Dropshipping Vs Wholesale: Two Profitable Business Models

What’s Dropshipping Fulfillment Model?

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In the dropshipping model, the eCommerce store owner directly places an order with a vendor, usually a wholesale company. All you have to do is provide the vendor with your customer’s details and they will ship the products directly to your customer.

Dropshipping is a low-risk fulfillment method because you don’t have to own any inventory or purchase stock in bulk. Even if you select the wrong product to sell, you can quickly terminate your listing and move to a different product without having to worry about unsaleable stock. As it takes a lot of internal management off your hands, you get more time and bandwidth to focus on more critical activities that drive business growth, such as marketing.

Dropshipping is cost-effective, convenient, and one of the most trending retail businesses. Many retailers across the globe are using dropshipping for many years now. Luckily, it doesn’t need a large investment. Therefore, even new and low-scale sellers can take advantage of this eCommerce business model. It is a lucrative business model for internet-based storefronts as well as small retail shops.

Benefits of Dropshipping

Less risky as no capital needs to be invested
No upfront investment in products is needed
You can choose from a variety of products
More convenient, cost-effective, and timesaving as you don’t have to worry about storage, packing, and shipping
You can operate your eCommerce business from practically anywhere
Easy to switch products if a category doesn’t perform well
Less responsibility on your shoulders
Easy to diversify your offerings

Drawbacks of Dropshipping

Small profit margins so you’ll have to sell high volumes to make a profit
Dependence on vendors for product information
Reputational damage if order errors or shipping delays occur
Not much flexibility to offer deals or discounts
No possibility of negotiating your vendor’s pricing
No option to build your own brand so no brand recognition
No option to customize the customer experience
Huge competition in the market

What’s the Wholesale Fulfillment Model?

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In the wholesale fulfillment model, sellers approach manufacturers directly and purchase products in bulk to get a more promising price per item. As the products are already branded and quite established, all you have to do is list the product on your online store and incur sales based on their existing reputation. Unlike dropshipping, you are responsible for maintaining the inventory and shipping the items to your customers.

When buying wholesale, you can obtain a huge discount as compared to purchasing items individually. This discount further improves as your order volumes increase. This means that your profit margins can increase considerably over time.

As wholesale gives you direct control over the order fulfillment process, you can easily customize the packaging and unboxing experience of your customers. This allows you to make a positive impression on your consumers, helping you foster customer loyalty and increase the chances of repeat orders.

Benefits of Wholesale

Bulk buying can get you a generous discount
You can customize the customer experience
You don’t rely on the vendor for shipping or product information
Flexibility to offer deals and discounts
Higher profit margin

Drawbacks of Wholesale

Hassle of managing the inventory and shipments
Massive upfront investment as you’ll have to purchase products
Possible difficulties with cash flow, especially if you have small order volumes
Need for a warehouse and inventory management systems
Competition with other retailers
More time-consuming as you have to manage everything

Dropshipping vs. Wholesale: Which One Should You Choose?

When comparing the two models, the biggest difference is that dropshipping allows you to farm out inventory management, order fulfillment, packing, and shipping to external partners. On the other hand, wholesale necessitates you to take responsibility for these operations yourself.

Your decision should eventually depend on the products you’re looking to sell as well as your order volumes, expected growth, and whether you can manage stock and shipping independently.

Still not sure which eCommerce fulfillment model is right for you? We can help you make the right decision. At AWM, we can organize all the logistics and empower you to formulate a cost-effective fulfillment strategy based on your company’s unique needs. Our eCommerce experts leverage automation to maximize your store’s revenues and margins.

We believe in diversifying your eCommerce portfolio and compounding a dropshipping business with a wholesale business to leverage the wealth building benefit of the wholesale model and the scalability of dropshipping. This approach will help you quickly become profitable. Reach out to us to discuss your requirements.