How does drop shipping work?

Do you have a business you want to expand internationally? If you want to sell your products overseas, you need to think about your shipping costs. Do you want to handle shipping on your own or find some other solution? This other solution can be dropshipping. Dropshipping is an order fulfillment method. This means that a company sells its product, passes the same product to a third-party supplier, and that supplier ships the product to the buyer. Sounds pretty simple. However, there are many pros and cons to using drop shipping. If you are interested in this topic, here everything you need to know about dropshipping. 

Less capital is needed with drop shipping 

Let’s start with the advantages of drop shipping. You do not have to invest a large amount of money in inventory to launch a store. Your job is to make the sale and then you purchase the product that is already paid by your customer. It is less risky and it requires less capital to start a business. If you want to start a business in a traditional way, you have to consider the following things.  

person using the lap top
You will need less capital when dropshipping
  • Renting a warehouse 
  • Packing and shipping your products 
  • Tracking inventory 
  • Being responsible for returns and inbound shipment 
  • Always restocking your products 

This all can be quite stressful. Additionally, you need to think about Bahrain customs clearance, for example. Every country has its own specific set of rules. In order to keep your customers happy, your services need to be fast but at the same time, to ensure the safety of the product. 

Low overhead and flexible location 

The biggest advantage of this method of shipping is low overhead expenses. You do not need to purchase inventory or rent a warehouse. This means more money saved. In addition to this, you are quite free to choose your location. Usually, people that use drop shipping, do not own a store. Rather, they work from home. This is yet another great advantage as you do not have to pay rents for your store every single month. Since the success of your business depends on the location of your store as well, renting a store in the center of a city can be extremely expensive. However, the location alone does not guarantee success so you can lose a large amount of money. Furthermore, when you plan to move internationally, you will pay less for moving services from relocation companies in Jeddah. 

Dropshipping is easier to test and scale 

It is not easy to invest a large amount of money to start a business. You can minimize the risk of losing all your savings by testing the market. How you can do this? Do market research. See what is popular nowadays. Then, see if your product has an audience. It would be a bad business move to invest a large sum in a product that is not needed or desired in today’s market. You can try to sell your product without actually buying the products. If you see that people are generally interested in your product, then you should invest money. In addition to this, your supplier will help you with more orders. If you receive twice the number of your usual orders, you will need to work harder. However, by using this method of shipping, you can expand your business with fewer problems and less stress.  

an open lap top
Make sure to do the market research before starting your business

Low-profit margins and high competition 

Now, onto the negative sides of this shipping method. You might save money by not renting a warehouse or investing in inventory. However, you need to pay suppliers. For every sale you make, some percentage will go to them. The amount you will earn is pretty small. In addition to this, you will need to pay for the maintenance of your website, sales order, marketing, and advertising strategies, etc. When you see the final amount of money you earned, you might get disappointed. In addition to this, it is highly competitive. You need only a little capital to start a dropshipping business. Therefore, many people want to try to sell their products this way. This leads to a decrease in prices and earning less money than planned. You can invest in a traditional business. You can be the one in charge of shipping your items internationally.  

No control over supply-chain and Legal liability issues of drop shipping 

When you are responsible for shipments, you can address all the customer’s complaints, return policies, and so on. However, when you want to use drop shipping, your supplier handles these things. This can be unfavorable for your business. You can receive bad reviews and lose customers but you cannot do anything about it. When you do not have customers, you need to close down your business. For this reason, you need to find a reliable supplier that you can trust. In addition to this, there are some legal liability issues. Again, you should pay attention to your supplier. Do not hire the cheapest one. They can engage in illegal activities. Since you are their vendor, you will also have legal problems. In order to protect yourself, get a solid Dropshipping Agreement Contract.  

boxes in the truck
Your supplier is responsible for shipment

When to use this method? 

Shipping internationally can be expensive, especially if you are shipping only one small product every now and then. In addition to this, in some cities, renting prices are extremely high. You will spend more money on storage fees than on shipping fees. For this reason, dropshipping might be your best choice. In addition to this, if you want to sell high-maintenance products, it would be better to use this method. These products include large and heavy products, fragile items, valuables, and things that require special conditions. It is much more expensive to store these items than to ship them. Large items demand more space, fragile items require special care, and valuable items need additional security.  

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