If you are interested in getting your eCommerce business off the ground, then it is really important that you consider how you plan on sourcing the products you are going to be selling. The two common methods used by many eCommerce businesses is buying wholesale or drop shipping. Buying wholesale is pretty straightforward, you purchase in bulk at wholesale prices from a supplier to build your inventory, then as you make sales you maintain the inventory as you go. When it comes to drop shipping, you don’t have an inventory. You purchase products as needed and then have them shipped directly from your drop shipper to your customer. Obviously when it comes to drop shipping vs. buying wholesale, there are going to be some unique advantages and disadvantages to either option. I’ve focused on a few key areas for comparison to help you make the right decision for your eCommerce business going forward.
The first area we decided to focus on was your investment. When comparing buying wholesale to drop shipping, buying wholesale requires a greater investment. In order to receive wholesale pricing from a supplier, you will likely have to meet a minimum purchase requirement. Depending on products you are buying, this minimum purchase requirement can be daunting for those still in the early stages of building their eCommerce business. As your business grows and you build a larger inventory you will likely incur additional overhead costs to store your inventory. For drop shipping, your investment will usually revolve around membership fees. The typical membership fee will run you less than a hundred bucks per month.
As the old saying goes, time is money. It’s only right that you consider the time commitment required when deciding between buying wholesale or drop shipping. Buying wholesale will require a greater time commitment than choosing to dropship. Both options require you to coordinate your sales efforts with your supplier to keep business flowing. This is especially true for drop shipping, since your time will mostly be spent relaying purchase orders to your dropshipper to get your products shipped out to your customers. If you are buying wholesale, you will need to factor in the additional time that you will spend managing your inventory and shipping products.
It is safe to assume that when it comes to buying wholesale or drop shipping each option will have its own set of unique risks involved. Before making your decision, it is important to know what your tolerance for risk is. The risk of buying wholesale will primarily involve your cash flow and inventory. You need to be prepared for the possibility that your money will be tied up inventory or that your inventory may depreciate in value before you can turn it over. For dropshipping, the risk is concentrated around the reliability of your drop shipper. You have to be prepared to have the quality of your business directly related to that of your drop shipper. Even the most reliable drop shipper will make the occasional mistake. This usually takes the form of shipping the wrong product or shipping the right product to the wrong address. These mistakes will pass on to you and affect the quality of service you will be able to provide your customers.
The last factor you should be considering when making your decision about buying wholesale or drop shipping is profitability. Buying wholesale can get you a greater profit margin than drop shipping.This is possible primarily based upon you being able to buy quantities large enough to receive a significant discount. The deeper the discount, the higher the profit margin will be. This helps to balance the risks involved in buying wholesale.
With drop shipping the profit margin is smaller, because you are purchasing products on demand. You should also consider that with drop shipping you are able to scale up your business easier than with buying wholesale. To grow wouldn’t necessarily cost you an additional investment in cash, only additional time. If you are buying wholesale, to grow will require you to spend money upfront to acquire a larger inventory of products.
As you can see there are multiple factors to consider when making your decision. It will basically come down to money and experience. Maybe this isn’t your first rodeo. If money is not an issue and you’re familiar with eCommerce, you will likely want to buy wholesale and handle the packing, shipping and inventory yourself. For those who are new to eCommerce, I would recommend starting off with drop shipping. This will give you an opportunity to get started without breaking the bank and give you the chance to gain some experience about running an online business in the process.