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What is dropshipping: A beginner's guide

Versha Kamwal
June 10, 2021
7
mins read

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Order fulfilment is the backbone of an ecommerce business that defines the customer experience, creates loyalty, builds credibility, and leads to success. However, the road to order fulfilment can take on very different paths depending on the type of ecommerce business you run and what kind of method you choose. It's true that an efficient order fulfilment is crucial for gaining a competitive advantage.

However, not all ecommerce sellers can make a huge capital investment trying to attain seamless order fulfilment. For that, they are always on the lookout for varied methods—one of them is dropshipping.

In this blog, we'll take an in-depth look at dropshipping, the pros and cons of dropshipping, and a more viable alternative, i.e. a 3PL provider.

What is dropshipping?

Dropshipping is a method of order fulfilment in which ecommerce merchants sell products online through an ecommerce store or marketplace but don’t physically store these products or ship them directly to their customers. Instead, they purchase these products from a manufacturer or a third party and have them shipped to the customer via a dropshipping provider.

In other words, the ecommerce merchant or the dropshipper handles marketing and sales for their online store, and the dropshipping supplier handles the order fulfilment.

Thus, dropshipping allows ecommerce merchants to start an online business and sell products to their customers without actually stocking the products themselves.

Here’s an example to highlight the difference between a normal business model with and without a dropshipper,

  • Without a drop shipper
    You source products from a manufacturer or a supplier or manufacture them yourself. You store these products in a facility and maintain the inventory. When you receive an order from a customer, you process the order by picking, packing and shipping it directly to the customer or use a 3PL provider.
  • With a dropshipper
    When you receive an order from a customer, you pass the order information to your dropshipper. Then they process the order, package it and ship it directly to the customer.
Dropshipping
Dropshipping

Sounds great, isn't it? But before concluding to dropshipping, let's take an in-depth analysis with all the pros and cons of dropshipping as an order fulfilment method.

What are the pros and cons of dropshipping?

Pros of dropshipping

1. Minimum capital

The key highlight of a dropship business model is that you don't have to worry about massive capital investment. The startup cost is low, since you don't have to manufacture the product yourself or stockpile the inventory. It limits your expenses by focusing on marketing and driving sales.

2. Minimal overhead

Apart from not investing in infrastructure like a warehouse for storage, you also reduce overheads, such as workforce, machinery, equipment, tools, packaging supplies, maintenance of the infrastructure, and more.

3. No inventory to manage

You don't have to acquire, move, or hold on to inventory in any quantities. Additionally, you don't have to coordinate freight, track or manage inventory, or invest in an inventory management system (IMS).

4. Low risk

Dropshipping is a great way of starting an ecommerce business with low costs. As the stakes are not too high, the risk is low. You can test new products without sinking all your resources into them. You can also focus on core business segments like product development, product design, marketing, sales, and more.

Cons of dropshipping

1. Minimal profit margins

When you rely on dropshipping, it is very difficult for you to sell premium products or build a strong brand. Typically, dropshippers sell products that are cheap to manufacture to take advantage of high markups. However, in this competitive ecommerce landscape, online shoppers are looking for the lowest-priced products. Thus, dropshippers have to sell individual units at low prices while keeping costs as low as possible. This means it takes a significant amount of time to earn a significant profit by selling a higher volume of orders. Moreover, dropshipping suppliers will cost a lot more than typical manufacturers because they have to incur various costs, such as cost for inventory storage, cost of shipping insurance, and shipping costs, further reducing the profit margin.

2. Difficult to build a brand

Branding is essential to establish an identity that sets your business apart from the competition. In dropshipping, you have no control over your brand image. If your customers like the products you are selling, they won't be able to recognise your brand if your dropshipper provider doesn't use brand-specific packaging. It's possible that your customers forget about the shopping experience entirely. This way, you won't be able to get repeat purchases needed to sustain an online business, especially a dropshipping one.

