When you’re considering what ecommerce pathway to go down next, all the different venues, terminology, and sourcing options can get a little muddied. At OPMC, we deal with fantastic clients that often blend many forms of ecommerce, from Amazon FBA to massive inventory stores to dropshipping and beyond. In an effort to help you nail down the precise wholesale or dropshipping model as an ecommerce business owner, let’s review how these two forms differ and what you should consider before jumping in headfirst.
Simply put, dropshipping is where you don’t keep any stock on hand but work with a fulfiller/supplier to ship and deal with returns while you market and sell their products online. With wholesaling, you purchase goods in bulk from manufacturers and handle all the shipping, storing, and reselling on your own.
How Ecommerce Wholesaling Works
Ecommerce accounts for over 31% of the total wholesale industry. This unique ecommerce business model involves:
- Step 1: You purchase large quantities of products directly from a manufacturer known as a “wholesale supplier.”
- Step 2: You receive and store this inventory all on your own.
- Step 3: When a customer orders from your shop, you do the packaging, shipping, and tracking information.
- Step 4: You pocket the cost difference and handle any future returns or refunds.
The big challenge here is finding low-priced wholesale goods that you can markup at retail price for a profit. Reliability and inventory management are your biggest concerns.
How Dropshipping for Ecommerce Works
The dropshipping model is pretty different. Instead of dealing with inventory, you work with fulfillment suppliers.
- Step 1: You set up an ecommerce website featuring the products you’ve secured from a dropshipping partner.
- Step 2: You don’t have to keep any inventory. When a customer places an order, your store automatically sends that to the supplier to fulfill.
- Step 3: The supplier ships the order with your custom contact info and branding.
- Step 4: You pocket the difference in cost between the suppliers’ fees and your price points.
- Step 5: All returns are handled by the supplier.
In essence, your business is more of a marketing machine than dropshipping. However, you don’t have as much to manage physically, so your focus is way more on lead generation and conversions.
Big Differences: Dropshipping vs. Wholesaling
Holding Inventory
Wholesaling requires you to keep large quantities on hand. That will mean different systems in place to optimise your supply chain. With dropshipping, everything is physically managed by your fulfillment supplier. You simply focus on marketing and growth.
Managing Packaging & Shipping
This is the most significant difference in logistics. If you are not comfortable dealing with shipping to many different locations or having to package your items physically, you should stick to dropshipping.
Most business owners that use wholesaling hire 1-5 employees to manage this side of the business when they keep inventory on hand. There are tax advantages to this model, though you should check it out.
Startup Costs
Wholesaling typically requires a significant initial investment. You’ll need to start your business with stock ready for shipping before you accept your first order. That can range anywhere from $1,500 to $10,000 upfront.
With dropshipping, the only actual startup costs are domain name, ecommerce website hosting, and any email or ad campaigns you leverage.
Scaling & White Labelling
While both models can scale, wholesaling offers the advantage of white labelling. Here, you can customise products from a wide range of suppliers using your unique brand identity.
That does exist in dropshipping, but with some limitations. Scaling in dropshipping is much easier because all you need to do is get more conversions. As long as your supplier is well-equipped, you’ll be all set.
Location Management
Wholesaling will require you to have a physical space for inventory. Many ecommerce startups use their garages or a cost-effective storage unit before investing in a warehouse somewhere. Dropshipping can be run from your mobile device while you are vacationing in the Bahamas because there is no inventory requirement.
Making Products Exclusive
In wholesaling, bulk purchases might allow exclusivity deals with suppliers. That is a massive benefit and a feather in your ecommerce hat because shoppers will only be able to get highly desirable products from your store.
Dropshipping, on the other hand, usually doesn’t offer such exclusivity, making competition fiercer and risking flooding the market. You’ll have to find a way to differentiate yourself online.
Returns & Refunds
Returns in wholesaling are typically managed by the business owner directly. We’re talking many hours dealing with labels, previous order emails, and potential fraud that can quickly turn into a headache.
If you have a solid return policy, you can avoid most of this problem. In dropshipping, the process is a bit more “hands-off.” The fulfillment centre handles return, but that can cause customer service issues if they are not polite, so do your research first!
Considerations for You
Deciding between dropshipping and wholesaling boils down to:
- How much control do you want over physical products?
- How comfortable you and your team are dealing with and managing returns?
- How quickly you will want to scale.
- If you have any locations available for storing stock.
- Your eagerness to get started quickly.
- And, of course, your budget.
Regardless of which ecommerce business model you choose, you want to automate everything. For example, we offer a WooCommerce Dropshipping plugin that works with Alibaba and other suppliers so you can sit back and focus on the marketing while the plugin creates ecommerce efficiencies. Look at the intuitive analytics available, how they boost your ecommerce business, and download the plugin today!
Conclusion
Whether you opt for the dropshipping model or wholesaling, success hinges on understanding the key differences and aligning your choice with your business goals and resources.
You’ll be happy to know that each model can bring a ton of success and revenue. Take your time testing out which works best for your needs and stick to it. Give yourself the freedom to explore how well your business model is doing. With some consistent work and innovation, you can quickly grow a fantastic new online business.
FAQs
Is it better to dropship or wholesale?
There is no “better.” It all comes down to how much risk you want to take on with physical products and your budget. If you want low entry costs, go with dropshipping. If you want more exclusivity and control, pick wholesaling.
Is dropshipping 100% legal?
Yes! Not only is it legal, but plenty of big brands also utilise dropshipping for their in-person and online sales.
Is Amazon FBA like dropshipping?
Amazon FBA (Fulfillment by Amazon) is similar to dropshipping because you don’t have to handle the inventory, but only a little bit. You’ll still accrue fees from Amazon if your items stick around too long in the fulfillment centres.
