The Pros and Cons of Drop-shipping
If you’re a regular reader of our blogs, you know that we discuss drop-shipping with the passion and frequency of a frazzled crime-thriller protagonist on the brink of a breakthrough — we’ve mentioned it more than a few times (26, to be exact). For those that haven’t been keeping up on our antics, here’s a quick crash course.
What is Drop-shipping?
Drop-shipping is an order fulfillment process where a business will use a third-party company to ship the product from the manufacturer or vendor directly to the customer, which eliminates the need to house the product in their own warehouse. This practice has become more and more prevalent as of late, especially with ecommerce on the rise — not having to house your own inventory can be pretty appealing to your bottom line.
Drop-shipping can be a really handy tool to have in your arsenal for streamlining your warehouse operations and eliminating clutter among your stock. We’re not here to write“An Ode to Drop-shipping,” however. While there isn’t anything inherently wrong with, or “con-worthy” about drop-shipping, there are definitely times when it would be ineffective or non-applicable to your operations. We’ll explore the benefits of using the drop-shipping method, as well as point out some occurrences where it might be best to house your own inventory.
Pro #1: Saving Space
This seems like a no-brainer, but it’s still worth mentioning. Keeping your warehouse in order is something that every product-centric business agonizes over. It’s too easy for things to turn chaotic if you haven’t implemented a clear strategy for managing your in-stock assets. It can also be expensive to create and upkeep these strategies, not to mention paying for the space itself. Drop-shipping massively depreciates the cost of organizing and operating a warehouse, which can make way for huge savings and a more productive dispersal of funds.
Pro #2: Adding Variety
Implementing a drop-shipping strategy is also the perfect way to introduce new or niche products to your customers. If there’s a circumstance where there is an appropriate accessory or item that would compliment the products you carry, but you don’t necessarily want to buy in bulk, drop-shipping is the answer. This way, you can add a little more variety to the items you sell without having to expand your warehouse or taking any big risks by investing too much in a product that has a narrow avenue of interest.
Drop-shipping can be the next step in your shipping and warehousing strategy that allows you to grow bigger and better, without having to pay more to do so. Not being bogged down by your physical warehouse means you can have a virtually unlimited inventory, which could mean big things for your sales. However, it’s not a universally applicable strategy — you should keep an eye out for these few drawbacks.
Con #1: Qualms with Quality Control
Limiting the amount of time you have to spend with each individual order can yield a lot of benefits, but in some ways, that limited interaction can also work against you. When your warehouse is no longer a pit stop on that product’s journey to the customer, you lose the opportunity to do a final once-over to make sure everything is as it should be. This means losing out on performing your own quality control check for the product, or being unable to double-check that the product, address, and customer information on the shipping label are all correct.
Because of this, implementing drop-shipping takes a slight risk calculation. Even though the product isn’t coming directly from your hands, at the end of the day, it’s still your name on the package. If anything goes wrong, or the order is inaccurate, it still reflects on your company, not the vendor who shipped it.
For some companies, this facet won’t be much of a concern, especially those with a small catalogue of items that leave very little room for discrepancies and errors. And for those who specialize in creating custom merchandise, drop-shipping might not be appropriate. In those instances, where there are more moving parts and more opportunity for things to go wonky, you’ll want the peace of mind knowing that you were able to approve everything before it was sent out.
Con #2: The Misdemeanors of Middlemen
Maintaining a good relationship with your customers is crucial to the success of your business. They want to feel like an individual — that their business means something to you — and this means treating every interaction you have with your customers as an opportunity to build up that feeling. It’s a small detail, but if a customer that’s been ordering your products for a while receives their long-awaited package and it has the vendor’s name on it instead of yours, that doesn’t bode well for your company. It makes you look like a middleman, lacks that personal touch, and might encourage that customer to just buy directly from the vendor next time.
The best way to combat this is to make sure you ship blind. This means that the vendor’s name that shipped your product will be hidden, and your company’s address will appear as the return address. This not only ensures that the recipient feels you’re invested in the product and customer, but it also alleviates any confusion as to where the product goes in the event of a return.
At the end of the day, the choice to start drop-shipping comes down to what’s most appropriate for your products, your process, and your customers. It can definitely simplify your processes and bring in new revenue, provided you know when and how to use this strategy effectively. If you’d like to get a real-life look at how drop-shipping can be beneficial to you, check out our recent case study, where our users integrated drop-shipping into their inventory strategy, with great results.