Guide to Drop Shipping vs Inventory
Overhead costs, competitive pricing, and the other pros and cons of product fulfillment.
The drop ship business has become an online phenomenon. Everyone has rushed into it and about 5% are successful in the endeavors.
There are plenty of reasons why the success rate is so low, but in this article I am going to talk about the pro's and con's of drop shipping vs inventory.
Obviously a drop ship business is going to destroy a business who has to stock all there merchandise. The overhead is almost nothing by having everything you sell, sitting in a warehouse that you don't pay for. By utilizing drop ship manufacturers and distributors, you are only paying for the products you sell, when you sell them. Where as if you have inventory, you are paying for the products before you sell them, which definitely increases your overhead.
Becoming a dealer for a company that drop ships is relatively easy. So when it comes to having your products prices competitively, who do you think wins the competitive pricing challenge? If you guessed the business who stocks there products, you guessed right. By drop shipping, you do get dealer pricing, but so does every other drop ship dealer that competes with you.
Also the margins you receive may look low, but compared the the wholesale pricing companies that inventory get, your in the wrong place. If you truly want to be competitive, my suggestion is to stock your best sellers and ship them yourself. Go for the wholesale pricing and negotiate for the best margins.
By owning a company that drop ships everything, it is an advantage because you can focus your time to the customer service side. There is a problem though, drop ship dealers won't be able to provide a very good job on customer service to there customers or clients. An example of this:
"I placed an order for a scooter on your website, when will it ship?"
"I'm not sure sir, I will need to call the manufacturer and see what is going on"
"So wait, you guys don't actually ship my product?"
"No, everything is drop shipped from the manufacturer straight to you sir."
"Wow. . ."
This was a basic example of a drop ship disadvantage. Not very many customers like dealing with a business that doesn't ship there own products.
This can cause a mess of problems and is but one example of many. Companies that ship there own products, have a major advantage when it comes to customer service. They can directly look at the products, know exactly when it ships, tracking information etc.
Overall, drop ship businesses are easier to start but harder to grow.
Companies that inventory everything they sell have a major advantage in the market they are in.