eCommerce

What is dropshipping? Pros and cons

Mariluz Sampalo

Mariluz Sampalo

Apr 19, 2022

dropshipping advantages and disadvantages of selling online with dropshipping

Inside this article

  • iconWhat is dropshipping?
  • iconAdvantages of dropshipping
  • iconDisadvantages of dropshipping
  • iconDropshipping and affiliate marketing
  • iconDropshipping vs. marketplace
  • iconDropshipping or Amazon FBA
  • iconDropshipping: Who pays VAT?
  • iconBest platforms for dropshipping
  • iconConclusions
  • If you've made it this far, you're probably thinking of opening your own dropshipping business. Surely you’ve heard how easy it is to sell dropshipping products, and how rich you are going to get... Well, you can’t believe everything you read on the internet. Dropshipping is a form of sales like any other and you’ll still have to work hard to get the most out of it, even if it differs quite a bit from the traditional options.

    In today's article, we will cover all of your questions about dropshipping: What dropshipping is (and what it’s not), the advantages and disadvantages of being a ‘dropshipper’ —that's what they’ll call you if you proceed— and the best platforms to host your dropshipping company, among many other topics.

    What is dropshipping?

    Dropshipping is a sales method that consists of selling products directly from a supplier —the products never enter your company’s warehouse or any other physical facility.

    In other words, products are shipped to customers by the manufacturer or supplier. The seller is only in charge of selling, providing customer service, managing the shipment of the product or possible returns, etc.

    There are countless items that you can successfully market in your dropshipping business. From fashion items to computers, books, decorative pieces, video games, kitchen accessories and even bulkier items like furniture, although in this case, the logistics of your online store must work perfectly in terms of shipments.

    Advantages of dropshipping

    Now that you know exactly what dropshipping is —and what it’s not— we will share the advantages and reasons why dropshipping is becoming so popular:

    • It cuts down storage costs (and removes this extra task from the seller)
    • It can mean higher profit margins, since the seller can buy a product at wholesale price and sell it for a higher retail price. The seller can also rely on the geographical and financial benefits of shipping products that are produced at a lower cost but sold for a higher price.

    Disadvantages of dropshipping

    However, not all dropshipping businesses are successful. There are certain risks and inconveniences when you choose to open a dropshipping business:

    • Warranty issues. You may be selling products with a guarantee that is lower or nonexistent in a country that demands a 2-year warranty for that product. If the manufacturer or supplier you’ve chosen doesn’t comply with the standards or warranty periods, the seller will be in charge of this warranty or possible compensation, in case of breakage or any other issue.
    • The product isn’t yours. If you choose an unreliable supplier, you can lose your source of products and therefore the sales and foundation of your business. In essence, dropshipping makes you dependent on the supplier. When your sales start to grow, the supplier may not be able to offer you enough products for your market. This means needing to change suppliers or offering inconsistent products from various suppliers.
    • Customer support. In dropshipping, sellers are in charge of customer service, even though they don’t even get to see the products. This can be a bit tricky, especially when there are claims. The seller is also in charge of shipping: everything from selecting the best rate to tracking or returns. If you work with more than one supplier and your buyer orders items from different suppliers, you’ll have to pay more than one shipping cost, but the buyer will only pay one (or should pay only one). This is another downside of selling through this method.
    • The value of currencies change. This may affect the margins you get if your provider is in a country with another currency.
    • Billing and other tax details. Dropshipping entails different tax rules depending on where your country is based on. You may need help from a consultant to comply with all the regulations and avoid sanctions.

    Dropshipping and affiliate marketing

    Dropshipping is somewhat similar to the process of affiliate marketing. In this case, a person or company recommends a product and links it to the sales page of the supplier or manufacturer, who is the one who closes the sale (so they manage the payment, shipment, returns, customer service, etc.).

    The person who recommends the product is only responsible for getting the buyer to come to the store, that is, to generate traffic. Only when the buyer makes the purchase of the product does the seller give a sales commission to the person or company that initially recommended the product.

    This table clarifies the differences between each one.

    DROPSHIPPING AFFILIATE MARKETING SALES
    The buyer goes to the online store and makes a purchase The buyer gets to the online store through the recommendation of an authority figure and makes a purchase
    The seller receives the payment and orders the supplier to ship the item The seller receives the payment. Now everything depends on the online store
    The supplier ships the goods directly to the buyer Once the seller receives the payment, the affiliated person receives a sales fee
    The seller keeps the buyer informed about the status of the order
    The buyer receives the parcel. The seller is in charge of customer support

    Dropshipping vs. marketplace

    Many people find that these terms are closely related. They definitely can be in some cases, but they don't have to be. Let’s take a look at the differences between dropshipping and marketplace:

    Dropshipping, as we pointed out earlier, is a sales model whereby the dropshipper or seller does not actually handle the products at any point. Instead, they provide items shipped directly from the supplier.

