Dropshipping vs. Private Label: Which is Best For Your Business

Thinking of selling products online? That’s a fantastic idea! Retail ecommerce sales were an estimated $5.7T in 2023. Over the next 3 years, this figure is expected to increase by 39%, exceeding $8T by 2027. There are no signs that online shopping will slow down anytime soon.

When starting, one of your first questions may be which business model to use. Dropshipping and private label are two popular choices, each with its benefits and challenges.

Simply put, dropshipping has a low initial investment and is virtually risk-free, but it’s more competitive. Selling private label products entails higher overhead costs and risks, but you gain the ability to be the sole provider of your products. 

What does this all mean for you as a business owner? Let’s explore the differences between dropshipping vs. private label so you can make an educated choice for your biz.

Dropshipping

First, what’s dropshipping?

With the dropshipping business model, a third-party supplier manufactures, packs, and ships orders on behalf of your business. You sell the supplier’s products through your own online store, social media, or whichever sales channel you choose.

Dropshipping offers a solution to handling logistics, keeping inventory, and other costly aspects of building a business from scratch.

Some types of dropshipping, like white-label dropshipping, allow you to customize the products you sell.

How it works

Most dropshipping suppliers offer on-demand order fulfillment, meaning you only pay for products as orders come in. This business model is popular in ecommerce because of the low entry barrier and flexibility in product offerings.

Source: Printful

When a customer places an order, your online store automatically sends it to your dropshipping supplier, who prepares and ships the order directly to your customer.

Find out how to start a dropshipping business in our detailed guide.

Benefits

Dropshipping offers the following benefits for business owners:

• Low entry barrier. Dropshipping is one of the most popular business models because it has almost zero initial costs. You’re sidestepping the cost of purchasing and upkeeping inventory and warehousing fees since your supplier takes care of that for you. 

• A wide range of products. Since you don’t have to buy in bulk or hold inventory, you can offer as many products as your supplier has. This lets you update your storefront with trending products and experiment with what customers like.

• Low-risk venture. Because you pay for orders as they come in, you don’t have to tie up your resources or worry about unsold stock. If a product isn’t selling, discontinue and replace it with a new item. Browse our bestsellers for more product ideas. 

• More time to focus on sales. Dropshipping allows you to focus on marketing and sales rather than manufacturing. This means you’ll see the fruits of your labor sooner. 

To find good products to add to your store, check out the Bestseller section in Printful’s Catalog.

Source: Printful

So far, so good, but what about the cons?

Drawbacks

As with any business model, dropshipping has its disadvantages, too.

• Lack of control. Unless you choose white-label dropshipping or private-label dropshipping, you won’t have much control over branding and labeling. Also, because you’re not handling products yourself, you can’t oversee how they’re made or shipped. But you can always order product samples to check the quality beforehand.

• Competitive market. As with most low-risk ventures, expect fierce competition. Many other sellers will likely offer the same dropshipping products, making it harder to stand out. If you go the traditional dropshipping route, you’ll have to offer competitive pricing according to market rates.

• Limited branding options. Traditional dropshipping means selling products that you buy from a third-party manufacturer. Unlike private labels, there are limited options to add your brand name, labeling, packaging, etc. That’s where branded dropshipping comes in. 

Branded dropshipping will give your brand an identity and help your customers associate your products with reliability.

With Printful, you can use 7 custom branding options to add branding elements to your dropshipping business. Branding can appear on your website, the products you sell, and your packaging (inside and outside). You can even personalize your orders with pack-ins.

Find out more about branded dropshipping and the answer to the question, “Is dropshipping worth it?” (spoiler alert—it is). 

Source: Printful

And what does selling private-label products entail?

Private label

Private label means contracting a manufacturer to create unique products for you and selling them under your brand.

Private-label products are tailored to your specifications as a seller.

How it works

With private labeling, you outsource the manufacturing process to a third party and sell it under your brand name (you can also do this with white-label dropshipping, which we’ll explain shortly). In some cases, you (the retailer or private label seller) may have some control over the product development and manufacturing process. In other cases, you may sell pre-made products under your own logo and branding.

Source: Canva

Since you’re outsourcing the manufacturing process, you’re not investing in warehousing or expensive machinery. Instead, you can buy in bulk at discounted prices, usually from manufacturing hubs in China.

Just like dropshipping, private label selling has its pros and cons.

Benefits

Below are the main advantages of selling private-label products.

• More control and exclusivity. One of the main benefits of running a private label business is increased control over product customization and specifications. You get to infuse the products with your brand identity, customizing their look, size, labels, etc. This creates exclusivity, which increases the product’s value. 

