The Pros and Cons of Drop Shipping: Everything Ecommerce Owners Need to Know

As an ecommerce business owner, you’ve undoubtedly heard a lot about drop shipping. Some people hail it as the only effective distribution strategy, while others believe it comes with too many possible disadvantages. But as a business owner with existing product lines, warehouse space, and fulfillment methods in place, does it make sense to add drop shipping in an effort to compliment your current setup? The reality is that you need to know about both the pros and the cons if you want to make an educated decision.

The Pros of Drop Shipping

While you’ll hear a lot of chatter about starting a business for the sole purpose of setting up drop shipping distribution channels, that’s not what we’re talking about. We’re discussing the idea of adding drop shipping to a portion of your business for increased profitability and flexibility.

As an order fulfillment strategy, drop shipping offers existing business owners a distinct number of advantages. Let’s examine just a handful of these:

1. Increase Inventory Levels Without Adding Space

Increase inventory without adding spaceWarehouse space is a precious commodity for business owners – nobody needs to tell you that. And while you may want to increase inventory levels to accommodate fluctuating demand levels, it’s not always practical to do so. The last thing you want is to overstock your current space and be forced to expand. Well, that’s where the beauty of drop shipping comes into play.

With drop shipping, you get the best of both worlds. Not only are you able to increase your inventory levels, but you don’t have to invest in any extra warehouse space. When you’re no longer able to fulfill orders from the stock in your own warehouse(s), you simply contact your drop shipper with the purchase order details and let them handle the rest.

2. Pick and Choose What You Ship

Pick and chose what you shipIf you sell a vast array of products and SKUs, it may make sense to conduct a little cost analysis and see if there are any savings opportunities you’re missing. For example, it may be wise to drop ship bulky, large, or heavy items instead of receiving, stocking, and then shipping back out. This saves you a lot of space and is almost certainly more cost-effective.

Another beneficial advantage of being able to pick and choose is that you can decide to drop ship items that you rarely sell, as opposed to storing them in your warehouse where they take up room. When you finally get that occasional purchase order for one of these SKUs, just pass it along to the drop shipper and it gets fulfilled. In the meantime, your warehouse is able to store important products that are much more profitable.

3. Explore New Product Lines

Explore new product linesIf you’re ever on the fence regarding adding new product lines to your business, drop shipping is an incredibly effective strategy. It essentially allows you to test a new product without having to accept inventory.

For example, imagine that you are a shoe retailer that sells Nike, Adidas, and New Balance athletic shoes. You’ve done some market research and determined that it would be profitable to add Under Armour to the mix. Well, instead of ordering a bunch of inventory, which would force you to reorganize your warehouse and invest a large amount of upfront capital, you could choose to test the waters by aligning your business with a drop shipper. If everything works out, you can bring everything in-house later on down the road. If it doesn’t go as planned, you just cut ties and move on.

4. Ship Products Faster

One of the key differentiating factors between ecommerce competitors is shipping cost and delivery time. If you can master each of these aspects, you stand a good chance of outlasting the competition. However, this can be a big challenge when you ship all over the country, yet only have a single warehouse in one location.

Drop shipping offers a solution by expanding your geographical footprint. Your main distribution center may be located in Dallas, but you can partner with drop shippers in Los Angeles, Chicago, Atlanta, and Boston for cheaper and quicker deliveries.

The Cons of Drop Shipping

That’s not to say drop shipping works in every situation. Some existing businesses have trouble making drop shipping work for them. Consider the following potential cons:

1. Customer Service Issues

The number one issue with drop shipping is that it may compromise your ability to deliver good customer service. The reason is that it complicates the order fulfillment process and adds another link to the chain of communication.

With drop shipping, it’s much easier for an order to get mixed up, product returns to go undetected, or questions to go unanswered. While we discussed faster delivery times and cheaper shipping costs as potential benefits, the lack of communication between retailer, customer, and drop shipper often offsets these initial advantages.

2. Hefty Fulfillment Costs

According to Armando Roggio, the director of marketing and ecommerce for a retail chain, “Profit margins for drop shipped items are often razor thin, too.” He offers an example in which the margin for an item he sells is roughly 33 percent less when he chooses to drop ship, versus handle in-house. For some, that’s too much to justify the benefits of drop shipping.

3. Less Overall Control

If you’re a person who likes to have your hands on each aspect of your business, drop shipping isn’t for you. Part of the process requires you to trust someone else to handle important processes. This means you have less control over drop shipped orders, which can be stressful. Know this going into the process and don’t consider it unless you’re willing to relinquish some control.

Contact QStock Inventory Today

No two businesses or warehouses are the same. Our proprietary QStock solutions understand this and allow you to configure and control the inventory management process for optimal efficiency, control, and visibility. For additional information regarding warehouse management, inventory control, inventory traceability, direct store delivery, and other important issues, please contact us today! We would be more than happy to help you learn more.

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