With the arrival of the coronavirus, digitalisation has become a must for companies, especially in the case of traditional businesses, which have had to adapt to a context in which having a website is more necessary than ever. This great change in the field of e-commerce has not been less so for entrepreneurs, who have taken advantage of the sales model known as dropshipping to start businesses in this time of so much uncertainty.
Although it is not a new concept, dropshipping is currently experiencing its heyday. This alternative to digital commerce, which has gained so much popularity in recent months, frees entrepreneurs from major concerns regarding stock management or shipping. We will tell you why it is so successful.
What is dropshipping ?
This digital business model consists of the retail sale of products through a wholesale manufacturer. When creating their online store, the entrepreneur establishes an agreement with a supplier, who will be responsible for sending the product directly to the end customer without having to go through them. That is the difference: with dropshipping, the entrepreneur acts as a mere intermediary between the manufacturer and the buyer and does not have to previously acquire an inventory, that is, they do not have to take care of the logistics tasks and only assume administrative and customer service responsibilities.
So how does the entrepreneur make a profit? When selling the product in his online store, he adds a percentage to the product as a commission, so that the profit margin is that amount added to the sales price established by the manufacturer.
Advantages and disadvantages of dropshipping
Although it may seem simple, dropshipping businesses, like any other type, require effort and strategic planning, and have both advantages and disadvantages. The great success of dropshipping is mainly due to how easy it is to start a business of this type. As we have already mentioned, with dropshipping it is not necessary to acquire a stock of products in advance, which is a great advantage for the entrepreneur as we are talking about great savings in the initial investment and a very low risk. Also, this type of business is managed entirely digitally, so it will not be necessary to invest in setting up a physical store and the entrepreneur will be able to work from the comfort of his home and with very flexible hours.
However, not everything could be advantages. Before setting up a company of this type, a market study must be carried out to see how to take advantage of it and whether it will be profitable or not. It is important to know that, with dropshipping , profits are obtained exclusively from commissions, which means that the profit margin is generally low. Therefore, it is necessary to find a good market niche and invest in advertising and positioning through digital means to create visibility around the company, which will entail a significant monthly expense. On the other hand, another of its disadvantages is the fact that the entrepreneur is not only responsible for ensuring that the shipment reaches the customer correctly, but is also responsible in the event of a return. This means that, if the customer is not satisfied and returns the product, the entrepreneur will have to keep it, thus generating losses.