You may have heard of dropshipping as a fast and easy way to make money. While it can be a very easy way to sell online with none of the hassle of managing a warehouse yourself, dropshipping can be a complicated process and one to be cautious about. While you may not be managing your inventory yourself, there are multiple reasons to be aware of how dropshipping can affect you and your business. Curious about what dropshipping is, how it works, and whether it is right for you? Fear not, we’ve got our answers all lined up for you.
What is Dropshipping?
It’s good to get clarification on what dropshipping is before you start it. Dropshipping is a method in supply chain management where a seller doesn’t physically keep the products they sell. Instead, the store or seller will have an item shipped once it has been ordered directly from a third-party facility. This third-party wholesaler or manufacturer will be the keeper of the inventory, so that you as a seller do not have to. This means that the products you sell are fulfilled per purchase, and you as a seller never actually see or handle the product that is being shipped.
So, Is It Right For Me?
Is dropshipping worth it? Why is dropshipping beneficial to me? There are multiple advantages to dropshipping your inventory:
No Investment Necessary
If you’re a small-to-medium sized business just starting out, chances are you don’t have the capital to invest thousands of dollars in inventory you might not be able to sell for months. It can be difficult to start up a business from scratch. Having an option like dropshipping is great because your money is not tied up in inventory all the time, which means you have more resources that you can allocate to things your business needs, such as sales or marketing efforts.
More Products to Sell
You can sell a large variety of products with dropshipping because you are not buying the inventory yourself, and not choosing where to spend your money. If your third-party wholesaler has many different products to offer, now you do too!
You Can Do It From Anywhere
Nowadays you can run a business from anywhere with a stable internet connection and a laptop, and dropshipping makes that even easier. This method gives you the freedom to be anywhere and grow a successful business, whether you’re just one person or a group of over 200.
If the reason that you’ve been holding back from starting your business is because of the risk, dropshipping’s got your back. Since you’re not managing a warehouse, buying, tracking or shipping inventory, or handling returns, you can even start selling as a side hobby, with little to no risk to you! That way, you have the autonomy to change your mind in the future, or even scale higher. Your future is in your hands!
So I bet dropshipping is sounding pretty good to you right now. What’s better than a low-risk, high-reward scenario? The problem is, using dropshipping for your business might not always be high-reward. There are certain factors you should definitely consider before pursuing dropshipping as an option for your business:
Have you ever tried to buy a poster from Amazon, and noticed the exact same one for a much lower price but no reviews next to it? That is a great example of the perils of dropshipping. Since it is so easy to set up your own business with dropshipping, lots of people might have had the same idea– and since your inventory isn’t completely uniquely yours, your third-party seller might send that same item out to multiple dropshippers. When there’s a lot of competition, it can sometimes be difficult to make a sale.
Customer Service Issues
As we mentioned above, a third-party wholesaler will send a list of the amount of inventory they have available to send out per day. Let’s say your third-party wholesaler has 100 pieces of inventory available. This amount does not get updated or modified if an item is shipped or returned by another seller besides yourself. This means that if you get 40 orders in a day, but the other three sellers get 30 each, you’ve overdrawn from the inventory available to you. Plus, you’re not in charge of shipping methods. This means you won’t get all your orders out in time, and your customers won’t be happy. If you manage your own warehouse, however, you can easily keep track of your shipping and inventory levels, and prevent negative inventory levels from happening.
If They Make A Mistake, It’s On You
Besides the inventory issues outlined above, it can be even more important to manage your own warehouse as your business continues to grow. A higher amount of orders can mean more problems, which leads to less sales. Your third-party wholesaler might also make mistakes like neglecting to fulfill an order, which you then have to take the blame for from customers. If you are in charge of your own inventory, however, you can always have safety stock in place to avoid this issue. Plus, while it might seem tedious to calculate your own ATP, you’ll always know how much inventory you have at all times and where your orders are.
Shipping Can Get Complicated
If you’re selling from multiple different drop shipping retailers, you’ll have to keep track of all those shipments in order to send the right tracking number to the right customer. Plus, you’ll get charged a different rate from each one in the process, making accounting confusing for you.
How Managing Dropshipping Using a WMS Can Help
To understand how an inventory management system, (also known as a WMS) can help you as a dropship business, you should first understand how the sales channels are used.
Your sales channel, such as Amazon, will know that the items you have placed for sale are dropship items. Once the order has been placed, you will have to download the sales orders into an excel file. Next, you will send this information to the third party vendor manually. The vendor will then match the order with a tracking number, and then send that tracking number back to you. You then send out that tracking order to your customer or back to the sales channel to be paired with the order.
Sounds complicated, right?
Your business doesn’t have to be a constant game of email tag. Using an inventory management system can help you streamline this process. With a WMS, your sales channel order can go through one of two processes:
- The WMS downloads the drop shipment order and notifies you. Next, a tracking number is matched to each order. The warehouse updates the system manually, which gets sent to selling channels.
- The WMS downloads the drop shipment orders and notifies the third-party wholesaler. They then execute the shipment process on your behalf using your inventory management system. You can then log into your WMS and view this. This option gives you slightly more control on the entire drop shipping process.
As you can see, it can be pretty beneficial to have a WMS like Logiwa for your dropshipping business needs. A WMS not only streamlines the sales process, but also leaves less room for errors. Check out whether Logiwa is right for you with our free demo!
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