The Pros and Cons of Dropshippingl in E-Commerce Business

With dropshipping, you can say that starting an e-commerce business is straight & easy, relatively risk-free, and doesn’t require a lot of startup capital as well. But on the other hand, running a successful business requires a ton of knowledge, smart work, hard work, and a bit of luck too.

The problem is online business requires a sheer volume of hard work to start a business and a certain period for business to grow. But people usually set unrealistic expectations and look for a quick path to get themselves rich this thought discourages them early and leads people to get away from it.

• Some of these business models have low barriers to accessibility, low cost, and low overhead.
• Some of them require a good amount of money (upfront).
• Some of these business models need inventory.
• Some need a website and so on.
• And among them, some are very competitive.

But let us talk about the pros and cons of all the popular e-business models.

‍

Dropshipping through Website

For those who are unfamiliar with the term, drop shipping means creating a website to receive orders online without keeping an inventory. Instead of managing the products by yourself, you send the orders to the dealer/seller, and the seller/vendor is responsible for shipping the order to the respected customer.

‍

How does it work?

To get the wholesaler's approval, you must first contact the agent. Once verified, you will have instant access to hundreds of items that are registered in the store. Since you sell everything on your website, you have complete control over your private label.

‍

Advantage of Dropshipping through website

By doing the dropshipping through websites you will have the following advantages:

• No order fulfilment: Because you are not the seller you are just the middleman. So the seller is responsible for the shipping and fulfilment of orders.
• No inventory required: Since the seller has everything in stock, you do not have to worry about buying inventory and stocking it.
• Low set-up costs: All you need is a simple e-commerce site that can cost you at least $ 10 a month.
• Easy to Start: It is easy to start if you ever use a platform like Shopify you just launch a website and there you go.

Disadvantage of Dropshipping through website

• The downside of dropshipping is that your profits will be minimal, as the vendors will stock all inventory and do everything for you. The reduction margin is usually 10 to 30 percent in a drop shop.
• As a result, paid advertising becomes a problem because you do not have enough revenue to pay for traffic. You often run a "Google Shopping" campaign. In addition, due to your low profitability and low-cost flexibility, it is difficult to compete with other physical stores (this may be slightly lower with MAP prices).
• Since you sell items to others, you have no control over the composition of your product. For example, a seller decides to decline to provide services for a particular product. So, what do you think, what will you do next?
• Additionally, customer support and inventory can be frustrating because you do not control execution. For instance, a customer calls you and complains that he has not received his product because you sell the product on your website. So, you are the face of the company to the outside world, even if technically it is not your fault, you need to take responsibility and solve the problem. Sometimes sellers can be slow and unreliable. The downside is that a bad seller can ruin your company's reputation.

‍

Dropshipping from Amazon to eBay

This model is also known as eBay / Amazon Balance. In this business model first, you find those products on Amazon that are selling for a higher price on eBay. Then take photos of Amazon products you want to sell and publish the most expensive list on eBay.

‍

How does it work?

The reason this business model works is that people who shop on eBay usually do not shop on Amazon. And many people on eBay are not aware that they can get the same cheap goods elsewhere. Upon completion of the eBay auction, the seller buys the same product on Amazon and sends it to the eBay customer. Alternatively, you use Amazon to get instant profits on eBay. The strange thing is that this product is usually found in an Amazon box, which can upset eBay customers.

‍

Advantage

While we do not agree with the people who do this, this business model has many attractive features and people make a lot of money in this business model.

• There are no overheads
• A website is not required
• You do not need to find a seller
• All you need is an eBay account and an Amazon Purchase account

The process is to list a product on eBay at a good price and then buy it at a cheaper price from Amazon and send that product to your eBay customer at a higher price with the profit margin in your pocket.

‍

Disadvantage

It’s easy to get started but be careful. You may get bad news from brand owners because selling their products on other platforms helps increase costs. Sometimes people who buy on eBay get an Amazon box, and when they check Amazon, they find the same product at a lower price, and then they sue the brand owner. As a result, brands hate those who use this business model. Usually, the business model is good for cash flows, but it does not have long-term business potential. You must see new things instead of doing this business.

