What is dropshipping ? The advantages and disadvantages of dropshipping

If you’re thinking about starting a webshop, you’ve probably heard the term dropshipping. Many people consider it the best business opportunity in the webshop world, while others say that dropshipping is dead, as there are so many shops of this type that it could be used to block the Danube.

Well, as in most similar cases, the truth is somewhere in between.

That’s why this article explains in detail the advantages and disadvantages of dropshipping. But let’s start with the most pressing question.

What is dropshipping?

In simple terms, dropshipping is an online business model where you have an online shop but no physical stock.

And how can all this be done? Let’s look at it in practice.

You have an online shop selling board games, but you don’t have your own stock, you get your products from a dropshipping supplier.

For example, when someone orders Monopoly from you, you buy the same product from the supplier. Once you have paid for the product, they then take care of the packaging and delivery.

So in effect you are acting as a kind of intermediary between the buyer and the trader, even though you may never have seen the product yourself.

But why does this benefit one party or the other?

For example, your online shop sells the product for €100, while you can buy it from the supplier for €60. This gives you a profit of €40 on the product. Yes, but the dropshipping store will also deduct the packaging and delivery costs from this profit, let’s say 10 euros for simplicity.

So your net profit:

100 – 60 = 40 – 10 = 30 euro.

So it’s a win-win situation. Of course it sounds too good to be true, and yes, there are always two sides to a coin. But before we look at the downside, let’s look at the upside.

What are the benefits of dropshipping?

There are many advantages to dropshipping, perhaps the most important of which is that you can start up with almost no start-up capital.

#1 Can be started with minimal start-up capital

The huge, robotised stores usually buy products in very large quantities from Far Eastern countries, so they get a significant discount. And that’s why they can sell them at brutally high margins.

One of the biggest advantages of dropshipping is that you don’t need thousands of euros of start-up capital to get started and who knows how long you’ll have to hold on to your stock (for fear of holding on to it forever and saying goodbye to your money).

In this model, you only need to buy the product if someone else has already ordered it through your online store (i.e. wants it). All you need is an online store where customers can order from, and the marketing knowledge to sell your products.

#2 No need to worry about storage, packaging and transport

You wouldn’t believe how much time an online shop owner takes up packing, boxing, labelling and delivering products to the courier. It seems more like a monotonous factory job than an exciting challenge.

Not to mention the fact that when you order your products, you have to store them at home or in your garage if you don’t have an external warehouse. They take up a lot of space and your home can turn into a maze of boxes in no time.

With the dropshipping model, however, this can be easily avoided.

So to summarise the benefits:

your house won’t be full of boxes,
and you don’t spend 3-4 hours a day on packaging and labelling.

#3 You can get started quickly

Once you have your online shop and dropshipping supplier, you just have to wait for the orders. Seriously, it’s that easy and quick to start a dropshipping webshop.

Of course, finding and contracting the right supplier can take 1-2 months, but a webshop can be set up relatively quickly, but more on that later.

#4 Easy (and fast) to scale

Most online shops start small and then grow gradually. This is no different for dropshipping.

However, what limits the development of traditional webshops is that there is no time for development, no time for marketing, because the logistics have to be done first.

But as a dropshipping store owner, there’s only one thing you can do: take your marketing and search engine optimization to the next level.

When a traditional webshop suddenly grows big, it is usually too big for the owner to handle alone, so he has to hire someone to help him pack. This in turn involves extra costs.

For a dropshipping webshop, however, even 1000 orders a day is not a problem, as the supplier has the infrastructure to handle it all.

So how big you grow, and in how long, is entirely up to you.

The disadvantages of dropshipping

It all sounds too nice – you might say. And it’s a fair point, so let’s look at the disadvantages of this model.

#1 Competition is huge and more people can sell the same product

Yes, unfortunately there is huge competition to enter the market and those who have been in the market longer tend to dominate it.

The other, also very similar problem, is that there must be someone else selling the same product as your online shop, and they may be cheaper. The easiest way to get around this is to undercut the price, but this creates a negative price competition from the seller’s point of view, which means that the benefits are barely visible to the naked eye.

The less easy way is to put some effort into search engine optimization and social marketing. After all, if customers find you first and like the product they see, they’ll almost certainly buy it from you.

So those who say that dropshipping is easy, what’s more fast, and you will get very rich, are quite simply lying. Without work, without energy, it is very difficult.

Tip: you can outsource SEO work and social media management to experienced companies such as SEOlympic and WebsitExpo. After all, we have years of experience in both search engine optimization and social media management, as our references prove, successfully.

#2 Small margin

In many cases, the dropshipping suppliers set the price, and since you don’t manufacture the product, you have no control over how much you get it for. However, if you put too high a mark-up on it, they will surely find a cheaper solution.

So you shouldn’t work with too high a margin, but with search engine optimization and proper marketing, you can sell the same product for less.

So you should choose the happy medium in terms of price.

#3 No visibility on logistics and products

What is the biggest advantage of the model is also its disadvantage. It is possible that, even if you place an order, the supplier may simply run out of stock. Unfortunately, it is you, the intermediary, who has to explain the situation.

At the same time, you don’t have a clear view of the product: what you’re selling may simply be of poor quality. But you can avoid this by doing a test purchase.

That’s why we also advise you not to start big, not to have 1-2 thousand products at once, because it’s impossible to manage that well. Instead, shoot for a smaller, niche market, preferably where there is little competition.

#4 Legal difficulties

If you want to ship abroad or your supplier is based in another country, your product may be subject to customs duties (especially if the company is based outside the EU). In any case, you should seek the advice of a tax expert or an accountant with experience in dropshipping before you start the business. It’s easy to think that the profits would be so minimal that it simply wouldn’t be worth the effort.