This is a guest post by our partner SellerActive. They go into the ins & outs of dropshipping, and how to know if it's the right business model for you.

Dropshipping is the new buzzword circling around online businesses today, but how do you know if it's right for you?

First off, let's get a clear definition: Dropshipping is the process of outsourcing inventory and shipping to a third-party supplier. During dropshipping, the store selling the item does not order stock or keep it in their warehouse, instead they fulfill orders using a wholesaler or manufacturer. When orders come in, the store simply transfers them to the dropshipping partner who then handles delivery of the products. 

Some key benefits of dropshipping are:

Less Money Down
Less capital is required to start a dropshipping business, and less overhead is needed to keep it up.

Flexible Location
You could start your dropshipping business from a laptop in your living room since you don't need to ever physically see the product you’re selling.

Easy to Get Started
You don't have to deal with physical products, manage a warehouse, pack and ship orders, handle returns, continually reorder products, or manage stock levels.

Wide Selection of Products to Sell
Interested in selling shoes? Clothes? Sticky notes? Chances are you can find a supplier to dropship it for you.

So When Might Dropshipping Be Good to Try?

When You're Thinking of Trying out New Product Ideas and Markets
Think a product might be popular enough to try in a different season? Dropshipping is a low-risk option for testing a product's seasonality, or to try out an entirely new product line without worrying it might fail.

When You Might Want to Start a New Business
If you're already running a successful online business, why not take those extra funds to start up a new venture? If you find a dropshipper offering products you have an interest in selling, the low capital and low overhead in starting a dropshipping business make it a low-risk option.

Like Any Venture, There Are Some Downsides to Be Aware Of

Low Margins
Unfortunately, because a dropshipping business is so easy to begin, it opens up the field for a lot of players. Many will sacrifice good customer service and a decent website in order to keep their prices at a minimum, which could seduce potential customers shopping around for the lowest price.

Inventory Issues
Because of sourcing from multiple warehouses or fulfilling orders for other merchants, inventory changes on a daily basis and can sometimes lead to out-of-stocks and unhappy customers.

Shipping Complications
Since items can be sourced through a number of different dropshippers, it can create some complex shipping situations, like when one customer buys items that need to come from multiple suppliers.

How Can You Combat These Issues?

Having a good inventory management system in place can alleviate a lot of the pains of dropshipping, like managing inventory levels and order processing. Using SkuVault and SellerActive in combination helps business owners control inventory, streamline their backend processes, and combat the issues involved with dropshipping.

SellerActive is the cloud eCommerce platform for online retailers who want to efficiently eliminate time-consuming tasks. SellerActive streamlines your operations with knowledgeable support and new technology like fast listing and repricing tools, better market data, and efficient shipping solutions. With outstanding support and proven technology, they’re partners every step of the way as your business grows.