What is the purpose of your online business? Your ultimate goal is to make sure your products reach your customer safely. Now, there are many ways you can go about doing this. You can either dropship your product or you can opt for the order fulfillment route.
If you’re new to the business of selling trending products, you probably have no idea what any of these options mean. Naturally, it’s important to understand the difference between dropshipping and order fulfillment and figure out what’s best for your business. Let’s take a closer look on what these two routes mean for you and your business.
What Is Dropshipping?
Dropshipping is part of order fulfillment in some ways. Dropshipping order fulfillment is a shipping process where no vendor or retailer is directly involved with the product. By vendor or retailer, we are referring toe-commerce giants such as Ebay, Amazon or even other online retailers. In the case of dropshipping, the vendor does not have to maintain an inventory of what has been ordered.
Either the supplier themselves keep an inventory of the orders or the fulfillment house which will be shipping the product keeps an inventory. The order is fulfilled by the retailer making arrangements so that the product reaches the supplier directly, who then ships the product to the customer on behalf of the retailer. How will you, the retailer, make money in this case? The vendor has a set amount for the product and the customer pays way more than that. You make money from this difference.
What Is Order Fulfillment?
Order fulfillment is probably what you are actively familiar with, though you might not even know that that’s what it’s called. It’s the regular process where one receives an order, picks the item and then packs it before it’s shipped to the customer. The customer gets the bill directly from the vendor in this case.
In this case, a third party could take control of shipping the order or the manufacturer themselves could keep an inventory of the products and then ship it out of their warehouse. You are more aware of your inventory in this case and have a proper idea of how many items are available and how many more you will have in the future.
Which Is The Better Option?
It might be hard to decide between dropshipping or order fulfillment. If you consider some aspects of the business you own, the decision would become much easier.
The Product And The Supplier
As an online store owner, you probably have to contact more than one manufacturer to get your products safely to your customers. However, not every one of them will be willing to directly drop ship your product. This might mean you will have to narrow down your manufacturer list or not be able to dropship all the items you own.
At the same time, what kind of products are you selling? Are they all trending items or is it more niche? Not every fulfillment provider you come across would be able to store items for you. For example, if your product requires preservation, they might not want to house your stuff.
A great part of whether you opt for dropshipping or order fulfillment is linked to your product and the suppliers linked to those products.
Are your customers all U.S citizens? Are they all from a specific part of the U.S? Do you have international customers?
The location of the customer is something you have to pay close attention to before you can settle on a shipping option. The order fulfillment house or the drop shipper has to be as close to your customer’s location as possible. Drop shippers might be more willing to deliver orders to customers that are far away so that’s something you should keep in mind.
The Profit Margin
In some ways, this might be the ultimate deciding factor. When you are comparing which method would be better for you, whether to drop ship or go for order fulfillment, think about what the profit margin would be in both of these cases.
In case of order fulfillment, as they are keeping inventory for you, you will most definitely have to pay them for it and the charges could be huge. In the case of dropshipping, as the inventory is something you manage virtually, you don’t need to keep a huge amount of items nor do you have to worry about it. However, it could so happen that your manufacturer might charge you a huge amount to drop ship your product, which would lower your profit. This is very rare though and you can always switch to a manufacturer who demands less.
To understand which shipping method would be better for you, check what is the average cost per order in both cases. As you are calculating the average, make sure to not skip out on any overhead cost. Every bit you spend from when an order is placed to when it is handed over to a customer, both in case of order fulfillment and dropshipping, should be calculated.
In the end, all of these factors decide whether you want to dropship your products or go for order fulfillment. Though, if you are opening a new online business, dropshipping order fulfillment might be the better option for you for the time being. It’s highly unlikely you have enough money to pay for inventory or that you can store the product in your own garage or warehouse. In general, dropshipping doesn’t require heavy investment. It’s also more flexible in nature. You can afford to test different products first and see if it suits the concept of your business instead of bulk buying from wholesale and then having to keep inventory until you manage to eventually sell it all.