Is dropshipping a better option than managing your own inventory?

Looking forward to expanding your small business by selling products online but feeling lost or confused about managing your inventory? The dropshipping business may turn out to be the best option for you! Are you thinking about how it works? Welcome; here’s everything you need to know about dropshipping. This article will figure out what's going to work the best for you: dropshipping or managing your own inventory.

What is Dropshipping?

• In Dropshipping, the seller sells products without keeping any inventory with him. The online retailer contracts with the manufacturer, wholesaler, or other retailers. He markets and reaches their product to a large number of customers.

• Dropshipping is a supply chain management method. Here, the online seller obtains customer orders and transfers them to the supplier, who then delivers the products directly to the customer using the contact details of the customers as provided by the seller.

• Online sellers do not handle the products first-hand. The onus of managing the inventory and related issues rests with the suppliers.

Pros and Cons of Dropshipping

There are always two sides to a coin. Like other models of business, dropshipping also possesses some positives and negatives. Let us have a look at the pros of dropshipping, which makes the dropshipping business attractive.

Pros

Lesser risk:

Dropshipping provides you relief from the major risk of managing your own inventory when you sell products online. With dropshipping, you can hedge yourself from the risks associated with any online business—E.g., packing, safe delivery of products, etc.

Low startup cost:

In dropshipping, the only investment required is for inviting traffic of customers. Here, you don’t have to make forthright investments in inventory but buy the product only when it's sold.

Easier operations:

As you don’t have to manage warehouse/ inventory levels, dropshipping results in easier management. Other benefits, such as no staffing issues, no packing or delivery issues, or handling of returns and inbound shipments, make dropshipping more attractive.

Besides, the business is operated remotely. You need to have a solid internet connection for effective and seamless communication with your suppliers and customers.

Ease in amending business scales:

Unlike other business models, dropshipping facilitates the ease of growing business to the next scale. By connecting with additional suppliers, one can level up his business on a large scale.

Low overheads:

Dropshipping helps to avoid blockage of funds in working for expenses like storage cost, handling cost, staff salaries, packing costs, shipping costs, etc.

Flexible location:

Operation through the internet enables you to operate business flexibly from anywhere in the world and sell products online. Hence, dropshipping eliminates the boundaries of choosing a location for your business.

Choose from a wide range of products:

In the dropshipping business, you can choose multiple product lines according to your niche best. If it doesn’t work well with one product, choose another one as you are not bound with inventory issues in dropshipping.

Cons

Product quality and other concerns:

With dropshipping, you lose control over the quality of deliverables. Poor quality of products, defective packing, untimely deliveries, etc., may negatively affect your brand image before your customers. However, these can be sorted out by timely and effective measures.

Increasing trend and competition:

Minimal requirement of capital and low entry barriers entices a huge chunk of the crowd to engage in this business. This results in many sellers ending up selling similar products. Nevertheless, by implementing intelligent sales strategies, branding, and marketing strategies, business owners can cut down the competition to some extent.

Lesser Margins:

Be it Amazon Dropshipping or Shopify’s, or another service; it generates lesser profit margins. As it requires selling products that belong to a third party, you can sell an Rs. 100/- product of Rs.110/- or Rs. 120/-, not more than that, or a buyer would rather choose a seller offering them a lower price for the same product.

Lack of control over inventory levels:

As the control over inventory lies with your supplier, it often happens that the seller accepts the order being unaware of the non-availability of stock. Canceling an order later on leaves a bad impression on the customer. However, proper and real-time coordination with the supplier can tackle this drawback.

Breach of trust:

In dropshipping, the seller shares his customers’ database with the supplier; hence they may breach trust by capturing the customer base.

Managing own inventory

Inventory is the stock of finished products that are handy for the sale. Manufacturing products requires a huge number of production-related concerns like facilitating production facilities, handling workers’ behavioral issues, determining production levels and intervals, factory cost, maintenance and untimely breakdowns of machines, and much more.

On the other hand, an offline retailer has to undergo concerns like arranging for warehouses and bearing its costs; keep a check on inventory levels based on demand and supply; saving inventory from obsolescence; bearing handling, shipping, and packing costs, branding of his products, etc.

A business owner has to undergo multiple concerns if he chooses to manage his own inventory. On the other side, it has benefits like large profit margins, control over quality and inventory levels, having own customers not being wary of breach of trust, etc.

Choosing the appropriate - Managing own inventory or Dropshipping

When choosing between the two options, one must consider the following factors:

• Quality concerns: If you are highly concerned with the quality of your deliverables, then you should drop the idea of entering into dropshipping;

• Availability of capital: Not available with funds? As managing own inventory has a high capital requirement, in this case, one can opt for dropshipping;

• Availability of human resources: Dropshipping does not require high human capital; it is even possible to handle it all on your own!

• Profit margins: Persons with high expectations might go with the former option. On the other hand, persons with low expectations might go with dropshipping.

Conclusion

Dropshipping is a wonderful option for those who are searching for eCommerce business opportunities with less capital requirement. On the other hand, managing your own inventory can get you phenomenal profit margins.

But, still, if you are confused about which option to choose, and need someone to assist you, then we, at Powerhouse91, are always there for you. We are a team of experts with 10+ years of experience in eCommerce and can help you build your eCommerce brand and guide you in your growth journey.