• Pricing freedom. Because your product is one-of-a-kind, you can set the price as high as you wish (or rather—as high as your customers are willing to pay). By providing excellent customer service, reliable product quality, and fast shipping, you increase the product’s perceived value.

• Less competition. Selling with a private label allows you to develop your own unique products. This means no other ecommerce business will be offering the exact same product, which means lower competition.

Note: You can also create exclusivity and trademark your brand when dropshipping (if you use branded dropshipping or white-label dropshipping). Plus, if you print your authentic designs on the products, those can be protected by copyright. Learn more about patents, trademarks, and copyrights.  

Here’s an example of how personalized packaging can add a brand’s personality to every order.

Source: Shalyce Tyson

Building a private-label brand can be profitable for experienced entrepreneurs who have found a way to fill a gap in the market. But there are also several cons to selling private label products.

Drawbacks

Below are several points to consider before starting a private-label brand.

• Hefty initial investment. Most private-label product suppliers have a minimum order quantity (MOQ). You’ll have to buy your product in bulk (expect an initial investment of at least $1K) and spend money on warehousing and shipping.

• Higher risk. Unlike dropshipping, where you pay for products as orders come in, private labeling involves predicting demand and managing stock. If you don’t sell those products, your business loses money. Plus, you must spend time and money managing the inventory and dealing with shipping.

• Limited control. With the private label model, you still don’t have complete control over product fulfillment. You rely on your private label supplier to manufacture products that meet customers’ expectations. Luckily, just like with dropshipping, you can often order product samples to check the quality.

What if there was a way to offer unique branded products with the dropshipping model and avoid the risks of private label selling? It’s possible when you combine white-label products with print-on-demand dropshipping!

Print-on-demand dropshipping

Print-on-demand (POD) is a business model where products are printed only when an order is placed. After you connect your store to the provider, your print-on-demand partner will automatically print, pack, and ship the products to your customers, so you don’t have to worry about the technical side of running a store.

Why is POD less risky than private label selling? With print-on-demand dropshipping, you add your designs and logo to branded, high-quality products. There are no order minimums and no upfront costs. The best part? You’re still able to create an exclusive brand for your customers. How?

Some print-on-demand partners, like Printful, allow you to add your own labels and a customized unpackaging experience with white-label products. 

This means your customers won’t even know you outsource the manufacturing and shipping to a third party. From placing an order on your online store to the moment they unpackage your products, they’ll see your brand everywhere (and no trace of Printful).  

You can browse Printful’s vast Product Catalog and customize 371 products.

Source: Printful

Note: White labeling is the practice of rebranding a product or service produced by one company to make it appear as if another company had made it.

Now that you know the different options dropshipping offers, let’s compare the main differences between dropshipping and private labels. 

Dropshipping vs. private label: The key differences

Both business models involve outsourcing the manufacturing process to a third-party supplier. The main difference is that dropshipping doesn’t require managing product inventory and shipping, while private labeling does.

But there are more differences you should be aware of as an online business owner.

Upfront investment

We’ve already discussed how private labeling requires a higher upfront investment due to bulk orders and inventory management. But you’ll also have to spend more time and resources on consumer demand research, product development, and quality control before you start selling.

With dropshipping, the upfront investment in terms of time, money, and effort is considerably smaller. You cand sell products through your social media account or an ecommerce marketplace like Amazon or Etsy without needing a website. 

Another point is that private labeling requires extensive product research and development. Some market research tools like Google Trends and Make My Persona are free, while others can incur additional costs. With dropshipping, you don’t have to spend as much time on product research—finding trending products to add to your store is much easier. Plus, your dropshipping partner handles logistics for you.

Source: Make My Persona

Storage and shipping

The reason dropshipping is so popular is that anyone can do it. It doesn’t require any manufacturing equipment, storage space, or time and resources to pack and ship products. All you need is a reliable dropshipping supplier and an online store.

While private labeling also outsources the manufacturing part, it still entails storing and managing inventory yourself. The upside is that you can customize orders yourself (although you can also customize the packaging with print-on-demand dropshipping with branding tools), and you have a larger choice of shipping partners. The downside is more hassle and overhead costs.

Branding and control

Source: Printful

Your brand is what convinces customers to buy from you and keeps them coming back. It represents your company’s reputation, values, and voice. Traditional dropshipping typically doesn’t offer branding options—products are shipped directly from the supplier to the customer, often with the supplier’s branding visible. 

