Dropshipping. You’ve heard the term used before. It’s the concept of selling someone else’s product, but not actually fulfilling the order. The seller passes the order on to the manufacturer or supplier to fulfil orders directly to their customers. The biggest difference between dropshipping and the standard retail model is that when it comes to dropshipping, the person marketing and selling the product doesn’t own the inventory.
Here’s an image to explain how it works:
Advantages of Dropshipping
Upfront Costs. As an online retailer, you have a virtual store and dropshipping allows you to have a virtual inventory too. This way, you don’t have to outlay mountains of capital to buy products in bulk or meet minimum purchase requirements and you don’t have any warehousing costs either.
Bulky Items. Certain product types lend themselves to dropshipping, especially big or bulky items. These items are expensive to receive, store and ship back out, so it makes a lot of sense to dropship them straight from the manufacturer.
Location. The location of certain suppliers can also provide a geographic shipping cost advantage for you.
Dropshipping and Shopify. Shopify makes it really easy to make sure your orders get to your drop ship supplier. Your dropshipper will receive the order information as soon as an order is placed and lets your supplier know to send items. There are even apps that will let you sync your inventory with your dropshipper.
Problems with Dropshipping
It’s costly. Usually an inventory based retailer pays less per unit than a dropshipping retailer for the exact same product and this can mean that your retail prices need to be higher as a result.
Product Limitations. Sometimes suppliers will not offer their full range of products for dropshipping. The product could be a fast mover and they know that they can move the product without dropshippers. Or, on the other hand, the product might be too big to move or they don’t actually manufacture the products themselves, so they don’t put it on the dropship product list.
Higher fulfilment costs. When you dropship, you not only pay the real cost of stocking, picking, packing and shipping the product to your customer, but you also pay a hefty markup which means dropshipping costs scale as your sales grow. When you stock products yourself, you have a lot more control over these costs and can work on ways to bring these costs down.
Customer Service Issues. Dropshipping requires at least twice as much customer service work on every order and problems with orders are more difficult to sort out, as you have no control over the fulfilment process. Some manufacturers’ and wholesalers’ internal systems are also quite cumbersome to work with and this will increase order processing time.
Lack of local dropshipping suppliers. Dropship suppliers in South Africa are difficult to find. Many South African businesses are not informed about or are not prepared to dropship for you. Those suppliers that are prepared to dropship are also generally not the physical manufacturer of the products, which leads to higher costs per unit and ultimately a more expensive product.
Dropshipping is a relatively new idea in South Africa, but one that is growing steadily. Our top tip if dropshipping is something you want to do: find local suppliers. Local suppliers can generally ship faster and more affordably than international ones and they are generally easier to work with in terms of pricing, stock, etc. There will also be fewer surprises when it comes to taxes, logistics, payment and business etiquette with a local supplier.
Are you a dropshipper in South Africa? Email your tips to us at firstname.lastname@example.org or add a comment below.