Its only natural to be worried about a lot of things when starting a new business. Things like delivery arrangements, inventory and stock locations are only a few. There is also the worry about finding the most cost effective and least time consuming way to organize products. Many companies usually choose to start with drop-shipping because maintenance of inventory is not required.
Still, why do many companies refrain from drop-shipping?
Although beneficial, drop-shipping can be a risk at one point. Drop-shipping is about getting deliveries
from suppliers straight to the company, instead of having suppliers send your company the products before
you to send them to your customers. Hence, drop-shippers work as carriers between the manufacturers and the
Reasons why it can be a risk
1. Stock Shortages
This happens mostly when there is a huge order and your company is out-of-stock with the products ordered.
There are huge chances of selling out of products. This can happen mostly during festive reasons when there is
a sudden rush for a particular product.
2. Increase in cost of goods sold
Stock retailers usually get better pricing, marketing incentives, additional bonuses, and access to deals among
many other advantages in comparison to drop-shipping companies who have to spend extra on packing, branding and deliveries of the products they’re selling.
3. Higher fulfillment costs
As mentioned earlier, drop-shipping process requires the company to spend extra on stocking, picking, packing and
shipping. It keeps growing as the sales grow. This usually wouldn’t have been the problem had your company been
stocking the product on its own.
4. Increased customer services issues
Drop-shipping takes a huge part of customer experience. Unless the information of shipping time, tracking information and arrival time, your company has to bear the brunt of the customer experience. Additionally assisting the customer becomes difficult if you’re not directly connected to the manufacturer to resolve certain product related issues.
However risky drop-shipping might look or sound, it has more benefits for any start up than demerits. These can be easily overcome by improving connectivity and communication, thus making drop-shipping an ideal point to start. Many companies to the likes of Shopify provide the opportunity for such start-ups to boom in their own pace with affordable prices.
There will always be cons to a lot of ideas but hard work always pays off, and it is professional enough to expect problems to arise. That is why entrepreneurs are risk takers. Had there been no risk at all, no big company would have ever emerged to date.