What is dropshipping?
Dropshipping is a type of ecommerce where the seller doesn’t keep products in stock. Instead, when a customer makes a purchase, the product is directly shipped from the supplier to the customer.
The seller acts as a middleman, handling the sale without managing the physical inventory. You only need an idea, a supplier, and a website to start selling products.
Dropshipping market was valued at $222.5B in 2022, a huge increase from pre-pandemic levels. It’s a booming business model that’s expected to reach a $1.5 Trillion global market value by 2030.
Dropshipping vs. ecommerce: what’s the difference?
For beginners looking to start selling online, understanding the fundamental difference between dropshipping and traditional ecommerce is crucial. In traditional ecommerce, sellers stock inventory, meaning they buy products in bulk, store them in a warehouse, and handle the order fulfillment process—picking, packing, and shipping—themselves.
Dropshipping stands out as a more beginner-friendly business model. With dropshipping, you don’t need to invest in or store any inventory upfront. Instead, you partner with dropshipping suppliers who handle the inventory and shipping.
While traditional ecommerce provides more control over the entire process, dropshipping offers a lower barrier to entry. This makes dropshipping a popular model for sellers starting an online store with limited capital and resources.
Dropshipping vs. traditional ecommerce fulfillment
Ecommerce and dropshipping, as different business models, offer distinct benefits and drawbacks that can impact the success of your online store. To help you pick the most suitable method, let’s compare dropshipping vs. ecommerce.
1. Inventory management
With the traditional ecommerce fulfillment model, sellers need to manage and maintain their own inventory—this includes purchasing and storing products and handling the logistics of stock levels, storage, shipment, and returns. That way, you have complete control over the inventory and order fulfillment processes.
When running a dropshipping business, inventory management is outsourced to a third-party supplier. Online sellers don’t need to invest in stock or handle inventory. Instead, the supplier ships products directly to the customer. This crucial distinction makes dropshipping a more hands-off approach compared to other ecommerce business models.
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2. Upfront cost
In traditional ecommerce fulfillment, you need to invest in purchasing and warehousing inventory. The upfront investment includes costs like product manufacturing, storage space, and workforce, amounting to significant expenses before making any profit from sales.
Dropshipping, on the other hand, minimizes upfront costs. Although sellers might encounter some fees for using online marketplaces or website hosting, they only buy products from dropshipping suppliers when a customer places an order. This eliminates the need to hold inventory, reducing financial risk and making it a potentially more cost-effective business model. It’s perfect for those looking to start an ecommerce business with little initial investment.
3. Risk and control
The trade-off between control and risk is a key consideration when choosing between dropshipping and ecommerce fulfillment work.
With traditional ecommerce, businesses commit to buying products before making sales. This poses a financial risk if the products don’t sell as well as predicted. However, you have greater control over the fulfillment process, allowing quicker shipping times, proper quality checks, and handling returns and exchanges directly.
Dropshipping is the other way around: it reduces upfront risks but comes with less control. Sellers rely on third-party suppliers to handle inventory and shipping. While this minimizes financial risk, it may result in potential stockouts and less control over product quality.
4. Profit margins
With traditional ecommerce fulfillment, profit margins are influenced by inventory costs, warehouse expenses, and potential markdowns for slow-moving products. While buying products in bulk might be cheaper, it requires careful inventory management and a good understanding of the market demands.
Dropshipping is more lucrative and often allows for higher profit margins because there’s no need to buy inventory upfront. However, dropshipping competition can be fierce, and finding a balance between competitive pricing and healthy profit can be difficult.
To identify dropshipping products with high profit margins, do thorough market research. Look for products with consistent demand and less saturation in the market. You could also create product bundles or packages that offer extra value to customers while allowing you to increase the average order value.
5. Scalability
Dropshipping is often considered more scalable because it doesn’t require significant investment. As sales increase, the business can easily grow without expanding warehouse space or employing more staff.
However, the reliance on third-party suppliers means that growth is also influenced by the supplier’s capacity and efficiency. As order volumes rise, shipping times and costs can become problematic, impacting customer satisfaction and profit margins. Maintaining brand consistency can also become challenging if products come from various dropshipping suppliers.
Scaling traditional ecommerce fulfillment requires careful planning and investment in inventory management systems, storage facilities, and logistics as the business grows. You must excel at demand forecasting, maintain sufficient stock levels, and manage all the associated costs to scale successfully.
Scaling an ecommerce business is more challenging, but the rewards are worth it if done successfully. Buying in bulk and streamlining fulfillment processes can result in lower costs per order and higher profit margins.
6. Brand control
Within traditional ecommerce, businesses have more control over their brand. This extends to the quality of products, packaging aesthetics, and personalized touches. As a result, it’s easier to deliver a consistent, branded customer experience and build trust.
From the moment a customer visits your ecommerce website to the arrival of the packaged product, you can ensure that every touchpoint reflects the values of your online business.
Dropshipping can present challenges to brand control. Since sellers rely on third-party suppliers, this generally means less influence over packaging, product quality, and shipping times. Maintaining a strong and consistent brand image can be more difficult, as the supplier often determines these elements.
But, there’s a workaround: branded dropshipping. With Printful, you can add branding elements, including packaging inserts, printed labels (inside and outside), and even custom packaging.
