Introduction
Dropshipping and wholesale are the two most common methods used by retailers to handle inventory and order fulfilment whether selling a product on an online marketplace or via their own e-commerce site. Due to the popularity of these two options, it has lead to many people wondering which is better, dropshipping or buying stock in bulk?
Merchants should keep in mind that dropshipping enables them to delegate responsibility for inventory management, order fulfilment, and shipping to third parties, whereas wholesale forces them to handle all of these tasks on their own.
There are benefits and drawbacks to both dropshipping, e-commerce, and wholesale. To determine which approach is best for your company, it is necessary to consider both possibilities. You have to also know about dropshipping vs ecommerce for better understanding.
OK, let’s get started.
Dropshipping
For new businesses, especially those born in the digital age, the low barriers to entry offered by dropshipping have contributed greatly to its meteoric rise in popularity over the last decade. This is because dropshipping eliminates the need for you to keep and ship stock to your customers; instead, you just forward client orders to the manufacturer, another merchant, or a specialised dropshipping provider.
Since the retailer isn’t responsible for handling inventory, dropshipping simplifies logistics by allowing them to focus on making sales instead.
Advantages
- Low start-up costs
Dropshipping and e-commerce allows retailers to avoid the high initial investment required to stock their shelves. The retailer “buys” a single unit at a time since it doesn’t pay for the goods until an order is made for them.
And because you won’t have to pay for warehouse space or hire extra employees to handle shipping and fulfilment, you’ll save a lot of money by outsourcing these tasks to a third-party.
- Expansion of your product line to include new categories
Dropshipping reduces the risk associated with expanding a business by testing new product lines, since money isn’t really spent until things are ordered. If it doesn’t perform well, you won’t be stuck with a lot of inventory you have to find a method to get rid of.
- Spend your time wisely in developing your business.
Many companies struggle to survive because they don’t invest enough time and energy into developing a memorable brand name, effective marketing, and effective methods for keeping their existing customers coming back. Since dropshipping and e-commerce relieves you of a lot of internal administration, you’ll have more time to devote to the strategic aspects of your organisation.
Disadvantages
- Decreased Profit margins
Despite the obvious benefits of not having to store inventory, there is a clear disadvantage which is that your profit margins will be much smaller since the supplier gets a large share of each transaction. To make a profit, you need to move a lot of product, which is easier said than done in the cutthroat e-commerce industry.
- Controversy due to a lack of disclosure
When orders go wrong or take too long to arrive, the merchant loses a lot of money since they had nothing to do with it. Why? Mainly because they probably won’t have access to order and inventory data in real time. Your supplier isn’t responsible for your customer’s satisfaction, but you are; after all, they aren’t the ones who made the purchase, therefore it’s your reputation that will suffer if things don’t go as planned.
- Limitations in the ability to brand and personalise the experience
While dropshipping and e-commerce may save up some time, the branding benefits don’t carry over to the customer’s actual shipping experience. Dropshippers intentionally use generic package designs to conceal the fact that they acquire their product from third parties; nonetheless, this eliminates your brand from the buying experience, which makes it more challenging to build brand loyalty.
Wholesale
Business owners may save money by buying in bulk straight from the source at a wholesale price. All the retailer has to do to capitalise on the already-established brand recognition of these items, is to stock them in their online shop and have them ready to ship out when a new order comes in.
Advantages
- Pay less per unit
Buying in bulk is beneficial since you may save a lot of money compared to buying items separately. In addition, the wholesaler’s price breaks become better with higher order quantities, so your profit margins might grow dramatically over time.
- Presenting a branded environment
The ability to manage the unpacking experience and create a good impression on buyers is a major perk of selling at wholesale. The likelihood of a client making a repeat purchase from your company is higher if they had a positive, memorable, and emotionally engaging experience with your brand.
- The promotion of tried-and-true items
Because wholesale allows you to sell well-known items under your own label, you’ll have an easier time establishing yourself as a reliable company. In addition, introducing a new brand or product line is a potent marketing tactic that may help you attract a different kind of customer.
Disadvantages
- Costly Minimum Order Quantities
Stores may save money by buying in bulk, but only if they commit to buying a significant quantity (often 300 or more pieces) at the wholesale price. This is not a good fit for stores that get a low-volume of orders since they may run into cash flow issues if they don’t sell the products quickly.
- Industrial storage
Large quantities of product call for extensive warehouse space, and the prevention of stock level issues demands for a more sophisticated inventory management system. All of this requires a substantial financial effort on the part of business owner, which reduces their profits in the short term and increases the overall complexity of their operations.
- Threat of competing products
With name-brand purchases, you don’t get to choose the rules. Because the wholesaler and other retailers will always have some say over the price at which items may be sold, it might be difficult to implement certain marketing and sales methods. If your stock is made up entirely of name-brand items, it will be quite difficult to differentiate yourself from the competition.
Is dropshipping or wholesale is better for my business?
The answer to this really depends on the long-term goals you have for your e-commerce brand. It also depends on the budget you have and the types of products you plan on selling. Because certain resources and costs may vary greatly between the two approaches, it’s vital to do some preliminary research before committing to one. Important elements to consider are the frequency and size of your orders, the stability of your business model, and your capacity for autonomous inventory management.
For more information on the best e-commerce suppliers to use, check out this article.