Is dropshipping really profitable? Like any business, it can be. There are no guarantees in the world of business, of course, but this method of selling does offer some unique advantages at least worth considering when you’re considering starting a retail company.
Let’s take a closer look at what exactly dropshipping entails and in what situations its advantages can potentially contribute to profitability.
How Does Dropshipping Work?
If you’ve ever wanted to start a business but balked at the idea of ordering a significant amount of stock, figuring out how to store and ship it, and then potentially eating the cost of any unsold merchandise — have you considered the dropship strategy instead?
The traditional model for selling products online requires significant risk in the form of investing funds into buying stock up front. There’s also the logistics associated with figuring out how to store those products and fulfill orders. Then there’s the matter of dealing with whatever products don’t sell, usually either by discounting them deeply or even getting rid of them as a last resort.
Dropshipping does not require you, as the storefront business, to actually touch the stock. Although people purchase products through your store, the products are actually shipped right out from the manufacturer or wholesaler as they are ordered. You may either need to alert the shipping company that you have received X number of orders, or it may be automated through your website. You will typically pay a fee per item for this service.
When successful, dropshipping reduces behind-the-scenes costs for running a business as well as minimizes the effort required to fulfill orders — leaving you more time to focus on things like making a great website and marketing effectively.
Why Dropshipping Can Be Profitable
As you can imagine, dropshipping is an appealing choice for entrepreneurs who want to get started in the world of business without having to massively invest in products that may or may not sell.
What are some of the advantages afforded by the dropshipping method that can contribute to profitability — besides getting around the need to invest in products up front?
Get started sooner
Setting up a dropshipping operation typically takes much less time than the traditional selling model. This allows entrepreneurs to get a drop-ship business up and running — i.e. pulling in revenue — sooner.
Fewer limits to company growth
As long as business has existed, companies have struggled with trying to anticipate consumer demand so as to balance their supply. While it’s certainly preferable to have too many orders than too few, it’s also detrimental to business (and profitability) to have to tell customers your store has run out of stock — especially if you’re unsure when you can get new products in.
Dropshipping reduces limits on company growth. One day you might have 5 orders; the next day 500. Either way, shippers can typically accommodate these ebbs and flows without missing a step. This means your business is usually able to handle as much business as you can possibly drive through your website.
Shipping gets outsourced
Although you must cover the shipping fees for your products, you do not have to handle the time-consuming logistics of buying shipping supplies, assembling packages and fulfilling orders. Some dropshipping arrangements even allow returns to be sent back to the manufacturers, meaning you will not have to deal with the logistics of those, either. In an industry where time is money, outsourcing these responsibilities can be very helpful in terms of the bottom line.
Dropshipping isn’t always profitable, but oftentimes it is. The ability to outsource warehousing and shipping is a major advantage here, as it reduces the risk entrepreneurs must take on and the time they must spend satisfying orders.