Dropshipping vs. Wholesale: Which Business Model Is Right for You?

Whether you’re a newcomer to the ecommerce space or a seasoned online business owner exploring alternatives to your current business model, you’re in the right place.

Let’s take an in-depth look at dropshipping vs. wholesale. One is not better than the other: both have considerable benefits and drawbacks, so it boils down to your needs, preferences, and budget.

After reading this article, you’ll have the information to decide which of these business models is the right one for you.

Let’s start with one of the fastest-growing ecommerce models—dropshipping.

Dropshipping

Dropshipping means you outsource everything related to inventory—product storing, fulfillment, and shipping are handled by a third-party company. So, is dropsprinhipping worth it? To many, the answer is yes.

The allure of this business model is that it eliminates inventory upkeep, the risk of excess stock, and handling logistics. Plus, there are minimal startup costs and no overhead expenses (like storage rent, employee wages, or administrative costs). 

Source: Pexels

Oberlo predicts the global dropshipping market will reach $301.11B in 2024 and hit $372.47B just a year later. The rapid growth of the dropshipping business model can be attributed to the shift toward online shopping, low barrier to entry, and an inventory-free way to run an ecommerce business.

Having a dropshipping business doesn’t mean passive income, though. You’re still responsible for the upkeep of an online store on your chosen platform or marketplace, marketing products, and drawing in customers. 

Read also:

• 15 Dropshipping Business Ideas
• Etsy Dropshipping: What’s Allowed in 2024?

Dropshipping business benefits

Let’s talk about the benefits of the dropshipping model if you’re using a print-on-demand partner like Printful.

1. Virtually no up-front investment: signup is typically free, and you only pay for what you sell, so starting an online business this way requires minimal investment. 

2. Diverse product catalog: adapt to trends and your audience’s wants by cherry-picking products from Printful’s product catalog.

3. Low operational expenses: you only need to pay for the platform your store is on (most are free to start but take a transaction or a listing fee) and any additional tools to optimize your business operations. 

4. No inventory headaches: since you outsource inventory management to a trusted partner, you don’t deal with product-related issues.

5. Easy scaling: your business expansion’s uncapped. Without needing a product storage facility or management tools, your focus remains on marketing and getting customers. 

6. Automated order fulfillment: once you connect your store to Printful, we’ll automatically receive, fulfill, and ship your products directly to your customers.

Dropshipping business drawbacks

1. Profit margins: without the leverage of bulk orders, the per-item cost might be higher than the product wholesale price. That means lower profit margins and less wiggle room for discounts.

2. Limited quality control: because you don’t handle the products directly, you don’t have any oversight over product quality. How can you remedy this? Mitigate the risk of damaging your reputation by partnering with a trusted supplier with a solid reputation and periodically order samples.

3. Competition: with the barrier to entry being comparatively low, the competition is high. To have a competitive advantage, invest in building a strong brand identity, curate personalized shopping experiences, focus on niche markets, or deliver exceptional customer service.

Some say limited customization is another drawback of the dropshipping business model, but customization options depend on your partner. For example, if you start a dropshipping business with Printful, you can personalize pack-ins, labels, and packaging, tailoring your customer experience. 

Dropshipping has democratized the ecommerce space, allowing more people to sell products online without handling supply chain operations or purchasing inventory. Because of its popularity and accessibility, it’s essential to research dropshipping niches and pick the one you want to cater to.

Wholesale

The wholesale model is one of the most established and traditional approaches to running an online storefront. Wholesale business in this article means buying wholesale products (ordering in bulk), managing inventory, order fulfillment, and handling shipping processes. 

Source: Pexels

Ecommerce businesses with direct control over stock have unique advantages and challenges. Let’s look at the pros and cons of wholesale businesses. 

Wholesale business benefits

1. Higher profit margins: securing products at wholesale prices with bulk discounts ensures a competitive advantage in pricing strategies.

2. Hands-on quality control: wholesale businesses can maintain complete oversight over blank items, production, and the results. You can also improve the quality by investing in better machinery, blanks, etc.

3. Branded experience: just like with a resourceful on-demand partner, wholesalers can personalize packaging, pack-ins, and product labels. That enhances the unboxing experience for the customers and strengthens the brand’s image.

Wholesale business drawbacks

1. High initial and operational costs: the need to purchase inventory upfront, pay for storage space, and organize logistics requires significant capital. Additionally, there are overhead costs, such as employee salaries and insurance, rent, and utilities.

2. Storage challenges: wholesale businesses must store their bulk-bought inventory in a secure, organized, and sometimes climate-controlled environment to prevent product damage. 

3. Inventory management: accurate forecasting is paramount to avoid leftover stock taking up inventory storage. But it’s becoming increasingly difficult due to fluctuations in customer demand and supply chain disruptions.

