Drop shipping does have its downside. For example, it creates customer service challenges as orders can get mixed up, inventory levels change, and product returns become complicated.
Profit margins for drop shipped items are often razor thin too. For example, I work with a manufacturer of apparel that charges an additional $10 per item drop-ship fee on top of the item's cost and any shipping charges. This brand's products often sell for about $59.99, with a cost of around $30. So a product sold from inventory has about $29.99 in margin while a product sold via drop shipping is at $19.99. If a retailer offers free shipping on orders above $50, an additional $5 to $10 of profit is also gone. Add an average return rate, payment card fees, and the cost of pay-per-click advertising, and there may not be a lot left.
With these potential challenges, drop shipping may work best in conjunction with inventorying some products.
In a dropshipping thing, the retailer does not receive, stock, store, pull, pack, or ship products. All of these tasks are time things, which means drop shipping saves time. In a ecommerce business where the storeowner may also be the shipper, this additional time will be available to actually sell products, which should benefit the company. In larger operations, the timesavings may result in a reduction of labor costs.
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