Chances are you probably know someone who has a home based business selling products online. With the inception of the internet and more specifically eBay, it seems starting a business is no longer as painful as it once used to be.
One system that has helped most online retailers is the drop shipping model. This is simply a situation where a company stocks, packages and ships products to your customers on your behalf. You pay your supplier the wholesale price while your customer pays you a retail price. Your profit is obviously made between the wholesale and retail price.
Many people can identify the drop shipping model as the reason behind the success of their online business. If you’re thinking of starting an online retail store, then drop shipping could be for you. However, it is important to also weigh the risks associated with this business opportunity. Below are some things you should be aware of
3 Risks associated with Drop shipping
1. Thinner Profit Margins
There is usually no minimum order requirements associated with you placing an order with a supplier. However, while this is an advantage to you, it’s a disadvantage to your supplier as they have to hold to stock for much longer. Hence, they are unable to give you the type of price they could offer a retailer who orders in bulk. You can off set this risk by either selling more items or increasing the price of your product on your online store once you establish that there is a demand for it.
2. Occasional Delivery Issues
The truth is with drop shipping there is always an extra chain in the delivery of items to your customers. For any reason, your supplier might delay in sending out goods to your customers or accidentally forget to send them out. This can lead to a loss of reputation with your customers.
3. Depleted Inventory
While a good supplier will inform you of their inventory stock on a weekly or monthly basis, there might be situation where an item is out of stock in their warehouse before they have had the opportunity to inform you. Consequently, you might still have this item listed on your website and have customers order them. Sadly upon placing your order with your supplier, they might inform you that the item just went out of stock. You can imagine how most online retailers dread informing their customers that an item they ordered and paid for is no longer in stock.
These are only a few of the risks associated with drop shipping. I would like to show you more.