For merchants who plan to sell their products online, they have two options for inventory management and order fulfillment. Wholesale and Dropshipping. Dropshipping is different from wholesale in that you can outsource order fulfillment, inventory management, and shipping to other partners. Wholesale requires you to manage these operations.
Dropshipping and wholesale both have their pros and cons. It is essential to carefully weigh dropshipping and wholesale options before deciding which strategy is best for you. Let’s begin.
Dropshipping
Dropshipping has seen a massive increase in popularity over recent years due to its ease of entry for sellers into the market. Dropshipping isn’t about managing your inventory. Instead, customers’ orders are sent directly to the product’s manufacturer, another retailer, or a specialist dropshipping service to fulfill and ship for you.
Dropshipping is a great way to reduce logistics complexity because merchants don’t have to deal with the product. They only need to facilitate the sale.
The advantages of dropshipping
Add more variety to your product line
Drop shipping is a way for merchants to diversify their product offerings without fear, as they only pay for the items once orders are placed. Dropshipping doesn’t leave you with excess stock you have to get rid of.
Allows focus on other aspects of the business
For a business to survive in a highly competitive marketplace, it is crucial to have a strong brand identity and intelligent marketing. Many companies don’t pay enough attention to these areas. Dropshipping frees you from many management tasks involved in running a business. This allows you to spend more time on those critical activities that are often overlooked.
Start-up costs are low
Dropshipping is a way for merchants to avoid getting caught up in significant upfront costs. The merchant only has to pay for the ordered items once an order is placed. This means that they are buying one unit at a time. A third party can handle order fulfillment and shipping, significantly reducing overheads. This is because it eliminates the need to hire staff or rent warehouse space.
The disadvantages of dropshipping
Transparency is lacking
The merchant isn’t involved in order fulfillment or shipping, so they are at a disadvantage if there are any shipping delays or errors. Why? They likely won’t have access to order or inventory information in real-time. The customer may be responsible for rectifying the situation.
Profits are lower
Although less inventory ownership is more affordable and convenient, dropshipping has a significant cut of every sale. This means that your profit margins are significantly lower. If you want to make a profit, you will need to sell large volumes. This isn’t easy in the highly competitive e-commerce market.
It is difficult to brand the experience and customize it.
Dropshipping may give you more time to concentrate on branding, but it doesn’t include the delivery experience. Dropshippers use generic packaging to hide that they have outsourced their inventory. This makes it hard for customers to recognize your brand.
Manufacturers and Wholesale
Wholesalers will often approach the manufacturers to purchase bulk items at a lower price. The products are already branded and established, so merchants only need to list the item in their stores and make sales. However, the possibility remains to have these products custom branded. This is where genuinely building a customized brand comes in. This custom branding will more often be a possibility when ordering directly from the manufacturer. Depending on the product, by the time a wholesaler has it, it may not able to be completely custom branded.
The advantages of wholesale
Branded Experience
Wholesale gives you the ability to personalize the unboxing experience for your customers. Customers will be more loyal to businesses that offer immersive brand experiences that reflect their values.
Substantial discounts on inventory
Wholesale stock offers a significant discount on units purchased individually. This is the biggest benefit. The best part is that wholesale stock comes at a substantial discount as you order more. This can increase your profit margins.
A track record of success in selling products
Wholesale allows you to access well-known brands and products, which can give you credibility as a vendor. It’s also a powerful marketing strategy that can help you attract new consumer segments when your product line is expanded with a new brand.
The disadvantages of wholesale
Warehouse space
High inventory volumes require a lot more warehousing space. This means that you will need high-powered inventory management software to avoid stock-outs. This is a significant investment for merchants and can impact their profitability.
High Minimum Order Quantities
Merchants must purchase large quantities of stock to get wholesale discounts. This can often be as high as 100+ units. This is not a good idea for retailers with low order volumes. They will likely face cash flow problems if they cannot sell these units in a short timeframe.
Competition with other vendors
You have limited control over the rules when you buy branded products. Wholesalers and other retailers will always control the price you can sell your products. This makes it challenging to implement particular selling and promotional strategies. A branded inventory makes it harder to stand out among the crowd. You will therefore need to seek out a competitive advantage.
Dropshipping or wholesale? Which one is best for you?
You might find that your products will be able to make this decision for yourself. You might find that the cost and availability of certain items may differ significantly between the two options. It is essential to make a comparison before you start selling. Other crucial factors are your order volume, growth model, ability to manage stock on your own, and the ability to control inventory.
E-Commerce Accelerator can help you choose a suitable model for your business
