Dropshipping vs Ecommerce Fulfillment: What is the Difference?
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Comments: The internet has transformed many aspects of our lives, not least our ability to earn money.
From online shops to affiliate blogs there are tons of ways you can now make an income online. If you’ve been researching said ways, or you’re already in the ecommerce industry, then you’ve probably come across the term “dropshipping”.
Dropshipping has become a popular way of making money online, without so much worry about managing ecommerce inventory or shipping yourself. But what is it and how is it different from traditional ecommerce fulfillment? Read on to find out…
How Does Ecommerce Fulfillment Work?
Ecommerce fulfillment is essentially the process of accepting customer orders from your website and shipping the correct products to your customers within the agreed timeframe.
The ecommerce fulfillment process traditionally follows four steps:
- A customer makes a purchase from your online store.
- The order is transmitted to your fulfillment center.
- The order is packed and shipped at the fulfillment center.
- Your chosen courier delivers the parcel to your customer.
A fulfillment center is the place where your stock is kept and where orders are processed and packaged. This could be your spare bedroom or garage if you’re a smaller business, or a dedicated warehouse or storage space if you’re a larger scale ecommerce business.
Most smaller businesses will fulfill the orders themselves, however, as your company grows and more orders come in, you may decide to outsource the process to a fulfillment company who can handle that side of things for you.
As part of ecommerce fulfillment, you’ll need to keep a close eye on stock levels and order or create more when required.
How Does Dropshipping Work?
Dropshipping works in a similar way to traditional ecommerce fulfillment however the key difference is that you never actually keep the items you sell in stock.
Instead of having a storage center (or spare room!) full of boxes of stock to sell online, a dropshipping site sells products that they source from another supplier.
With a dropshipping business, you build an online store in the same way you would a traditional ecommerce model, but when orders come in, they’re transferred over to your chosen supplier, who manages the fulfillment process for you.
Make sure you check out our article on choosing a dropshipping supplier before you get started.
Dropshipping means that the ecommerce store owner never actually handles the goods themselves, but you are still in charge of elements such as customer relations and marketing.
Pros and Cons
Ecommerce Fulfillment
| Pros of ecommerce fulfillment | Cons of ecommerce fulfillment |
|---|---|
| Allows you to make and sell your own items, or create branded items to showcase on your online store. | Initial costs can be quite high as you need to purchase goods to sell or the materials to make the items, as well as building your online store and covering initial production costs. |
| It’s easier to build your own brand as the items you sell cannot be purchased or sourced from anywhere else. | You need dedicated storage space for your items and need to be prepared to store them indefinitely if they don’t sell. |
| You have more control over the whole process. You don’t need to worry about your supplier dropping the ball when fulfilling customer orders. | Fulfilling orders, which includes packaging and shipping, can be extremely time-consuming. |
Dropshipping
| Pros of dropshipping | Cons of dropshipping |
|---|---|
| It’s affordable to get started. You don’t need to purchase stock or materials meaning your initial overheads are kept low. | As you don’t store the items yourself it’s hard to ensure that the quality of the items being sent to customers is up to scratch. |
| You don’t need a large storage space or fulfillment center to manage your orders. | If your supplier fails to fulfill customer orders on time it’s your brand reputation that will take the hit. |
| The small financial and time investment required allows you to focus on areas such as advertising to help scale your business. | It’s much harder to build a recognizable brand as the items will likely be shipped in packaging that’s either plain or that features your supplier's branding. |
Which One is Right For You?
| Ecommerce Fulfillment | Dropshipping | |
|---|---|---|
| Initial Investment | Ecommerce fulfillment tends to require a considerable initial investment. Not only do you need to build your online store, but you’ll also need to invest in materials or products to sell. | The initial investment for a dropshipping business is low. You don’t need to purchase items until a customer has made an order on your website, helping you to keep a close eye on profit margins. |
| Ongoing Costs | Once you’ve made the initial investment, the ongoing costs are relatively low, however, if you decide to hire a fulfillment center to help you out then you’ll need to factor this into your budget. | Due to the business model of dropshipping, you’ll have ongoing costs in the sense that you’ll constantly be buying items as customers make a purchase. Make sure you price your products accordingly. |
| Skills Required | If you want to make items to sell yourself, such as jewelry or candles, then you’re going to need to know how to do so. If you can’t create something high-quality then it’s probably better to source the items from someone who can. | Dropshipping businesses require very few specialized skills however you will still need to build your online store and manage customer relations and marketing. |
| Scalability | Ecommerce fulfillment allows you to scale at any rate you need. Bear in mind, though, that as your business and order numbers grow, your stock levels will need to keep up. Make sure you’re able to source or create enough stock to meet demand. | It is possible to scale a dropshipping business, but you’ll need to make sure that you choose a dropshipping supplier who can meet your needs as your business grows. |
| Brand Building | You can easily build a brand when using an ecommerce fulfillment business model. Elements such as packaging, labels, and online marketing can all be branded with your own logos, etc. | Building a brand when using a dropshipping model can be tricky. Focus on the elements that are within your control such as online marketing and advertising. |
Dropshipping Vs Ecommerce: A Summary
Both dropshipping and ecommerce fulfillment can be profitable online businesses. The important thing is to find the process that works best for your current situation and your long-term plans.
Whilst the two have many similarities, they also have various differences including:
- Ecommerce fulfillment requires you to hold the stock yourself whereas dropshipping means you never actually handle the items.
- Ecommerce fulfillment can often require more initial financial outlay than dropshipping.
- Scalability and brand building can be harder long-term with dropshipping.
- It can be harder to ensure the quality of the items and shipping services when using a dropshipping service.
- Ecommerce fulfillment gives you more control over every aspect of your business.
If you think you’re ready to start a dropshipping business after reading this article then make sure you check out our guides below to help you get started:
As always, don’t forget to let us know in the comments how you get on!
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