Drop Shipping and the art of making money!
In these times when everything gets outsourced, the idea of super-specialization in niche areas is getting to be the in-thing. Something similar is the case with the retail experiences online. You either go with big names such as Amazon, E-bay, Flipkart and their delivery systems or you go solo using only the e-commerce site’s front end, leaving the delivery end to someone else. The someone else in this case is the drop-shipper i.e., the supplier/ stockist/ wholesaler who takes charge to deliver the commodity to the place where the seller-buyer combine wants it.
If it seems to sound simple, be warned it is. BUT, like with everything simple, there are some hidden complexities which start to rear their heads when things start to roll!
Today we see the apparent pluses and minuses of starting an online business while depending upon drop shippers
- Simple to start!
With logistics being the biggest bugbear of any industry, its absence from the scene of a new enterprise means a major burden going away. The entrepreneur can then concentrate on scaling up business and doing the same very, very fast. Besides the hassles of going after warehouses, employing staff and maintaining the place, the biggest let-down is that inventory carrying costs a bomb which a new business can ill-afford to maintain. Money otherwise blocked can be used effectively by the entrepreneur to scale up visibility.
- Negligible overheads & freedom to operate from any place
With the big tail-end all but gone, the head-end, given its fairly compact size, can be fitted anywhere where costs are low yet operations fast. With the need of just the bare minimum of an office, one can operate even from home. Or even from a table-space in a high-end office complex like Regus! Overheads either get reduced or get diverted to pressing needs. What one then gets is the time and resource to sell one’s products.
- Freedom to have a huge, huge product list!
With the worries of logistics gone and so too the hassles of operating an office from one fixed place, one can concentrate on increasing business by increasing product range! With drop shippers being available a dime a dozen, one can keep adding to the product list till one drops dead!
- Ease of scaling up business volumes!
With someone going into marketing, how can scaling-up be left behind? With good drop shippers at one’s disposal and everything that it entails including lower overheads, more money available and lesser manpower to handle, an entrepreneur can seriously think of upscaling his/ her business into related (or even unrelated) fields! A cosmetics seller can branch out into a men’s grooming products including electronics such as shavers and trimmers as also perfumes and sprays!
There is thus no end to one’s dream of increasing business ever!
Or is there?
Well, not everything in the domain of selling using drop-shipping is a bed of roses. There are in fact quite a few thorns, some which can cause serious damages like:
- Loss of control over inventory and logistics
Ever been to a Doctor who does not know anything about the medicines he/ she is dispensing? Can such a scenario generate confidence in the buyer in the long run? Most likely no. The same goes for sellers who do not control their own logistics operations. You don’t know anything about the state of the product yet you make an effort to sell it! Wow! Logistics isn’t about warehousing, stocking, transports etc individually. It is a sum total of everything that makes available product as and when the need arises where-ever it may be. A slip in any of the links in the chain can have a cascading effect on deliveries to the client.
Also, every drop-shipper has his/ her preferred client(s) due to various reasons including volume of shipment, payment terms etc. If one falls outside the purview of preferred client(s), life can be tough to say the least.
- Technical nature of product which drop shippers may find difficult to execute
For products that need demonstration/ setting up/ explanations etc drop-shipping may not suffice. For example, a high-end water purifier which needs to be installed in a particular manner may be a tough proposition for the boys at a normal drop-shipper. The same could be better handled by one’s own dedicated staff even though they may turn out to be expensive.
Taken from this view-point, drop-shipping as a service is best for products which are generic and do not require special efforts or need only to be delivered to the buyer’s door-step.
- Stock-out at a drop-shipper
With practically zero control over commodity logistics, anyone making use of drop-shipping could be in for a nasty surprise where the drop-shipper either does not have adequate stocks or does not deliver it for reasons best known to them. With commodity at someone else’s mercy, increasing one’s business could be anything but dicey.
- Low entry barrier means there is a crowd to make money and hence, cut-throat competition
In any business where commodity simply changes hands without any value addition, it is a business of a “broker” which can be replicated very easily. And anything easy attracts the hoards! And with the hoards comes competition the first casualty of which is a drop in margins! With time, the margins become so thin that there is hardly anything to be made!
- Shipping and quality issues
Shipping, especially between countries involves a lot of procedures and paperwork which if the drop-shipper does not understand or care to know, can cause anxiety for the sellers. Also, with so many hands handling one shipment, there is always a chance of things going awry for which the blame shall lie squarely with the seller. And with zero control over logistics, this could be the nightmare which could kill the golden goose. Next in line are quality issues. What if the actual producer does not adhere to the seller’s guidelines or in cahoot with the drop-shipper purposely supply sub-standard products. In India this is a very, very real possibility.
Not everything that is yellow and shiny is gold and not everything black and uninteresting is coal. Ultimately, one has to be cautious and has to know for sure in advance where problems could arise and take relevant steps.