    A marketplace, meanwhile, is an online market where you can find a range of stores and sellers offering similar or completely different items.

    Sometimes dropshippers market their products through one or more marketplaces such as Amazon or eBay, or they market them through an online store and obtain the products from a marketplace. That’s why these two concepts, although they are not the same, are usually related and frequently appear together.

    Dropshipping or Amazon FBA

    Now that you have a better understanding of what dropshipping is, let’s focus on explaining Amazon FBA.

    This program was created to make shipping, inventory management, and customer service easier when you sell through Amazon. Through FBA, you can outsource the logistics management of your eCommerce, giving Amazon many of your obligations (and rights). This program means having to pay commissions to Amazon for the service.

    However, if you want to dropship, you don't need to rely on Amazon FBA. You can use Outvio to fulfill all your orders, regardless of the platform or sales channel: Amazon, eBay, AliExpress, etc.

    Using Outvio can increase your profit margins since you won’t have to rely on Amazon’s requirements or pay their fees.

    If you want to know more about fulfillment on Amazon, you can also read our article on Amazon FBM and Amazon FBA.

    Dropshipping: Who pays VAT?

    The VAT that you need to pay and charge depends on where your customer is. If you’re an online shop in the UK shipping to the UK, from, let’s say, China, you’ll need to pay taxes in the UK and your customers will receive the applicable VAT for that product in the UK.

    If have decided to start dropshipping, you can start your online business on one of this platforms.

    Best platforms for dropshipping

    Shopify

    Shopify is an eCommerce platform that allows you to quickly create an online store that is both functional and attractive. It can be connected to other sales and marketing channels, from social media platforms to high-traffic marketplaces like Amazon or eBay.

    If you want to create an online store with Shopify, you'll need to subscribe to one of their plans: the Basic Plan, the Shopify Plan or the Advanced Shopify Plan.

    WooCommerce

    With WooCommerce, you can integrate your online store with other sales channels through a multichannel extension such as Facebook, Pinterest, Etsy and eBay. You can also share your website on social networks such as Instagram, Facebook or YouTube through WordPress to attract more traffic to your website and, potentially, to the store.

    WooCommerce is free to download and install, but you need to take care of the domain and server yourself.

    PrestaShop

    PrestaShop is another CMS platform that works well for dropshipping. If you already have a PrestaShop account or are planning to open one, you can install a PrestaShop module for dropshipping.

    Having a store in PrestaShop is, in principle, free, but you will have to pay for most of the modules that you install, as well as the server and the domain.

    Check out our PrestaShop addons review to find the best free modules that can help your dropshipping business.  

    Wix

    You can have a dropshipping business on Wix if you have the Business Unlimited or Business-VIP plan.

    If you have an online store on Wix and are subscribed to one of these plans, you’ll be able to connect your online store with platforms like Spocket, 365Dropship or Modalyst, which will allow you to manage your dropshipping products and sales more easily.

    If you still don’t have an online store created and you’re thinking of creating your dropshipping business from scratch, this is an affordable option, but it may not be sufficiently professional or scalable.

    eBay

    eBay is a marketplace with a long history in terms of sales, since it has been in operation for more than 25 years. This means that it can be integrated and shared on almost any website: social networks, Google Shopping, online stores, etc.

    You can use eBay to link products that you have in your online store or you can create two online stores (one on eBay and one on another eCommerce platform) and connect them so that you only have to manage one inventory. If this other CMS also works well in the dropshipping area, success is almost guaranteed.

    For example, you can have your online store on Shopify, connect it to your eBay online store, and order products through a Shopify app. This will ease order management and boost sales thanks to an omnichannel strategy.

    Amazon

    Amazon has a very important role as an international marketplace. Amazon allows integration with other sales channels such as your website or your online store hosted on a CMS such as Shopify, WooCommerce, 3dcart or Magento. You can also share the products through affiliate links on many social networks.

    Linking your Amazon store with your online store in another CMS or with another store in another marketplace may be the best option for you if you’re looking to expand your sales channels. If you decide to also sell through Amazon or only through Amazon, we advise against outsourcing the management of your logistics and shipments and instead using Outvio to automate your post-checkout operations.

    Conclusions

    We hope that this article on dropshipping solved any doubts you may have had about the process so that you can best assess whether it’s right for you.

    Every day, more and more people choose to sell online. If you want to be successful in the long term, consider all the advantages and disadvantages of selling through dropshipping compared to selling through a marketplace or online store. Whatever your decision, rest assured that Outvio can help you execute it successfully.