Lesson 5

Pros and Cons of Dropshipping

If you are like most online retailers – you will love the idea of drop shipping! In this video, we will take a look at some of the benefits and drawbacks. Let’s begin by quickly covering what drop shipping is.

Wholesale drop shipping is a very popular form of sourcing products because it allows you to pay only for the items that you sell.

It works like this: You find a supplier offering drop shipping services (you may need to email them to find out) and set up an account. Different drop shippers have different setups but usually you can choose to credit your account, or, you can simply leave it empty and pay for each item as you sell it. Once you've created an account, all you need to do is grab the drop shipper's provided photos and product descriptions for the items you wish to sell and list them on eBay or your website.

After you make a sale and receive payment, log into your supplier's site, select the product you have just sold and take it through the checkout and pay for it. Enter the buyer's address details, and the supplier will package it up and ship it! 

The Benefits of drop shipping are:

  • Drop ship suppliers really take all the responsibility of handling and managing stock, saving you a heck of a lot of time!
  • You don't have to store stock on site,
  • All packaging and postage is taken care of
  • You only pay for the stock you sell, so you remove the risk of holding stock and being stuck with it if an item doesn’t sell
  • No minimum order - you don't need to have a lot of cash to get started
  • For new sellers the main advantage of drop shipping is the lack of risk. But for more advanced sellers, I believe that the greatest benefit drop shipping holds is the ability to offer more choice.

You may have heard the phrase 'long-tail', it’s a bit of a marketing buzz-word. In a nutshell, the 'long-tail' means targeting the far corners of niche markets that are normally untapped by selling a lot of low-demand products. Experts have worked out that when added together, sales of low-demand products actually exceed those of single products with very high demand!

Drop shipping enables you to take advantage of that strategy very easily. For example, a DVD seller using a drop shipping supplier could promote 400,000 different DVDs! They are able to make money by selling a lot of low-demand products without any risk or storage inconvenience. This gives the DVD seller a massive advantage over regular DVD stores.

Moving on to The Drawbacks…

  • Probably one of the most common problems sellers have with drop shippers is sudden stock shortages. A sudden rush for a particular product might cause the drop shipper to sell out, leaving you in a bit of a sticky situation if you've got orders to fill!
  • When you drop ship items, you will be paying $2-$5 dollars more per item compared to sellers who purchase in bulk. This can make it difficult to compete on marketplaces like eBay, especially if you are selling popular items like iPods or laptops. Selling deep niche or unique items suits the drop shipping model better.
  • Having no control over your inventory means that if buyers ask you for a unique photo of the item, you are unable to meet their request.
  • Drop shippers aren't perfect, but if they stuff up, you get the blame and you might get bad feedback placed on your account, if you are selling on a marketplace. If the supplier packages the item poorly, causes delays in shipping, or makes a mistake with the order, then you are held responsible, even when there is very little you can do about it.

Let’s quickly recap on what we have covered in this lesson:

  • Drop shipping allows you to sell products before you purchase them from a wholesaler.
  • The benefits of drop shipping are: There is very little risk for you because you don’t have to invest money, you don’t have to store stock or ship items, and you can offer your buyers a wide range of items, without having to front up a lot of cash.
  • The drawbacks are that sometimes stock shortages occur and you have to refund your buyer because your supplier is out of stock. Sometimes when you drop ship, it will be difficult to compete on marketplaces such as eBay because you will pay more for the same item that other sellers are buying in bulk, and therefore getting a bulk discount on. Also, lack of control can be a problem and if your drop shipper slacks off, you will be held responsible by the buyer.

All and all, drop shipping is a fantastic way to sell items online – you just need to make sure that the prices you can source products from suppliers for, actually match up on eBay or another marketplace and allow you to make a profit.

That’s it for this lesson. Thanks for watching!

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