Are you thinking of dropshipping? Then you should first know all the pros and cons of dropshipping before getting into this line of business.

Dropshipping is growing exponentially in popularity, and it is already worth well over $100 billion. The market is expected to grow at a rate of 29% by 2025. Hence, many are now interested in starting a dropshipping business of their own.

But before you decide to cash in on this business model, here are the pros and cons of dropshipping that you need to keep in mind.

Dropshipping Pros

No Inventory Management

The traditional retail business model entails inventory management and its associated costs. Managing inventory requires expertise, time, and energy. Storing inventory also means that you will be incurring high costs to operate warehouses and storage facilities where your inventory is kept. Heavy losses can also ensue if no one buys the inventory you purchased.

Buying inventory itself is a costly and risky investment decision. If you buy the wrong inventory that does not sell, then you will lose your money. Also, buying inventory means that less cash is available for other key business costs. This could create cash flow problems.

With dropshipping, you can say goodbye to risks and costs associated with inventory management since you do not have to keep any inventory. This is a key reason why dropshipping is such an attractive business model.

Low Barriers to Entry

You do not have to make a hefty investment in buying inventory or renting a storefront. Since you are basically running a purely online business, there are no physical assets to buy.

You do not have to purchase commercial property. In dropshipping, there is no need to spend huge sums on buying a physical store for selling goods. Nor will you have to invest in a warehouse for storing merchandise. Hence, you do not have to take out loans or invite investment from others. That means you can avoid high costs like upkeep, maintenance costs, and construction expenses—no need to pay back the mortgage or heavy compound interest.  

You also do not have to fret over-designing or making new products. Hence, with low costs, the barriers to entry are low for dropshipping.

Test New Products Without the Risks

To sell successfully, you will have to try out different products to know exactly which ones sell well. Manufacturers and retailers face high risks when trying to sell innovative new products. Designing, testing, manufacturing, shipping, storing, managing, and marketing new products require big investments, and there is no guarantee of good returns.  If demand for such products is low, then all that spending will go to waste.

However, you can try selling new products without spending big amounts and without running the risk of losing all that money you invested. If a product does not sell well, then you only have to remove it from your website.

Passive Income

You can make money while you sleep with dropshipping since it helps you to generate passive income.

You will not have to engage prospects in person and sell to them directly. Instead, you will have to maintain a website for your dropshipping business where customers can place orders to buy from you. Of course, maintaining the website and posting quality content that is effective for selling will certainly require effort on your part.

Growing Rapidly

Dropshipping is growing rapidly, as mentioned above. The projected growth rate is also very high. Hence, dropshipping is a lucrative business from which you can earn a healthy income if you use the right tactics.

Dropshipping Cons

High Competition

Since dropshipping is growing and barriers to entry are low, more and more people are moving into the field. Dropshipping has now become highly competitive, and competition will likely increase sharply in the future.

One major drawback of dropshipping is that stores are selling the same products as you are. Your competitors source their products from the same 3rd parties that act as suppliers for dropshipping businesses. Hence, products are not just similar; they often happen to be exactly the same. You will have to find other ways to differentiate yourself from competitors to stand out and get noticed.

No Quality Control

Another dropshipping caveat that you cannot ignore is that there is virtually no control over product quality. Since you are not manufacturing products nor storing them as inventory, there is nothing that you can do about customer complaints. So if a product was damaged during transit and a customer complains, you will not be able to resolve it. It is purely up to the supplier to fix the transit issue.

In other words, your brand reputation is in the hands of your suppliers.

No Bulk Discounts

Since you won’t be buying in bulk, you cant avail of bulk discounts. The dropshipping model requires you to buy an item from suppliers only when a customer buys the same item from your website. Hence, you will often be placing relatively small orders for which there is no hope of bulk discounts.

Rock Bottom Prices

Since there is very little with which you can differentiate yourself from competitors, you often have no choice but to offer rock bottom prices to stand out from the crowd. Low barriers to entry and growth in the field mean that more people are moving in to capitalize on dropshipping, due to which competition is rising sharply. This is further bringing down prices.

Even if you manage to sell, low-profit margins could mean that you are not making enough profit.

Bottom Line

Dropshipping is an enticing line of business that is growing rapidly due to numerous advantages associated with the dropshipping business model.

But there are also drawbacks and caveats to take note of. Hence, you must factor in all the pros and cons of dropshipping before moving into trade.