Since my company is deeply involved in the drop shipping space, one of the questions I’m often asked by other entrepreneurs is this… “Is drop shipping really the right strategy for my business?” Honestly, I tell them, that all depends; drop shipping isn’t for everyone.

Whether you have a bricks-and-mortar business, an e-commerce site, or some sort of combination of the two, drop shipping offers quite a few benefits, especially if it’s implemented effectively.

By now, you probably already know that drop shipping is a little more complicated as a business concept than using the right bubble wrap and packaging tape. In fact, drop shipping eliminates the need for bubble wrap and packing tape altogether. If you utilize drop shipping effectively and as a part of your overall business plan, you can truly save your company a great deal of time and money. While another company takes care of inventory and shipping, you and your team can focus on bringing in more orders; and as everyone knows, more orders means more money.

Unfortunately, because drop shipping seems fairly straightforward in its simplicity and its elimination of inventory, many entrepreneurs have taken it to mean that it’s a less risky fulfillment strategy. Be careful though… when using drop shipping the risks are transferred, not eliminated. Inventory carrying risk is transferred into the risk of having an unreliable wholesale partner who is unable to deliver the goods. In other words, the benefits of drop shipping are inevitably the disadvantages of bulk ordering, and vice versa.

In general, using drop shipping is an excellent idea if you don’t have a lot of capital, especially when you’re first starting out in business. Since you don’t need to carry any inventory and never make an actual purchase order until your customer has already paid you, drop shipping is a great way to break into the retail business. In addition to being a solid strategy for new businesses where the risk and financial commitment of carrying inventory is too great, drop shipping is also a great long-term strategy for companies selling products with high demand volatility (such as fashion) or high product variety (such as a bookseller).

For companies that find themselves in an industry where the wholesalers lack small order fulfillment capabilities (such as the outdoor recreation industry), or where order consolidation is needed, a more traditional fulfillment strategy is called for and drop shipping probably isn’t going work all that well.

Like I said at the beginning of this post, drop shipping isn’t for everyone. With drop shipping you can certainly lose some control over your business (especially in the area of inventory), you cannot take advantage of bulk discounts, and you may actually increase costs when you pay drop fees. On the plus side of the equation, with drop shipping you don’t need to house inventory at your business location, you don’t need a shipping and receiving department, you don’t have to invest a lot of money to set up a drop shipping scenario, and you don’t have to pay your supplier unless the customer pays you.