3. No control over the supply chain

When you partner with a dropshipping provider, you have to rely on them for inventory management and shipping. This generally means that you have no control over the supply chain. If they fail, you also fail with them.

For instance, if there is a delay in fulfiling an order, you cannot do anything about it, but you have to face your customers for their shortcomings. This will tamper your brand image and hamper customer loyalty. Moreover, you don't even have complete inventory visibility, as you have to depend on them for accurate inventory levels. This increases the chances of overselling.

4. Poor quality control

All manufacturers experience a percentage of defective finished goods to a certain extend. Normally, manufacturers perform quality checks to ensure that they don't send defective products to you. However, with dropshipping, manufacturers may skip this quality check as you won't be receiving the product for conducting further quality checks. Such instances increase the possibility of your customers receiving defective products and also increase the chance of returns.

5. Shipping inefficiencies

Speedy order delivery is a standard service that your customers expect from you. Your customers can be from any state across the country and you cannot reach them fast if your dropshipping provider is shipping orders from one or a few locations. In order to ensure speedy deliveries, you need to tie up with multiple suppliers. But this will increase the shipping cost.

At this point, you would be wondering if dropshipping is worth the shot. The truth is, dropshipping can be a useful tactic when applied correctly. However, if you want to scale your ecommerce business and build strong brand identity, you can't rely on it for the heavy lifting!

What could be a profitable alternative to dropshipping?

If you don't want to make heavy capital investments, manage inventory and handle the order fulfilment, but you still want to enhance the customer experience with speedy order deliveries, you can outsource your order fulfilment to a 3PL provider. Working with a tech-enabled 3PL provider like Eshopbox for order fulfilment can have a range of benefits for your brand's success, such as:

1. Branded packaging to delight your customers

As mentioned earlier, dropshipping limits your ability to create a branded experience for your customers. Eshopbox offers you the ability to customise your post-order experience by incorporating powerful workflows. You can choose to use branded boxes and marketing inserts such as coupons, free samples, and more to curate highly personalised unboxing experiences for your customers and differentiate your brand.

Organic Harvest's branded packaging creates a distinctive brand identity
Organic Harvest's branded packaging creates a distinctive brand identity

2. More control over inventory and fulfilment

Eshopbox offers you more control over your inventory along with deep insights across all it's fulfilment centres. You have the complete visibility of your inventory at any point in time —so that you can analyse sales and actively replenish inventory to avoid stockouts. You can also expect timely notifications to plan re-stocking of inventory.

Additionally, Eshopbox ensures on-time order processing so that you can meet all Service Level Agreements (SLAs) for every order and every channel. You can also choose priority pick and pack for orders that require faster turnarounds (TATs). Thus, enabling you to provide on-time order deliveries without a miss.

3. Greater quality control

Eshopbox ensures that a quality reject product does not reach your customers and ruin your credibility. Eshopbox can perform a quality check at the time of receiving your inventory in the fulfilment centre and order processing. You can either choose Eshopbox’s standard inspection criteria or add custom criteria for inspection like expiry dates, colour, product hygiene and more.

Eshopbox's quality inspection criteria
Eshopbox's quality inspection criteria

4. Lightning-fast fulfilment with low shipping costs

Eshopbox has a powerful network of fulfilment centres spread across India which allows you to split your inventory and store it closer to your customers. This enables you to reduce shipping costs as well as transit times.

Moreover, Eshopbox handles high order volumes and has strong tie-ups with domestic courier companies. This means you can avail services with national carriers at substantially discounted shipping rates.

Eshopbox's distributed network of fulfilment centres across India
Eshopbox's distributed network of fulfilment centres

Bottom line

Dropshipping is a great way to test a new product range or supplier. However, if you are looking for a viable long-term business model, it has many limitations. Order fulfilment is a crucial aspect of an ecommerce business and customer experience. Dropshipping may seem cost-efficient but may not prove to be the best solution if you want to scale your business and win your customers. As a profitable alternative, you can transition to seamless order fulfilment by partnering up with a 3PL provider.

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