The dropshipping is a model of online sales generated considerable controversy in the world of digital business. How do you know if it is for you?
In this post, I am going to tell you the harsh truth of this method that has great fans but also defectors. And above all, if dropshipping in Argentina is a viable business.
The business models of online sales
When deciding to create an online store, there are different business models for making sales.
Own production: A first option where brands are responsible for the development and production of their products. They offer them in their store and once the purchase is made, they send it to customers to the chosen destination.
Buy in bulk: In this second option, brands buy products in bulk, that is, in large quantities to get better prices. They thus generate their own stock of merchandise with the possibility of adding value in the process. Depending on their availability, they sell in their online store and dispatch shipments.
Dropshipping: Unlike the previous ones, this third model works without its own stock since it only buys from its suppliers what it sells in its online store.
Let’s go into more detail in this last method.
What is dropshipping
Dropshipping is then a business model where, unlike a traditional supply chain, the seller does not have their own stock.
This is in charge of first making the sales and then placing the orders with your supplier (not even looking at the products, since the shipment is made directly from the place of manufacture to the end customer).
That is, it is the supplier who sends the product directly to the buyer.
How is the profit in dropshipping
This method then positions the seller as an intermediary between the manufacturer and the final consumer. This intermediary is in charge of selecting the products at a low cost and adding a profit margin to them and then publishing them in your store at a higher price.
Let’s see an example of dropshipping :
Let’s imagine that after a market investigation, I see that there is an opportunity to sell pet accessories (leashes, collars, food plates, etc.).
So I look for a supplier of those products with low costs (for example, Aliexpress) and make sure they have the option of delivery with dropshipping.
On the other hand, I create my online store, publishing the pet accessories products that I selected from the supplier. I can use your images, adjust the description, and put the final price (with my margin included).
I make the same request to my supplier. In the data of the receiver of the package, I will put the information on each of my clients. In this way, the producer will do the packaging and shipping process.
My clients will receive their orders directly to their doors. I will keep a margin between what my buyers paid me and what I spent with my supplier.
There are online stores that only work with this methodology. On paper, it sounds very attractive, with low-risk promises and the inability to keep unsold inventory.
But let’s go a little deeper into this world of dropshipping together and see what the pros and cons really are.
Dropshipping: why and why not
The advantages of dropshipping
I think the advantages of the dropshipping model are quite clear from the beginning:
Low cost of entry: You do not need a large investment to start selling since there is no stock of merchandise. Simply by setting up the online store and generating traffic to it, the business is working.
Quick start-up: This low cost of entry will also make the time it takes to start the business really fast. Once you’ve decided what you want to sell, in no time you’ll be able to have everything working.
Minimum risk: The fact of only buying what one sells brings some peace of mind. There is no possibility of producing or buying something that is not successful, thus leaving high-value products stuck in a warehouse.
Sounds ideal, right? Who would not want to have a fast business, with low costs and minimal risks?
This is where I want us to investigate a little more … Because it is the disadvantages of dropshipping that are not entirely clear until one begins to analyze this business model more thoroughly.
The disadvantages of dropshipping
Today there are countless tutorials on the internet to apply dropshipping, YouTubers who offer courses, promising immediate millionaire profits, and without problems.
But we are going to analyze what things can play against this type of online sales model.
Lack of value for the consumer: In the dropshipping model, the seller becomes a simple intermediary. As I mentioned before, it does not even see the product that the supplier is sending to its customer. So one is not really adding to the sales process, and even many opportunities to generate value for the customer are lost. For example, with an attractive packaging typical of the brand.
High competition: Just as one would get access easily, with a low cost of entry, many others will be able to do it too. This is basically going to translate into a lot of competition. The products you decide to sell in your store can be in the same way in the store “next door.” Also, they could copy you very easily since the products can be obtained with the same supplier (because they do not have any own process of your brand).
Little control in customer service: As we saw, it is the supplier who takes care of direct shipping to your customers. So you will not be able to have control over that process. But if there are mistakes in the products or defective merchandise, you will have to take responsibility for it. Whether for exchanges or returns, you should be ready to respond. The service to your consumers, then, is not really going to be in your hands. And this is a big problem since you will not be able to retain customers for future purchases. They will only be aware of the prices and in the face of a cheaper find, they will not last long to buy in another store.
Difficulty in building a brand: The points mentioned above can make it really difficult to build your own brand that adds value, in which customers trust, relate, and buy again. The whole dropshipping process is pretty impersonal.
Low-profit margins: The dropshipping model does not allow to have high profits since when buying the finished products, there are fewer opportunities to play with the margins. So, you need to sell a lot of quantity to be able to break the balance point between income and expenses and to be able to see a real return.
Does dropshipping work in Argentina?
If you have already evaluated the advantages and risks of this sales method, you are surely wondering if dropshipping works in Argentina.
The reality is that, beyond the disadvantages mentioned above, this method works very well in many countries around the world. In general, the suppliers are from Asian countries (such as China) that produce large quantities at very low cost. And hence the possibility of adding a profit margin that closes the business equation.
But in our country there are certain peculiarities with respect to products from abroad that it is important that you take into account:
The changing regulations to enter products into the country:
It is important to comply with customs rules to be able to enter products into the country. Therefore, it is necessary to be up to date with the regulations on the products that you are going to sell, in order to avoid having certification problems with the Secretary of Commerce.
Unclear delivery times:
As much as your supplier is transparent and complies with the terms they agreed to, the reality is that there is little visibility of what the customs times are. So it would be recommended that you take that factor into account when promising a delivery date to your customers.
The unpredictability of the mail:
There are two things that can affect your deliveries in relation to the mail. First, missing product problems frequently occur. Basically, there are thefts and there are shipments that never appear or also deliveries that arrive but when the customer opens them he finds out that his order is not complete. In these cases, the responsibility to redeem the consumer will be yours. Second, there are occasions when the mail requests that the recipient of the shipment pick it up at a branch, making the door-to-door delivery promised to the customer impossible. In this case, it will be the consumer who has to go to collect it but the shopping experience will not be good.
Is it the dropshipping model for you?
The reality is that there is no correct answer. Dropshipping has its risks but also great benefits if one has the ability to find the “hot” products of the moment and the right suppliers.
It’s also a way to test the market before diving into a particular industry or product line.
The important thing is to define what type of business you want to build and from that, to understand if the dropshipping methodology suits it.