Accounting for Online Businesses & eCommerce
SDG Accountant designs accounting and tax solutions specifically with online and eCommerce businesses in mind. Our CPA team of experts will provide you with accurate, efficient, effective, and flexible solutions that aim to allow you to spend more time actually running your business and helping it grow and adhere to the complex rules and regulations that are specific to their industry across Canadian provinces and the U.S.
Dropshipping (also referred to as e-commerce) is a retail fulfillment where an enterprise does not store the goods it sells in stock. Instead, when the company sells a product buy from a third party and that third party ships it directly to the customer. Consequently, the enterprise rarely sees or handles the goods. It simply acts as an intermediary.
The largest difference between dropshipping and retail is that drop shippers do not stock or own inventory, whereas retailers tend to store inventory. Instead, the drop shipper buys inventory as needed from a third party, most often times a wholesaler, to fulfill orders.
Less capital is required
- It is possible to launch an e-commerce store without investing tens of thousands of dollars in inventory upfront. In contrast, retailers often have to invest thousands of dollars to purchase and store inventory.
- Drop-shippers do not need to buy inventory until they have already made the sale and have been paid by the customer. Without major upfront investment.
- Easy to get started
- Drop-shippers do not need to worry about:
- Managing or paying for a warehouse
- Packing and shipping your orders
- Tracking inventory for accounting reasons
- Handling returns and inbound shipments
- Continually ordering products and managing the stock level
- Drop-shippers do not need to worry about:
- Low Overhead
- Do not have to deal with purchasing inventory or buying a warehouse, thus overhead expenses are very low.
- Many successful drop-shipping businesses are actually run from a home office with simply a laptop.
- Flexible Location
- Drop-shipping can be run from anywhere with an internet connection. As long as you can communicate with suppliers and customers, they are going to be able to successfully manage their business.
- Wide Selection of Products
- Because you don’t have to pre-purchase products you sell, it is possible to offer a wide selection of products to your potential customers. If suppliers stock an item, you can list it for sale on your website at no additional cost.
- Easy to Scale
- Traditional businesses usually have to do three times the amount of work to get three times the amount of business.
- For dropshipping, most of the work to process additional orders will be borne by the suppliers, allowing you to expand with fewer growing pains and ultimately less incremental work.
- Low margins
- Low margins exist as many entrepreneurs will start dropshipping and selling items at very low prices with an intent to grow revenue fast. This is because they’ve invested so little in getting the business going so they can afford to operate on very small margins.
- Further, customers are constantly comparing prices which can lead to cutthroat competition among dropshippers with already low margins. As you can probably guess, profit margins on dropshipped products can be eliminated fairly fast.
- Inventory Issues
- Traditional retailers can keep track of items that are in and out of stock, as they have the items in their warehouses. However, it becomes more difficult for dropshippers as they are often sourcing orders from thousands of different merchants who are also filling orders from other merchants. It is often very difficult, often impossible, for dropshippers to fully sync their inventory with their suppliers who many times are not willing to support the technology needed.
- Shipping Complexities
- Dropshippers often work with many different suppliers, therefore, products listed on the website are often sourced through many different shippers. This complicates shipping costs.
- A customer makes an order for three different items which are sourced from three different suppliers. The dropshipper will be forced to incur shipping charges for sending each item to the customer, but it’s probably not wise to pass this charge along to the customer, as they’ll think you’re grossly overcharging for shipping! And even if you did want to pass these charges along, automating these calculations can be difficult.
- Supplier Errors
- Even the best dropshipping suppliers make mistakes fulfilling orders – mistakes for which you have to take responsibility and apologize. And mediocre and low-quality suppliers will cause endless frustration with missing items, botched shipments, and low-quality packing, which can damage your business’s reputation.