Dropshipping is a popular eCommerce fulfillment model that allows online retailers to market and sell products to customers, with third-party suppliers fulfilling the orders. As a result, the retailer does not need to store, handle, or deliver any of the products to the customer.
If you’re considering starting an eCommerce business, there are a number of reasons to try dropshipping as a new business.
1. Low Overheads
For those looking to start an eCommerce business on a budget, dropshipping can be an ideal choice as it’s usually much cheaper to set up. When an online retailer uses dropshipping, there’s no need to carry inventory in a warehouse or rent storage space.
If you run a small eCommerce operation, this might mean that you won’t have to find room in your garage or a storage unit for keeping an inventory, while larger companies might save thousands of dollars in warehouse lease payments and utility bills.
Dropshipping also means that you can save on certain labor expenses since there’s no need to take on employees for picking, packing, and shipping orders. You also save on packing materials since this is all taken care of by the supplier.
2. Scale Quickly
Dropshipping suppliers tend to have plenty of inventory, so if you enjoy a spike in demand for the products that you sell, dropshipping makes it easier than ever to scale very quickly.
Since products can be ordered on demand from a dropshipping supplier who has a large inventory, it’s possible to satisfy every order – and satisfy customers who won’t be disappointed when products go out of stock quickly due to demand.
3. Increase Customer Lifetime Value
Dropshipping may help some eCommerce companies to improve or increase their average customer lifetime value.
Acquiring new customers is easily one of the most expensive and difficult aspects of marketing an eCommerce company, which is why once a retailer acquires a customer, it makes sense to try and encourage them to come back repeatedly. However, if an online store only carries a small handful of products, second or third sales might be harder to achieve, particularly if the products are not consumables.
On the other hand, dropshipping makes it easier to carry a very wide range of products, which gives an online store more items to market to existing customers.
4. Lower Financial Risk
Since dropshipping often comes with low startup costs and low overheads, it can have a much lower level of risk compared to other eCommerce business models. In fact, retailers can easily spend less than $500 a month on creating a relationship with a reputable dropshipping service, using an eCommerce platform like Shopify and marketing their products through social media and pay-per-click advertising.
If you’re new to entrepreneurship or simply want to start a business that won’t cost a lot, it’s an ideal option for you.
With more and more products available to dropship, it makes sense that an increasing number of eCommerce entrepreneurs are choosing this model for its many benefits.