Selling physical products through an online store traditionally means you need to stock your own inventory, have significant capital, and be an expert at inventory management. Buying the wrong inventory can make your cash flow vanish fast. This is one of the main reasons many look at Dropshipping vs Wholesale as a more affordable way to get into the Ecommerce Game.
On top of the actual operations of running your online business, you will need to be an expert at Facebook Ads, Google Ads, Email Marketing, Customer service, SEO, and many more. You always need the traffic to drive conversions and sales.
The traditional e-commerce business model of stocking your own inventory is difficult, but it can be extremely rewarding and have an amazing scale. The barrier to entry and capital investment it takes to scale can make it simply scary for someone looking to make an additional side income or start an online store from scratch.
Dropshipping Vs. Wholesale - Both are great for Ecommerce Rookies
Dropshipping makes eCommerce a more accessible business model for online store rookies
The beautiful thing about dropshipping is that you don't need to buy and store inventory. Making inventory management and cash flow a nonissue. Although you will still need to ensure products are shipped by your dropshipped vendors and received by your customers.
Acting as a middle man, means you never need to touch the product or store inventory.
So why doesn't everyone run a dropshipping business?
The three biggest problems with a dropshipping business are margins, trademarks, product quality, and shipping times to your customers.
Product Margins
Margins are often very thin in dropshipping, which means you have to sell a lot of products just to make a small profit. Running an online business requires high margins to pay for paid ads, fulfillment, and all the other hidden costs that fool you into thinking you are profitable. I have seen many eCommerce stores that think things are going well because revenue is high. It is only until they do their taxes do they realize that they actually lost money.
Trademarks
Just because you found a product to dropship doesn't mean you have right to sell that product. Many products you can find online through various product sourcing websites should not be sold, because they have trademarks on them.
Shipping times
Depending on the location of the dropshipper, you typically have no control over how fast they ship and how far away your customers are. Because of this, you may experience very long ship times that can easily tank your customer experience and store.
Selling quality products on your ecommerce store is required. Selling unique branded products is ideal.
Quality can also be an issue with dropshipping. Since you're not manufacturing the products yourself, you have no control over how they're made. And if the quality is poor, your customers will quickly become unhappy and may even leave negative reviews, which can damage your reputation.
Finally, shipping times can be a real problem with drop shipping. Since the products are coming from overseas, it can often take weeks or even months for them to arrive. This can frustrate your customers and cause them to look elsewhere for their products.
As a rule of thumb, the easier it is to start the harder it is to be successful. This is not to say that you can't make some quick cash doing this but it's unlikely with increased CPAS post IOS 14 that it's anything significant.
This is how a wholesale business may be different (typically better margins and product control)
A better alternative to dropshipping would be wholesaling legitimate branded products. . Regardless you are still battling thin margins and the actual manufacturers themselves. This makes it very difficult for a reseller to compete with the actual manufacturer themselves or the potential hundreds of different wholesalers selling the same products on their online store.
You can still build a brand as a wholesale business, but it is difficult to truly stand out and have a differentiating factor. One way that you can be unique is to take your wholesale products and bundle them in unique ways.
If your customers typically buy A, B and C product together you could bundle them together and offer a free gift with purchase or some unique reason for a customer to buy from you versus the company direct or another wholesaler.
The hardest but highest margin method is manufacturing your own brand
The best but most difficult method would be to design your own product and physically stock it at your warehouse or a 3PL. Manufacturing your products is the highest barrier to entry but gives you more margin and can help you build your unique brand position and competitive advantage.
This is the path many of the most successful direct-to-consumer ecommerce brands have used like my own golf brand.
How I think of dropshipping vs wholesale
Dropshipping is best used as a way to learn how eCommerce works. Trying to sell ABC widget from your own store will help you understand what it takes to sell products, ship products, run paid traffic, keep your customers happy, and the entire process. I think the best way to think of dropshipping is as a training ground to learn ecommerce.
Wholesale can be a legitimate way to build an online business. Depending on your online store, you may decide to store wholesale stock. This way you can control the order fulfillment and overall shipping process. At the end of the day, your customer satisfaction rate is the most important thing to having an eCommerce website that can last for years to come. Since you are selling branded products it can add trust to your online storefront.