Facts you Must Know before Deciding to Dropship or Buy Wholesale
- What is the meaning of dropshipping?
- What is the meaning of wholesale?
- How does dropshipping work?
- The pros of dropshipping
- The cons of dropshipping
- How does wholesale work?
- The pros of buying wholesale
- The cons of buying wholesale
- In a nutshell
Why is making a comparison between dropshipping products or buying wholesale so important? If you want to triumph in the eCommerce industry, establishing the type of your online business model is mandatory. This step will determine whether you are going to boost your profits straight away or struggle throughout the process.
To define your business model, firstly, you need to research and understand which are the methods for selling goods online. Later, you will need to measure their pros, cons, and challenges.
The two most popular options to choose from are dropshipping or wholesale. Across the communities and forums, there is an ongoing debate about which method is better and more profitable.
The reality is subjective. You can’t relate to every owner of an eCommerce business out there. Each one has its own specific approach and, therefore, can argue for its own unique experiences. You mustn’t strictly rely on others’ opinions as every business story is fundamentally different compared to another.
Both dropshipping and wholesale have their advantages and disadvantages, so you need to figure out which method is the most appropriate and applicable to your business idea. In the end, many factors need to be taken into consideration before deciding whether to dropship or buy wholesale.
We will start by explaining both methods with a simple dictionary definition.
What is the meaning of dropshipping?
As the Google dictionary indicates: “Dropship is providing goods by direct delivery from the supplier to the end-customer”. The retailer, i.e. the owner of the online store doesn’t execute the shipping and the delivery of the products to the end customers but his dropshipping supplier.
What is the meaning of wholesale?
On the other hand, as stated in the Google dictionary: “Wholesale is the business of selling of goods in large quantities and at low prices, typically to be sold on by retailers at a profit”.
Now, let’s explore the concepts more in detail and examine the advantages and disadvantages they bring.
How does dropshipping work?
The process of dropshipping involves selling goods online without having to stock them yourself. For this method, the chain is the following – your customer places an order through your online store that is automatically forwarded to your dropshipping supplier who packs and ships the package directly to the customer. More specifically, you don’t own and keep track of an inventory, but the products are shipped directly from your supplier’s warehouse. Where is your profit from dropshipping?
The difference between the retail price that your customer pays and the price you pay to your supplier is your actual profit.
One example of a dropshipping supplier that does it all and provides a fully automated dropshipping experience for its B2B partners is BrandsGateway. When online store owners team up with BrandsGateway, they enjoy diverse benefits including automated integration with an eCommerce platform of their choice, real-time product syncing, automated inventory updates, and many more. Furthermore, BrandsGateway sells high-quality products sourced only from verified dealers and ensures 100% authenticity of all branded fashion items available in the catalog.
The pros of dropshipping
Low startup costs
The first positive thing about starting a dropshipping business is that you don’t need a large amount of capital to launch and manage the online store. Give or take, the costs for starting a business include buying a domain name and setting up an online store with some of the available eCommerce platforms with a monthly subscription. After this step is completed, finding dropshipping vendors and purchasing some of its products to test their service and quality is the next step. In the end, after you complete the previous steps, you will need to invest in marketing. To summarize, even if you don’t have a successful start, you won’t have to worry because you won’t spend much money on setting up the store.
Zero inventory costs
When opening a traditional online store, the management of a physical inventory is a must. This comes with additional costs for proper organization and management. But this is not the case with a dropshipping store. In the dropshipping business, you don’t need to own an inventory which saves a great deal of money, time, and energy. As a dropshipper, you won’t have to store the products you sell ever – your supplier will handle that.
You can open an online store as a trial run to see which products are in demand. If you experiment with selling a certain product and don’t have much success, you can always shift to another one. Even in this situation, you won’t risk losing money because you won’t have to invest in stock in the first place. In contrast with wholesale, with dropshipping, you can always test selling different kinds of products with no risk.
The cons of dropshipping
Since dropshipping doesn’t require a large investment and is simple to set up, the market is quite competitive. Many online entrepreneurs decide to try their hand at dropshipping. It’s a low-risk and safe business option that most newbies in the eCommerce sector pursue. Thereby, the industry is even more popular, and the competition is becoming very strong. This could put up quite a challenge when deciding which products to sell. So, you will need to perform competitor research to see who you would go up against.
Non-reliable dropshipping suppliers
Another downside in dropshipping could be picking up the wrong supplier for your store. Today, there are hundreds of thousands of suppliers that offer a myriad of products. You need to detect the most reliable dropshipping suppliers and test their products yourself to check if what you see is what you get. Also, look for platforms with reviews for suppliers to see if they are trustworthy. You don’t want to wind up with a supplier that will send damaged goods, or low-quality products to your customers.
Lower profit margins
If you make the choice to go with dropshipping, you won’t be able to enjoy the perks of bulk pricing. You will have to pay a larger price for each product you sell as compared to buying in bulk. This will eventually result in lower profit; however, there are some solutions to this hazard. For example, you can contribute by setting up higher prices for your products or negotiating a better deal with your supplier. In the end, if your business takes off well and you sell great quantities of products, you won’t be dealing with the problem of less profit.
How does wholesale work?
Buying wholesale involves buying merchandise in bulk and stocking them in your own inventory. More precisely, with dropshipping, you pay for your supplier’s goods only if and when your customer places an order. On the other hand, when buying wholesale, you purchase goods in bulk from a wholesale supplier. Once bought, you are the owner of these products, which you store in your own storage space, pack, and ship after an order has been made. Additionally, with wholesale buying, you’ll need to make a plan and strategy for dealing with overstock inventory as well as master the basics of buying in minimum order quantities (MOQ).
The pros of buying wholesale
Bigger profit margins
It stands to reason that if you buy wholesale, you will get products at lower prices, which will be a fair deal for your brand new store. Besides, later on, you will put retail prices on the products you have bought, which will lead to a bigger profit for each sale. In addition, when teaming up with a wholesaler and buying larger quantities of products, dropshippers get many other benefits, including special discounts.
As compared to dropshipping, where you don’t have control over your supplier’s operations, when buying wholesale, you control your business processes. If you have a dropshipping supplier, especially one that is known for complaints and bad reviews, you can risk not getting premium services at all times.
The cons of buying wholesale
With wholesale buying, the threat of losing money is much more probable. With dropshipping, you can test products practically for free to see if they sell well. On the other hand, if your store is based on bulk purchasing, you could risk losing money in case your products are not purchased. With wholesale, you could invest a lot in equipping your store with a large collection of products and don’t get the expected results. However, if you have significant capital, you can always proceed with this and see what happens.
In contrast with dropshipping, buying wholesale goes hand in hand with inventory management. Purchasing larger quantities of goods requires a warehouse or a storage space, depending on your needs. Managing an inventory is a rather complex and costly activity. You will have to prepare yourself to invest money, time, and energy in running up well-organized storage space. In accordance with your store’s demands, you may have to hire more people or implement software for the automation of your operations.
In a nutshell
Finally, just like in every industry, in eCommerce as well, you should always measure the pros and cons. Based on your needs, requirements, resources, and preferences, you can make the best choice. Dropshipping or wholesale – whichever your decision might be, go for it and do your best to build and grow a successful business.
About the Author
Kristina, Head of Content at BrandsGateway. Eternal inspiration: The Doors music and lyrics, Bernardo Bertolucci's timeless “Stealing Beauty”, and the dynamic and meditative Ashtanga Yoga.