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On September 30, 2021 by Josh Arrowsmith
Explore more: Experiences & Industry Insights | Case Studies | Testimonials
What are the differences between eCommerce dropshipping and fulfilment?
Dropshipping has had a lot of attention in recent years. It has been positioned as a quick way to turn a profit with very little risk. This is in comparison with fulfilment, where you commit money to stock up front and then distribute directly to your customer.
In this context, dropshipping seems like a no-brainer. Don’t buy stock you don’t know if you can sell.
But is that oversimplifying the decision-making? Dropshipping isn’t always the best solution and fulfilment could offer you a better long-term solution.
Let’s explore it in a bit more detail …..
As the vendor, you don’t buy the stock that you are selling. Instead, you generate a sale, and then a third party fulfils that order and ships directly to your customer. You take the money from your customer and in turn pay the third-party supplier for their product and shipping.
Risk is low because you aren’t making upfront outlays for stock, storage or potential fulfilment. This makes it very accessible, and very enticing.
There have been some great success stories with people using platforms like Ebay, Amazon or Shopify to provide good incomes, sometimes as a side hustle to a main job. The ideal position of being able to make money while you sleep makes dropshipping very appealing.
Less appealing are the low margins associated with dropshipping.
As you aren’t making the product yourself or buying direct from the manufacturer, the margin you can apply to the existing price has to be fairly low. Too high a margin and your sale price becomes uncompetitive. And with the low barriers to entry for drop-shipping, it can be a very busy marketplace.
In addition to the low margins, you also have low levels of control. You can’t dictate how or when products are dispatched. This can lead to customer dissatisfaction if paid-for products don’t arrive in the expected timeframe, or arrive in poor condition due to insufficient packaging.
It can also lead to customer uncertainty – I’ve ordered some shoes from Company X and I’m getting dispatch information from Company Y. We’ve become used to this in certain scenarios, even expect it sometimes, but in others it can be confusing if the customer feels they are buying direct.
Clear communications are vital to protect your reputation – social media channels and reviews make it very easy for disgruntled customers to make their feelings known.
Another factor that could impact your reputation is not doing your due diligence on your supplier. Taking the time upfront to ensure that they are reputable, stable and trustworthy should be considered essential, but you should also look into any policies around slavery, child workers and sustainability.
With fulfilment, you own the stock but outsource the storage and dispatch to a fulfilment company.
You have to shoulder the initial outlay for the inventory to the customer but in return you will more likely achieve higher margins, and greater profit, than with dropshipping.
Fulfilment companies reliably remove the stress of order management, shipping and returns, leaving you to focus on product selection and promotion without fear of reputational impact.
Fulfilment companies also have a role in growing your brand. Whereas your brand is relatively low profile in drop-shipping, with the emphasis being more on the product than the company providing it, fulfilment offers an opportunity to support growth and build for the future. Packaging, labels and inserts are just some of the routes you can take to build that experience for your customer and develop positive feelings about the brand which could translate into future sales or recommendations.
With third-party fulfilment, you also have an up to date view on stock availability. You can make immediate changes to your selling channels to switch up the product focus so that you can closely reflect what you have to sell. This will prevent you selling products that you cannot reliably provide to a customer, and minimise the likelihood of complaints.
Like all businesses, online selling comes with risk whichever route you choose. Although fulfilment requires greater initial investment, it pays dividends in finding the right fulfilment partner, even if that means paying a premium on certain services. By having a tried and tested infrastructure, with the correct means of third-party logistics in place, will ensure better customer and retailer experience.
We’re always happy to offer insights based on our three decades of experience in fulfilment, so contact us today and we’ll give you the facts. We can also talk you through the experience we’ve gained since 1987, to see if we’re a good fit for your next project in ecommerce fulfilment, returns management, contract packing or warehouse management, send a live chat message, or call +44 (0)1268 498 950
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