What is dropshipping

Dropshipping is an electronic commerce type business model with the big difference that the seller does not need to store the products or have stock, since all logistics management is the responsibility of the wholesaler.

Explained in another way, in this business 3 participants come into play: customer, seller and wholesaler or dropshipper. In a typical e-commerce business, the process to follow would be for the seller to buy the products from the distributor and store it at their facilities. At the time the seller receives an order from a customer, the seller would be in charge of processing the order. order and send the product to the customer.

On the other hand, in the dropshipping modality, the seller does not have stock by himself but has the wholesaler's or dropshipper's at his disposal, so at the time of receiving the order instead of processing and sending it as we would do in a normal case , the seller contacts the wholesaler so that he is the one who sends the product to the customer.

Advantages of dropshipping

1. The initial investment required is minimal

Thanks to the numerous savings in infrastructure and consequently in personnel, the only costs come, initially, from the web design, which you can start very cheap and easy using a platform like Wix, in addition to the costs of have a company or be registered as self-employed. Later, promotion and customer service costs will have to be added, as in any store.

2. You do not need to have infrastructure for the processes of storage and shipment of products

As the wholesaler himself is in charge of logistics, we save the need for space and personnel to manage it. An example of Dropshipping providers that offer a complete solution is BigBuy.

3. You have all the stock that your wholesaler/s has

You are no longer limited by the stock of your warehouses nor do you have to be aware of stock breaks, you will always have the stock of your supplier. The larger the supplier, the fewer the stock problems.

4. Your product list is always up to date

A large part of the dropshipping providers have fully updated systems available with the product catalog, from which we can automatically feed our website to always be up to date. In some cases the process will have to be manual.

5. You do not take care of the logistics process

You don't have to worry about negotiating with courier companies and having to contact them every time an order arrives. The dropshipper will do it for you.

6. You partially stop worrying about the issue of returns

In some cases, the problems regarding exchanges and returns are resolved by the wholesaler himself, obviously at a certain cost.

Disadvantages of dropshipping

1. Very limited margins

Since the dropshipper is in charge of most of the processes associated with distribution, the price of the products is higher, so if you want to be competitive, you will obtain limited margins. Depending on what you save on logistics, the move can go well or badly.

2. Customs problems if your supplier does not reside in your same country

Finding distributors that offer dropshipping business in your country is quite difficult, and if you are also looking for a specific sector, the search becomes much more complicated. In the US and China there is a good offer of dropshippers but the shipments must go through customs and there is a certain probability of encountering problems.

3. Delivery times if your supplier does not reside in your same country

It is quite common to find stores that serve in a maximum of 24 or 48 hours, and if your provider resides in your country, they will surely offer these terms. The problem comes when the dropshipper resides outside your country, so in addition to lengthening delivery times, possible delays come into play that may cause your customers to back down.

4. Extra work in terms of taxation if your supplier does not reside in your same country

Carrying out operations outside your country means an increase in work to keep your accounts in order, this can mean a higher cost for your accounting-tax management and the need to have certain paperwork in order depending on the country.

5. Disreputable providers

There are quite a few suppliers that directly turn out to be fraudulent companies or that do not comply with the agreement, with which there is a high risk of fraud if we do not document ourselves well and go to specific lists, such as Salehoo, of dropshippers that have verified the legality of the suppliers. what they list

6. The cost of transportation is usually not negotiable

The cost of transportation per order is usually set by the supplier, based on their negotiations with the courier company, and is usually non-negotiable. Here we lose the factor of choosing the courier company that best suits our characteristics.

7. Legal loopholes and liability issues

In South America there are many sellers who take advantage of the benefits of dropshipping to sell on eBay, but many of them are not even legal. There is great legal ignorance by entrepreneurs around the world about the conditions they must meet to operate normally, so it is more than advisable to seek professional advice on this matter. In addition, there are risks in terms of liability for misuse or a product in poor condition, so it is necessary to have civil liability insurance.