty products, shoes, clothing, and accessories. Another option is to partner with dropship aggregators like Amazon, AliExpress, GoTen, etc. An aggregator, partners with plenty of manufacturers, which offers a chance to sell limitless product types without any need for you to maintain a relationship with every manufacture.
Aggregators make it simple to sell thousands of items but they take their commission thus reducing your dropshipping margin. Many charge an annual membership fee to see the products they offer.
Pros of dropshipping business model
- Low start-up cost
- Low risk because you don’t actually purchase, so no concerns about things that don’t sell.
- Streamline sales because the task of packing and shipping is completed by the drop ship partners.
- Manage business from anywhere
- High competition
- Extremely Low margins [profits get slim down to 20%]
- Inventory syncing because you are depending on a third party’s inventory, where your order request cannot get fulfilled as it is sold out. The delivery can take time, which can reflect badly on you.
Dropshipping is the most inexpensive alternative for getting started. It keeps startup costs low. Besides, there is no need for a warehouse to hold the inventory and manage it.