Drawbacks of Dropshipping

1. Low Profitability: The drop-shippers have very little control over the product pricing. From them the, profit margin is the difference between the supplier’s price and selling price which is usually low. Moreover competing over price eat up the profitability of the dropshipper.

2. Inventory Issues and Stockouts: The dropshipper often faces the problem of stockout and inventory availability as he is completely dependent on the third-party supplier for the fulfillment of orders. This hampers the market reputation of the dropshipper and leads to customer dissatisfaction.

3. Low Control Over Quality: The dropshipping model allows retailer to sell the product without actually seeing the product. Since the order is directly shipped by the third-party supplier, the dropshipper have no or little control over the quality of the product which again risks the market reputation of the dropshipper.

4. Intense Competition: Ease of entry in this business model invites many players that intense the competition level in the market. Besides the same supplier may deal with number of dropshippers at the same time for the same product forcing dropshippers to compete over price that pulls down their profit margin.

5. Limited Brand Control: High dependency upon third party makes it difficult for dropshidrop shipperst the personalised requirement of the customers and branding of the product. Low control over product branding holds back the dropshipper from building their unquie unique identity and to grab competitive advantages.

Dropshipping is a retail business model in which the seller sells the products to the customer without actually keeping physical stock in hand. It is an e-commerce business model where on receiving the order, the seller transfers the order to the third party (manufacturer, Wholesaler, distributor, or other retailer), who directly ships the product to the customer on behalf of the seller. This means the seller sells the product without actually seeing, handling, or storing the product. Therefore, the seller has very little control over the quality, shipment, inventory management, and storage of the product. Dropshippers play a role in the selling and marketing of the product.

The profit earned by the drop-shipper is the difference between the wholesale price and retail price of the product after adjusting all the selling and shipping expenses.

Profit of the Dropshipper = Retail Price – Wholesale Price – Selling Cost

In a modern time where no one has time to visit physical markets, e-commerce, and supply chain has gained popularity which in turn has made the dropshipping business popular as it requires minimum start-up investment and low working capital. Besides this dropshipping business model eliminates the cost of storing and managing the stocks and also lowers the risk of inventory management.