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Drop shipping is a buzzword thrown around loosely and often incorrectly. Knowing that, we thought it would be useful to discuss the pros and cons of drop shipping as a fulfillment method and share some information that ecommerce merchants need in order to make educated business decisions.
Since you don't stock the product, you don't pay for it until it's sold (after you've been paid for it)
You can start selling without a lot of early investment because you don't have to buy wholesale or cover the cost of manufacturing your own products..
With the ability to add new and expanded product selections consistently, you can keep your existing customers engaged and returning to see what new items you've acquired
Sometimes getting product across international borders can be costly and challenging, but if you partner with strategically located suppliers, you can often access the same or similar product offerings and ship them quickly. This allows you to test the market and validate if a given product is worth importing.
Every time you need to touch a product in the supply chain, there is a cost associated. Ocean freight services, Port Operations, LTL and FTL Services, and warehouse employees all get added into the Cost of Goods Sold. Often, you will find that a percentage of your product offering would net a business higher profit margins if it were drop shipped.
One of the main reasons the drop ship industry exists is to help retailers and suppliers combat inventory distortion: the 800 billion dollar problem of over-stock clearances and out-of-stock shelves. By tapping into inventory further up the supply chain, theoretically you can gain access to virtually unlimited inventory.
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There are many options to get your products into the hands of your buyers, and two options -- "dropshipping" and "order fulfillment" -- can be confusing to many suppliers who are trying to make their products easy to sell. Simply put, these two methods are in fact two sides of the same coin.
You keep your inventory in your own warehouse, storage space, or even your own home, and then ship it to your customers yourself. You keeps boxes of hats in his attic, sells them on eBay, and mails them to buyers. You using merchant fulfillment.
The product is created and stored by its manufacturer. You find buyers, pay wholesale for the product, forward the sales to the manufacturer, and keep the profits while the manufacturer fulfills the order. You has never touched a box of hats, but lists the hats on his website and/or other marketplaces for the manufacturer who handles everything else. You using a dropshipping model.
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