4. Supplier relationships: finding trustworthy suppliers with a transparent supply chain can be challenging. It requires careful, ongoing management, clear communication, and a mutual understanding of expectations and commitments.

The allure of the wholesale model in ecommerce is undeniable. With the promise of higher profit margins, direct quality control, and opportunities for a more personalized experience, it remains a popular choice for many online businesses. 

If you choose the wholesale model, be prepared to invest financially and commit time, energy, and adaptability. The wholesale journey is not without its hurdles, but it offers substantial rewards for those who navigate it with foresight and resilience.

Dropshipping vs. wholesale: key differences

Understanding the operational, financial, and strategic differences between dropshipping and wholesale is crucial for potential and current business owners. Let’s compare these aspects of both business models.

Upfront investment

Dropshipping stands out with its low-barrier entry, eliminating the need to purchase inventory upfront or invest in storage space. You pay when an order is placed, eliminating the risk of tied-up money in excess stock.

In contrast, wholesale calls for a substantial upfront investment in products, often demanding bulk purchases to secure favorable wholesale prices. Additionally, you must pay for storage space, fulfillment tech, and shipping.

Profit margins

Generally, selling online can be more profitable than having a physical store because you’re avoiding upkeep expenses, sales clerk salaries, and other costs related to a brick-and-mortar store.

A wholesale store is the clear winner when comparing wholesale and dropshipping from the profit margin angle. Wholesale stock is considerably cheaper because you buy it in bulk and often get a discount. 

You get thinner profit margins when selling products through dropshipping because you’re paying for the convenience of not holding inventory. However, that doesn’t mean there aren’t high-margin dropshipping products! Read our blog post to discover dropshipping products with a high profit margin.

Control over product quality

Dropshipping stores, reliant on suppliers, might find quality control more challenging, especially when working with multiple suppliers. This is because there’s no chance to inspect products before they’re shipped to the customer. Choosing a reputable supplier is vital for your brand’s reputation. 

Direct product handling in the wholesale model grants businesses more control, ensuring you see exactly what your customer is getting. By purchasing in bulk and storing products in your own facilities, you can conduct regular quality checks before shipping. 

Product catalog

Dropshipping businesses can team up with an on-demand partner, and the partner’s catalog essentially becomes theirs. The good thing is you don’t have to purchase products upfront and tie up your resources. Another huge benefit is not having to predict which products will sell. Because there are no minimum order quantities, you can freely experiment with offering and see what your audience likes.

Purchasing wholesale products has the benefit of a lower price tag, but expanding the catalog can be quite an expensive hassle. First, you must predict and invest your money in the products you think will sell, and your ability to experiment with offering is limited. Second, there’s a risk of excess stock that takes up space in the warehouse and can be hard to get rid of profitably.

Suppliers

Wholesale and dropshipping depend on having strong relationships with suppliers. The supplier’s reliability, trustworthiness, and consistent performance will determine customer satisfaction. 

Dropshipping suppliers are entirely responsible for ensuring product quality and availability and handling the shipping process. This indirect relationship can sometimes pose challenges, such as a lack of control over inventory levels, potential shipping delays, and shipping of defective items. You can sidestep these pitfalls by doing due diligence and ordering samples before picking your partner.

Suppliers are also the backbone of wholesale buying operations. Buying products in large quantities directly from manufacturers or large-scale distributors allows businesses to get lower prices. Nurturing relationships with suppliers is crucial as it can lead to negotiations for better pricing and foster mutual growth opportunities.

So, which model is better for your online store?

As we said, one isn’t really better than the other. Each model caters to different needs and has advantages and challenges. While dropshipping attracts those keen on swift market entry and minimal risk, wholesale promises higher margins and more control over production. 

Choose dropshipping if . . .

You’re someone who wants to focus on marketing and communicate with customers while leaving inventory management to a third party.

Dropshipping’s for you if you:

• Are new to ecommerce and prefer minimal financial risk

• Want to swiftly adapt to market trends

• Don’t want to handle inventory yourself

Branded dropshipping using a white-label partner is the best way to build a strong brand. You benefit from branded packaging and other personalization tools to keep your business front and center. Choose an ecommerce platform, open a store, connect it to an on-demand partner like Printful, and start selling custom products on your ecommerce store.

Choose wholesale if . . .

You’re someone who wants to run your ecommerce store A–Z and have complete oversight of each part of the business.

Wholesale’s for you if you:

• Are prepared for the challenges and rewards of inventory management

• Want a higher profit margin and have money to invest upfront 

• Want hands-on production 

Going the wholesale route means owning the entire product lifecycle. It demands more groundwork and investment but rewards knowing the ins and outs of your product, increased profits, and a distinct brand presence.

Read next: Dropshipping vs. Ecommerce: A Beginner’s Guide to Selling Online