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Business models have pros and cons, it is the same with the dropshipping
should be aware of drawbacks that are specific to dropshipping. You make
model. This does not mean it is a bad business model, simply that you
allowances for the drawbacks, try to avoid those you can and find solutions
around problems wherever possible. Facing drawbacks does not mean your
business is a failure, you can overcome many drawbacks by planning ahead and
putting backup solutions in place.
Margins Are Low
Many people are put off by the low margins in their chosen niche. People want
to see higher profits and grow their business faster. If you are prepared to start
small, persevere, and get to know everything about operating a dropshipping
business in the very competitive field of e-commerce, you will grow steadily and
reap the benefits of your hard work.
Competition in the Market Place
E-commerce is very competitive and sellers undercut each other to make money
faster. Dropshipping companies are easy to set up with a small cash startup,
making it a very competitive business model. The best way to deal with this is
by starting up your business correctly, give quality service to your customers,
and use all the resources available to you to develop a good business reputation.
Issues with Inventory and Product Fulfillment
As a dropshipping business model, you do not control your own inventory and
you are not able to keep track of the flow of stock. You depend on suppliers and
wholesalers that service many other merchants as well. This can create issues
with products being out of stock when you place your order.
Your suppliers are in charge of product fulfillment and mistakes and delays inshipping can occur. You will have to deal with your irate customers, so it is wise
to develop as many backup supplies as you can to accommodate your customers
with alternative products.
Online Retail Platforms
Online retail platforms are a great benefit for dropshipping companies, but it can
also be a drawback as customers can go around you and purchase the same
products directly on the retail platforms.
Shipping Can Become Complex
Dropshipping companies normally source their products through several
different suppliers and wholesalers. Shipping to customers can become complex
with multiple item orders that are sourced from more than one supplier. You
then will have a separate shipping charge for each item of the multiple product
order, and you cannot pass the extra costs on to your customer, you will have to
bear the extra costs. This cuts into your profit margin.
Suppliers Can Make Mistakes
Suppliers make mistakes and when that happens you will be blamed. The
responsibility is yours as the customer put the order in with you, not with your
supplier. Supplier mistakes can be for various reasons, some legitimate mistakes,
others caused by problems within the supplier’s own company.
To minimize mistakes of shoddy workmanship, below standard packing
materials, and shipments being damaged or lost, you have to source your
suppliers carefully. Should suppliers let you down through negligence, you
should switch to a reputable supplier immediately as these mistakes reflect badly
on you. Your business reputation is incredibly important and you do not want to damage this.
Scaling Abilities of Suppliers
Not all suppliers are equally competent and some may not have the ability to
keep up with scaling as your company grows. The great news is that you have
access to suppliers around the world as well as the online retail platforms to source your products, so it is very easy to switch suppliers.