2017-12-18 00:00:00 Business Planning English Find out how a dropshipping sales model can help your online business keep its labor and expenses to a minimum. https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/12/Producer-Dropshipping-An-Order-For-Sales-Platform.jpg https://quickbooks.intuit.com/ca/resources/business-planning/dropshipping-reducing-labor-overhead/ Reduce Labor and Overhead by Dropshipping

Reduce Labor and Overhead by Dropshipping

2 min read

Looking to start a product selling business without spending much money upfront or packing up orders yourself? A dropshipping business, which is when you sell a supplier’s products and it fulfills the orders, is the ideal solution. With the inventory and shipping taken care of, you can focus all your energy on building your business and making sales. Here are two of the most significant advantages of choosing dropshipping instead of a more traditional “in-stock” sales model.

Outsourcing Your Labor

When a customer places an order, someone needs to pack the items, print the shipping label, and send the package. There’s no reason this needs to be you, and when you dropship, you get to outsource those menial tasks to your supplier for a fee. It’s a small price to pay when you consider the labor you’re avoiding.

Your other options are handling the labor yourself or hiring employees to do it, both of which have serious flaws. If you do it yourself, you’re spending valuable time you could be using to grow your business on errands anybody can do. More importantly, at a certain point, the order volume is going to be too much for you to handle.

Considering how much it costs to hire an employee, hiring one or more employees for order fulfillment is a poor investment. This also requires you to accurately predict your order volume. You don’t want orders left unfulfilled because your employees had more than they could handle, but it’s a waste of money to have employees on the clock when there are no orders to ship.

Keeping Costs Down

Labor isn’t the only cost you reduce through dropshipping. You can spend much less upfront to launch your business and less on overhead every month.

With a traditional sales model, there are often high upfront costs to purchase your initial inventory. The dropshipping model eliminates these costs since you’re not stocking anything, only selling your supplier’s inventory. This allows you to launch a product selling business and test new products with little financial risk, because there’s no possibility of purchasing products that you can’t sell. Your business is also more scalable. A traditional model requires you to purchase larger quantities of products to expand, while a dropshipping model allows you to sell as much of a product as your supplier can handle.

Overhead can become a major expense for product selling businesses, especially as they expand. When you have a small customer base, you may be able to store your inventory in your home. As your inventory grows, this becomes unrealistic, both because products take up too much space and it’s difficult to stay organized. You’d need a storage space for your products, then you’d need to go there every time you have orders to ship. Dropshipping eliminates the cost and inconvenience of storing your inventory.

Dropshipping isn’t for everyone, as it requires you to sell more to make up for your lower profit margins. If you’re a skilled marketer or you want to test a variety of different products with your business, dropshipping could be a natural fit.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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