When it comes to online selling, there will always be the issue of inventory management to consider. From where you stock your items to how much you should invest in each particular product category to the fine print details of shipping items sold online to their end user, there is a lot to consider. Among these factors include how dropshipping may be right for your e-commerce business.
Dropshipping is a supply chain management method that allows sellers to not invest in inventory upfront but instead transfer inventory to customers only once inventory has been purchased by a customer. The manufacturer or wholesaler of the product then ships this inventory directly to the consumer – eliminating the need for the online seller to do so themselves. As a result, the margin between wholesale and retail prices may vary (vs. traditional retail markup) since there is no original investment in the inventory. However, this strategy can still be a smart one to consider for your online selling success. To identify if dropshipping may be right for you, consider the following reasons.
Reason #1: No Risk of Unsold Inventory
Unsold inventory represents a large expense for business owners. Even big box retail stores aren’t immune to additional expenses from unsold or unsellable inventory. In fact, inventory mismanagement cost Gap an additional $100 million in operating expenses last year, not counting the additional expense of price reductions resulting from immovable product. Additionally, H&M reported 4.3 billion in unsold inventory in last quarter. These facts alone help support why dropshipping is a viable alternative to running the risk of lost profits from unsold inventory. Products are shipped from a third-party seller and you don’t purchase the product from the seller until your customer places an order – therefore enabling you to create a profitable retail business with less upfront risk.
Reason #2: Hands-Off Parcel Management
The cost of carrying inventory – i.e. the cost to hold inventory – is another substantial and sometimes unnecessary expense facing businesses today. This is especially true if you consider that the average inventory carrying cost is 20 to 30 percent the cost of purchasing that inventory. Dropshipping products eliminates the cost of storing inventory, as well as saving time that would be spent managing and handling this same inventory if you were to ship your own products instead of sourcing from a third-party seller. Additionally, when you dropship a customer order the package makes less stops before it reaches its final destination – posing less risk for human error in your shipping process. This also means orders can be delivered in a shorter time span, better positioning your business to compete with Amazon’s 2-day shipping – a factor customer’s nowadays don’t easily overlook.
Reason #3: Unlimited Profit Potential in Dropshipping
Business owners are catching onto the benefits of dropshipping. In fact, half of the logistics firms in a recent survey by The Wall Street Journal predict that dropshipping will account for more than 1/4th of their sales within the next three years. As customers purchase products through e-commerce channels at growing rates, more businesses will begin to offer a dropshipping component. Besides being immensely profitable, dropshipping businesses are easy to scale. When you dropship, you do not have the expense or inconvenience of carrying inventory. Growing your business comes with less effort and virtually no additional expenses. Keeping this in mind, you can increase profitability and scale your company without scrambling to meet additional shipping demands.
Finally, as you factor in how dropshipping can benefit your business, also consider how introducing more unexpected items into your current inventory assortment can be considered. Dropshipped items often step outside the traditional inventory assortment of online sellers and may be larger in scale, as well. When you consider the advantages these factors, as well as the ones above can bring to your business, you may also realize that dropshipping is in fact right for you.
