To answer the question in the title, there is a significant drop of risk when it comes to drop shipping. Coincidentally, less risk is music to any businessman’s ears. But don’t take anybody’s word for it; here are some risks that are lessened when a drop shipping model is adapted:
There is less risk in drop shipping in terms of payment.
Why is risk lessened in drop shopping? That is because there is no upfront payment for anything. In most business transactions, sellers usually demand some percentage for payment as a form of security for them. However, with drop shopping, inventory can be acquired even without money exchanging hands. This means that if in the end, the business does not work out the way it was expected, and then the businessman does not lose a whole lot of money. The money he or she may lose would be the cost of setting up and starting the business, which is, in most drop shopping cases, a website. But transaction-wise, no money is lost in case the business doesn’t pan out.
There is less risk in drop shipping in terms of revenue shifts.
With most business models, a loss is incurred when an inventory is slow in movement, or doesn’t move at all. For example, if an inventory of 10,000 wholesale sunglasses becomes available for Spring 2013 and only sold 200, then resold this year and only sold 50 pieces, the remaining 9,750 may have to be written off the company’s records as a loss, because the cost of storing them, among others, may be more than the price they will be sold to once they are made available again next season, surely at discounted rates. On the other hand, businesses adapting to the drop shopping model would not be exposed to losses resulting from change of seasons, tastes, and trends. This is because inventory is always at the right amounts. In drop shipping, the idea of excess inventory is unheard of.
There is less risk in marketing even niche products.
Businessmen, especially newbies who are just getting their feet wet into such ventures avoid “niche” products – items that appeal only to a certain market segment, like the plague. That’s because there is no assurance in the first place that such items will be bought by the exact group of people who is supposed to be buying them. Now, if the niche group itself doesn’t but the niche item, how can anyone expect other people who don’t have the express interest to buy it? However, in the drop shopping model, even niche items can be offered side by side with best sellers. This is because not only is their volume controlled, but there is a guaranteed “market” that will purchase the items.
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| Image source: EToro |
Why is risk lessened in drop shopping? That is because there is no upfront payment for anything. In most business transactions, sellers usually demand some percentage for payment as a form of security for them. However, with drop shopping, inventory can be acquired even without money exchanging hands. This means that if in the end, the business does not work out the way it was expected, and then the businessman does not lose a whole lot of money. The money he or she may lose would be the cost of setting up and starting the business, which is, in most drop shopping cases, a website. But transaction-wise, no money is lost in case the business doesn’t pan out.
There is less risk in drop shipping in terms of revenue shifts.
With most business models, a loss is incurred when an inventory is slow in movement, or doesn’t move at all. For example, if an inventory of 10,000 wholesale sunglasses becomes available for Spring 2013 and only sold 200, then resold this year and only sold 50 pieces, the remaining 9,750 may have to be written off the company’s records as a loss, because the cost of storing them, among others, may be more than the price they will be sold to once they are made available again next season, surely at discounted rates. On the other hand, businesses adapting to the drop shopping model would not be exposed to losses resulting from change of seasons, tastes, and trends. This is because inventory is always at the right amounts. In drop shipping, the idea of excess inventory is unheard of.
There is less risk in marketing even niche products.
Businessmen, especially newbies who are just getting their feet wet into such ventures avoid “niche” products – items that appeal only to a certain market segment, like the plague. That’s because there is no assurance in the first place that such items will be bought by the exact group of people who is supposed to be buying them. Now, if the niche group itself doesn’t but the niche item, how can anyone expect other people who don’t have the express interest to buy it? However, in the drop shopping model, even niche items can be offered side by side with best sellers. This is because not only is their volume controlled, but there is a guaranteed “market” that will purchase the items.
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