More and more online stores have embraced dropshipping, a business model that leverages third parties to add efficiency to an ecommerce website. In fact, anywhere from one-quarter to one-third of all online stores use dropshipping as their preferred fulfillment method.
Of course, implementing dropshipping as a business model isn’t as simple as it seems. You need to arm yourself with a strong business plan to help mitigate the numerous challenges associated with dropshipping.
Which challenges do dropshippers run into?
When you add a middleman to your supply chain, you’re cutting into the pool of profits you could be making selling online. It’s just a fact of business: dropshippers need to make a profit too, so they’ll markup goods to ensure the margin justifies the risk on their end. That gives the retailer less wiggle room to mark products up for their consumer to make their own profit.
The best way to mitigate this challenge is to sell more. Easier said than done, of course. The best way to do it is to reinvest some of the money you might have spent on storing and shipping products into marketing your business.
Leaving such an important part of the online sales process to a third party takes a great deal of trust. Though there are plenty of high-quality dropshippers out there, everyone makes mistakes.
Because dropshippers are usually invisible to the customer throughout the fulfillment process, any mistakes made by the dropshipper are ultimately attributed to you, the retailer. This requires online stores that run on dropshipping to relinquish some control and take responsibility for mistakes made by your dropshipper.
If you’re working with a third-party to dropship, chances are good they’re contracting out with other companies. The more companies selling the same products, the more competition you’ll have for your online store.
Using a dropship business model requires a keen eye for digital marketing. That means integrated SEO, email, content, and advertising strategies that’ll help you stand out from the competition and drive more customers to your store.
A lot of stores that use dropshipping end up contracting with more than one dropshipper so they can diversify their inventory. It goes without saying that the more business relationships you have to juggle, the more complicated your business gets.
The biggest impact from this complexity comes in the form of shipping costs. If a customer orders two products, each fulfilled by a different dropshipper, they’ll get two separate shipments, forcing you to eat one of the shipping costs (or pass it on to the consumer, though we wouldn’t recommend it).
Keeping track of orders and inventory is tough when you don’t have your stock somewhere accessible. It gets even trickier with multiple partners.
Automation is crucial here, which means you’ll need access to the right toolset. Choose an ecommerce software with the ability to connect to a dropshipper’s inventory system and automatically sends order emails to the right dropshipper if you’re unable to connect directly.
Dropship your way to ecommerce success
If you plan to fulfill orders with dropshipping, you’ll need to get started on the right foot. Learn how you can put together your dropshipping business with Dropshipping: The Least Expensive Way to Start an Online Store, a free ebook from 3dcart detailing the foundations of a great dropship business model.