• Profit Velocity – Low
• Sustainability and Risk – Very High
• Level of Competition – High competition because other old sellers are already in the market

‍

Dropshipping on Amazon

Drop shipping on Amazon is the same as drop shipping on your website. The only main difference in Amazon Drop shipping is that the products are direct to Amazon customers.

‍

How Does It Work?

First, you need to find a distributor who will provide you with their products. Then list the products on Amazon. If you got any sales, contact your seller/dealer, and he will deliver your product to the final customer. It is important to note that this form of business does not use FBA (like Amazon), so you are responsible for completing the application on time.

‍

Advantage of Amazon Dropshipping

It is usually easier to start a dropshipping business on Amazon, it has great potential for revenue generation. Overall, this model is appealing; you can start this business model without a huge investment

• Flexibility - You can sell hundreds of products directly on Amazon
• No start-up Fees
• No-Website
• Ease of Launch - All you need is a good freight forwarder
• Profit Velocity - You can have good sales even with small margins

‍

Disadvantage of Amazon Dropshipping

The problem with this business model is that everyone has access to contact wholesalers and the same range of products. Another risky thing in this business model is that Amazon has high demands on quality and fast delivery to retailers.

Suppose you are selling some products and on a Black Friday when there’s a discount almost on every product people usually tend to buy in bulk quantity. When you call the dealer to deliver a product, you come to know that the goods are not available due to a lack of inventory then what will be your strategy?

What do you think Amazon can do to suspend your account? If a shipment is canceled or delayed, you run the risk of not selling.

So, this business model is very risky when you trust someone else for your reputation on Amazon. The past has also shown that Amazon can use a heater to turn off quickly, as customers are always first. Cons of this business model at a glance

• Sustainability and Risk - Expired or delayed submission may prevent you from doing so.
• Level of Competition - Low profits and competition make it difficult to maintain profitability from other suppliers

‍

Retail Arbitrage

Retail Arbitrage in recent years has become a popular business model. In this business, sellers buy the bulk product at a discounted price from elsewhere and list it on Amazon at a competitive price as other sellers are selling in this way they get their profit margins.

‍

How Does It Work?

Let’s see how we can do this business. Most retailers usually sell products at very low/discounted prices that are lower than Amazon's retail price. By buying those low rates, most up-to-date, and simple products from other retailers, you can make money selling this product on Amazon FBA at a good price. This model works because many users do not have access to the filter network and want to pay the full price on Amazon.

‍

Pros

One of the best features of this model is:

• Ease of Launch - All you have to do is buying products and create an Amazon account
• Profit Velocity - You can make quick money
• No Requirement of website

• Amazon Live Marketplace -Take advantage of Amazon Lives’ amazing marketplace
• Set-up Cost - In addition to your lists, there are only a few training set-up costs

‍

Cons

The biggest downside, however, is that your store is 100% owned by Amazon, and you have to discover or buy new products before they appear on the platform. This means that it is difficult to measure your retail budget when you spend most of your time looking for a deal.

In addition, Amazon has introduced new rules that strictly prohibit this business model in the future. Amazon prohibits retailers from selling certain brands without the permission of the manufacturers. For example, let's say you invest $ 3,000 in a LEGO sale. Lego is a brand that Amazon has recently banned its suppliers. Find what? Suddenly you get $ 3,000 in stock, which you can't take away if you can't sell it on Amazon. Of course, you only need one to close your business. So we think retail Arbitrage is very dangerous right now. Amazon focuses on helping frustrated brands sell their products to others. They also use GS1 barcodes purchased from reputable stores, so the barcodes should match your brand. Finally, we think it is better to avoid retailing until the situation is resolved. Some cons are:

• Difficult to Establish - Growing up this business is not easy
• Sustainability and Risk - Amazon's new policy makes this model dangerous
• Level Of Competition - Low profits and competition make it difficult to make steady profits from other suppliers selling the same products.

‍

Conclusion

Whatever Business model we choose we should keep it in mind that business is all about money & risk and every business model have its own potential. Obstacles may come in every step of doing business, but we only could do hard work in order to get success in the long run.  

‍