However, white-label dropshipping allows you to add your own branding, logo, and packaging to unbranded products before selling them. For example, as your white-label print-on-demand partner, at Printful, we don’t put our branding anywhere to ensure that nothing distracts your customers from your product. That means customers won’t see Printful mentioned when they order from your store.

Building a brand is also possible with private-label selling. Depending on your private label supplier, you gain control over the product size, material, color, design, and more.

Profit margins

People are willing to pay premium prices for reputable brands. Whether you’re a private label business or white label dropshippper, you can build a strong brand and sell products with a high profit margin. Just like Dumbclub has done by collaborating with Printful.

Source: Dumbclub

With traditional dropshipping, you sell products at their market value. To maximize your profits, you’ll need to conduct market research and choose products that are in demand and have as few competitors as possible. But with print-on-demand white label dropshipping, you can create one-of-a-kind products with your designs and branding, allowing you to be authentic and exclusive in customers’ eyes. Check out these successful print-on-demand store examples for inspo.

Customer experience

Regardless of your business model, you want your customers to be happy. Make sure you research your target audience needs, ensure the best quality, and customize your website to offer positive customer experiences. This helps you ensure consistency and build brand loyalty. 

If you choose white-label dropshipping or private label, you can even thank your customers personally for each order with branded packaging inserts. 

Source: Etsy

Note: When dropshipping, you’re outsourcing order fulfillment, meaning you have to choose your partner wisely to deliver good customer experience. You also depend on your supplier to ship products, so it’s crucial to choose a trustworthy company to avoid potential damage to your brand due to long delivery times or other issues. Find out more about Printful’s order fulfillment and shipping times. 

Private label vs. private label dropshipping vs. white label dropshipping

Source: Unsplash

Private label, private label dropshipping, and white label dropshipping are all excellent ways to sell online, but they’re slightly different. All these different terms can be a bit confusing. Let’s clear things up. 

In the traditional private label model, retailers team up with third-party manufacturers or suppliers to produce exclusive products under the retailer’s brand name. The supplier then ships the private label products to the retailer, who packages and ships them to the end customers.

Private label dropshipping involves the same collaboration and product customization—only instead of handling fulfillment yourself, your private label supplier dropships the products directly to your customers. Find out more about private label dropshipping and what to sell to succeed.

So, what’s most attractive about these two models? With private label and private label dropshipping, you (the retailer) are the only one offering that specific product. In other words, there is less competition. 

With traditional white-label dropshipping, you sell products manufactured by a third-party supplier under your brand—but you can take it a step further. White-label print-on-demand dropshipping allows you to customize these products with your designs, labels, tags, and more, which helps you create a memorable brand image. Find out how to build a brand from scratch.

Source: Gitnux

Product branding is an effective marketing strategy. Did you know that 81% of consumers claim they need to trust a brand before considering buying from it? Also, 77% of shoppers prefer buying from a brand they follow on social media. So, make sure you appear consistently and post valuable and engaging content on your accounts.

Check out our beginner’s guide to social media marketing to get started. Then, dive into our article with 10 effective social media strategies for your online business.

The final verdict

Which option feels right to you, private labeling or dropshipping? Here’s our suggestion.

Choose dropshipping if

You’re an ecommerce beginner who doesn’t have the time or money to spend on product development, inventory management, and logistics. To start selling online, you must do market research, choose a niche, test designs, and find a trustworthy dropshipping supplier. 

Remember, to build a strong brand identity (and stand out from the competition), choose print-on-demand dropshipping that allows you to sell branded white-label products with your designs, logos, and custom labeling.

Need product ideas? Check out our list of 160+ best dropshipping products and where to find them.

Choose private label if

You have an idea for creating a new product and are ready to invest in product development, inventory management, and logistics. This model is ideal for entrepreneurs who wish to establish an authority in the ecommerce world.

With private label, you can sell unique products, meaning you won’t have to compete with other sellers. However, private labeling also incurs higher risks since you’ll buy in bulk and often can’t guarantee to sell all inventory. Also, it can be trickier to find reliable manufacturers, while print-on-demand dropshipping providers like Printful have established quality standards.  

Whichever option you choose, be patient and have fun with the process!

Both dropshipping and private label selling involves a lot of work. After the initial market research, product sourcing, design creation, branding, etc., it’s time to get the word out. You’ll need to establish a solid business plan and marketing strategy and continuously analyze your business’s performance to achieve optimal results. 

As Theodore Roosevelt said, “Nothing worth having comes easy.” So, if you’re serious about making money selling products online, stay dedicated and consistent. Trust in the process and know that it’s all worth it. Wishing you all the success in your ecommerce venture!