The concept of dropshipping is simple; you create a website, choose the products you want from a dropshipping supplier and then list them on your site. Then, when a customer places an order, the goods are shipped from the third-party provider directly to the consumer.
This means that the shop owner doesn’t have to store inventory, fulfill orders or ship the goods; they just set up their website, promote it and reap the rewards.
This is why, in 2020, amidst lockdowns and the COVID-19 pandemic, Google searches for ‘dropshipping’ hit an all-time high.
However, the concept of dropshipping is not without its challenges.
Without any control over the products, it is hard to deal with customer queries or complaints. Not to mention the shipping of goods from dropshipping suppliers often takes a lot longer than consumers are prepared to wait. In some cases, delivery can take weeks.
So, in 2021, with the e-commerce industry now so competitive, many have begun to question whether dropshipping is still a lucrative business idea and whether it’s possible to remain competitive.
We believe that in some cases, it can still be a useful business model, which is why in this guide, we’re going to look at six examples of when dropshipping is still a worthwhile venture.
Top Examples Of Dropshipping
1. When you don’t have a lot of money to invest
In most cases, starting up a traditional or online store requires a certain level of investment in order to get the business off the ground. This is because money is needed for:
- Developing, manufacturing, and sourcing products
- Paying for infrastructure such as shopfronts
- Stocking inventory
- Maintaining a physical presence
- Staffing physical locations
- Marketing to new customers
And these are just some of the initial costs retail businesses face in the early stages.
Whereas dropshipping businesses have a much lower barrier of entry, and means you don’t have to worry so much about developing new products or storing the inventory. To a certain extent, marketing costs may still be required by dropshipping companies, but again, these can be kept to a minimum using free platforms like social media.
2. If you don’t have inventory management or storage space
Traditional retailers will pay upfront production costs, have the goods delivered, and then store them somewhere, such as a shop or warehouse. But if you don’t have anywhere to store your goods, where are you going to keep them?
Well, dropshipping eliminates the need for storage altogether, making it more accessible to start a business if you don’t have space or money to keep your goods.
Similarly, inventory management can be a full-time role, and it can get stressful. This is because it requires storage and handling costs, as well as always monitoring inventory to make sure there’s enough stock to meet demand.
Plus, if a retailer buys a large amount of stock that then doesn’t sell, they’ve lost out on money.
All of this inventory management and risk are eliminated when you use a dropshipping model because a third party handles inventory, products, availability, and customer demand.
3. When you want to test new products with minimal risk
Innovation and keeping up with the latest trends are so important if you hope to keep customers engaged and continue to meet consumer demands.
However, the fear of investing money into new products with an unproven track record is often what prevents business owners from trying out new offerings.
But when you use dropshipping, it’s much easier and a lot less risky to try out new products. In fact, it’s much easier to try out entire new product lines to see what customers want and what sells best.
That way, if customers don’t respond well to a new product, you can simply remove it from your website, no harm done, and it hasn’t cost you any money.
4. If you want to generate a passive income
A passive income is when you’re earning money with little to no daily effort on your part. Often, it’s more the case that the work is required upfront, and then after that, it is just about upkeep and monitoring your business, which is why dropshipping falls nicely into this category.
Dropshipping businesses make it possible for you to work on other aspects of your business or career while the online store runs in the background. In fact, you can even be sleeping and making money!
This is because orders are placed and fulfilled automatically from your chosen third-party dropshipping supplier. Whereas, with a traditional retail model, products couldn’t be packaged or sent out without some involvement from you or your team.
5. When you can’t afford (or don’t want) a physical storefront
We’ve already mentioned that without dropshipping, you need storage space or, in most cases, a shopfront in order to store, display and sell your goods. Of course, drop shipping eliminates the need for this space, which in turn saves you a lot of money and effort.
It means you don’t need to pay for rent or utilities, and you don’t need to find staff to run your stores or run the shop yourself.
So, if you can’t afford a storefront or you just don’t want one, dropshipping is the perfect solution.
6. If you’re hoping to generate improved cash flow
Finally, in a traditional retail model, there are three initial stages:
- Step one: purchasing products
- Step two: waiting for them to arrive
- Step three: getting them up online or in-store, ready to sell
During these three stages, however long they may take, businesses may have spent a significant amount of money on their goods, but they have yet to make any money on them.
On the other hand, dropshipping means you receive payments for a product at the same time you then pay the supplier for that product. This frees up a lot of cash for other important aspects, such as marketing your goods and building your brand.
Because of this, dropshipping models give online retailers the ability to generate much better cash flow.
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