Follow On Twitter3 Reasons You Should Stock Your Own Items Instead of Drop Shipping
Many people who open an online store naturally assume that drop shipping their items is the best way to go. After all, you don’t have to deal with the hassle of carrying inventory and the product companies themselves are responsible for getting your orders to their end destination. While drop shipping, when employed successfully, can result in a low effort, low risk business model, many online businesses fail to consider the following disadvantages.
Customer Support
Because the delivery of your product is out of your hands, you may run into customer support issues when your customer does not receive their item on time. When you stock your own items, you can always make sure that your products will be delivered in a timely manner.
When you drop ship, handling customer returns can be a huge hassle as well. Even though your customers are actually buying their products from the drop shipper, you are responsible for dealing with lost or broken items. Once you receive a return, you’ll then have to negotiate with the drop shipper regarding how to handle the returned item.
The real danger of drop shipping is that you have absolutely no control over the quality or delivery of your products. Especially when your store is in its early stages and trying to establish a reputation, it is absolutely crucial that you deliver and support your products and satisfy your customers.
Profit Margins are Lower
When you drop ship, the amount of profit you make is the difference between your selling price and the drop shippers cost for the item. Since the drop shipper bears the burden of inventory and other related costs, your cost of goods will be much higher than if you were to purchase those same products in bulk and stock them yourselves. Of course, stocking your own items carries a greater risk if your items don’t sell so it’s definitely a trade off that you will have to evaluate. This risk however is somewhat mitigated if you choose to sell a product that does not go obsolete.
Competition
Since its so easy to throw up a website and drop ship items from a variety of manufacturers, competition will be fierce. Many of these drop ship companies provide very good stock photographs of their items which they provide free of charge for use on your website. Since everyone has access to these photos, your product photos will be identical to your competitors making it harder to differentiate your site.
Summary
Of the 3 reasons above, customer support is by far the most important. When you’re making a decision whether to drop ship or stock your own items, consider whether you want to be in full control of your own destiny or whether you want to stake your reputation on a third party vendor. Many online stores apply a hybrid approach. For their most popular items, they keep a small stock on hand ready to ship. For their less popular items, they specify a longer lead time and usually drop ship these items directly to the end customer.
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[...] 3 Reasons You Should Stock Your Own Items Instead of Drop Shipping [...]
I bought a product last year from a well known online retailer, and when I tried to return it, there were massive hassles. It took two months and a dozen phone calls because the drop shipper sucked.
So, the bottom line is this: if you care about customer service its a challenge (at best) to use a drop shipper.
Besides, if you are just starting out volume is small, so its easy to fill orders or hire someone (a high school student!) to do it.
B7
Hey George,
Couldn’t agree with you more. We actually pay some high school kids to help out with the packing. The only major problem with inventory is finding space to stock the actual items.
Dropshipping is simply a bad way to do business unless you have really researched your dropshipper and have a long history with them. As you state, the profit margins will be much lower and the headaches can quickly mount.
If the dropshipper you use is out of stock, it may not show that accurately on their site or in their catalog. You then sell the item and your customer thinks it is on it’s way. If you cannot fulfill the order you are going to have a customer who may decide to never use you again!
I would always recommend joining some affiliate programs that offer product feeds. Then, you can list their products right on your site but you do not have to worry about the customer service since, in the end, the customer is aware they are completing the order through a 3rd party.
I run a site called “Drop Shipping Sucks” that talks about the pitfalls of dropshipping on eBay… That is something you really should AVOID at all costs. It is nice to see that someone else is being honest about the reality behind dropshipping and not just tauting it as an easy way to make money online. Keep up the good work!!
You’re right that drop shipping can suck sometimes. It mostly sucks when you’re using a generic drop shipper that tons of other people are using. If you can find a good niche supplier that doesn’t have thousands of people under them, then it can work. Even then, you should still stock your most popular items.
Overall your post hit it on the head though.