There used to be a time long ago when someone who wanted to start a retail business had to invest large amounts of capital for a storefront and a place to store their inventory. Along came the Internet and dropshipping, offering entrepreneurs a new way to do order fulfillment. Dropshipping is when the e-tailer receives orders and then buys the product from another company, who then ships it to the customer. Lately, there has been some question as to whether this is still a viable business model for 2018. Let’s examine dropshipping business trends.
Where Is Dropshipping Today?
E-commerce, in general, continues to grow at a rapid pace with many consumers choosing to shop online using their smartphone or computer. Nearly 35 percent said that the online purchases will become their main shopping tool in the near future.
This has allowed e-commerce to grow to around $2.3 trillion in 2017 and it is expected to grow to $4.5 trillion by 2021. E-commerce is now approximately 10 percent of total global retail sales and continues to grow by approximately 15 percent per year. All of this bodes well for the dropshipping industry, but one must remember that sales do not necessarily represent huge profits. There are some caveats to consider if you are considering getting into this business.
Pros and Cons of Dropshipping
The concept of drop shipping means that you buy items at a low price from the supplier and sell them at a higher price. The only problem is that the World Wide Web is now a highly competitive marketplace. This can create price competition, which can limit how much you can actually charge for the items that you purchase. Low-profit margins are the biggest disadvantage to operating in highly competitive dropshipping niches. You must carefully research the markets and choose the products that you intend to sell carefully.
One of the main benefits of drop shipping is that you need relatively low capital to launch an e-commerce store and get started. You don’t have to have a brilliant credit score – any loan you can get your hands on will likely be enough to get you started (can you calculate the LVR here). You also do not have the need for storage space and the labor involved in the shipping process. However, there are still some fees that will be involved such as Internet-related fees, payment processor fees, and storefront software fees. These will have a greater impact on small retailers than large ones. For instance, some dropship companies charge high membership fees, so it is always best to shop for a company with no fees to join.
A dropshipping company has relatively low over the head, as compared to a brick-and-mortar store. You can also run it anywhere that there is an Internet connection, which gives you a flexibility that few businesses do. Aside from these advantages, there can also be challenges, such as supplier errors, complications involved with shipping, and issues with the quality of supplier merchandise. You need to do your homework before you decide to go with any particular supplier.
Growing Your Business
As with any business strategy, having a long-term growth strategy is the key to success. After all, you would not start out on a road trip without a map, and you should not start out your drop shipping business that way either. Starting with your end goals and working your way backward is usually the best way to decide how to get there.
There are some who say dropshipping is dead because of low-profit margins, supplier problems, and other issues. This may be true for some products and in some areas of the market, but it is not true for all of them. The key is staying on top of consumer trends and doing your research on which products are currently hot sellers. The market is fickle and will change on a whim. What is hot one day will be dead the next. This means that you must continually do this research and keep up with the latest trends if you wish to be successful in the long-term future.
Dropshipping is not perfect, but there is still plenty of growth expected for those who have a strong business strategy and are willing to put in the time that it takes.