Curious about what Dropshipping is? This post will list the pros and cons of this business model, and if Dropshipping is still worth it in 2023

What is Dropshipping?

A traditional e-commerce business typically has a warehouse with inventory of some sort. It can be a bonafide warehouse (capital W), with warehouse workers that pick products from distinct shelves, a warehouse hotel, or a back room in a physical store, if you’re that sort of business. If you’re a completely new business, you might just have a basement room with different products at your house. When a sales order comes in the business has to go down to the warehouse, pick the product(s), and ship it to the customer.

Dropshipping businesses operate a bit differently: instead of having a physical warehouse that the business itself operates, the dropshipping business sends sales orders directly to the supplier. The supplier then sends the product(s) directly to the end customer, and the dropshipping business takes a profit.

That way, the business avoids having to manage inventory levels and the operating costs that come with operating a warehouse. Additionally, the dropshipping business avoids having to pick, pack, and ship the right products – and the costs that these tasks incur.

We have briefly covered one of the pros of dropshipping, namely lower operating costs and fewer workloads. But in the following chapters we’ll cover the pros and cons of dropshipping.

A customer places an order in your webshop. Let’s say you priced it at $50. You send the order on to your supplier, who has the same product priced at $35. Your supplier then sends the product directly to the customer, and you keep the $15 profit.

Why Dropshipping?

There are a lot of good reasons to start a dropshipping company. One good reason is that it’s easy, quick, and cheap to get off the ground. It only takes a little bit of money to buy a domain name, and the services you use to run the business. But because you never have any products in a physical location, that means you don’t have to invest in warehouse rent, or an inventory of products. You’re not bound by having physical store(s) either, so if you want to run the business from the comfort of your couch, that’s absolutely a possibility. Should the company fail, you don’t have money bound in inventory or rent/property, so you can quickly move on to your next project.

Dropshipping with Rackbeat

Even though you don’t have a physical warehouse it’s still important to keep an overview, of which orders have been processed on your end. In short: you need proper order management. The orders that are placed in your webshop are automatically created in Rackbeat, and with just a few clicks, you can convert these to a dropshipping order. Then the order will then be placed at your supplier, and the delivery address will be the customers, but the billing address will be your company – all through Rackbeat.

In short, it brings you closer to your supplier, and you are left with fewer tasks concerning operations of your dropshipping business, and you can use the time saved to focus on growing your business. If you are nodding along in agreement right now – then you’re ready to dropship with Rackbeat!

If you want to try this out, then register for a free trial!

Pros of Dropshipping

1. It takes less capital to get off the ground

There are a lot of elements of a traditional webshop that requires significant capital. This includes operating a physical warehouse and tracking inventory levels and movements. That’s not a problem with dropshipping because you don’t have to think about these tasks, let alone the costs associated with them.

2. It takes less time and energy to operate

You’re not spending time operating a warehouse – there isn’t one right? That means you don’t have to pick, pack and ship orders that are handled by your supplier. When you’re doing accounting, you don’t have to keep track of how much value is bound in inventory.

The work that goes into returned products is also drastically less than if you were to register returns (maybe even repair), and send new products to the customer yourself. You don’t have to worry about purchasing, or making sure that inventory levels are stocked to be able to meet demand. That also means you don’t need a designated purchaser either, should your business grow.

3. Low overhead

When you establish your dropshipping business you’re not going to have any significant operational costs. As we’ve covered, you might have some monthly costs, such as to a webhotel, or maybe even Rackbeat. But these costs are very low compared to a traditional business with a physical warehouse. These costs can of course increase over time, if you are spending money on marketing (not a bad idea by the way), but the costs will still be lower than a traditional business.

4. Broad selection of products

You don’t have to commit to just one supplier. That means that you can choose products from many different suppliers, in many different categories. It is worth noting though, that the general consensus is that you should keep to one theme or product catalogue, for example makeup and cosmetics.

5. Agility and scalability

If you determine that makeup and cosmetics aren’t selling very well, you can quickly restructure your business to sell phone covers instead. This means that you can quickly test product-market fit, to determine where supply and demand is just right to make a nice profit.

It’s this same property that makes dropshipping so scalable – your ability to sell isn’t bound by having products in stock. If you’re getting 10 times the orders coming in, when you make the switch to selling phone covers, it doesn’t make a noticeable difference workload-wise – definitely much less than if you were operating a traditional webshop. That means that you can always match your supply to the most profitable demand, quickly, easily, and without restructuring your workflows.