If you are looking for ways to make money online, then you must have heard the term “dropship”. It is one of the modes of online distribution, and it is often portrayed as an easy and new way to make big money fast. But before you really make up your mind to start a business, you’d better understand the difference between dropshipping and wholesale to find a more suitable business model.
- What is Dropshipping?
- What is wholesale
- Similarities and differences between dropship and wholesale
- How to choose between dropship and wholesale
What is Dropshipping?
Dropshipping is a method in supply chain management. Dropshipper does not need merchandise inventory, but sends customer orders and shipping details to wholesalers, who send goods directly to your customers. Dropshippers earn the difference between wholesale and retail prices. In the Drop Shipping consignment model, sellers do not need to worry about purchase and delivery, and they will spend more effort on the core issue of “how to sell goods”. Sellers can change the selling price on their own to maximize their profits. This model of consignment sales is very close to online retail, so more and more people use dropshipping to establish their own e-shops online.
It sounds easy and tempting, right? As long as you sell the goods, you can get enough profit. Many people think this is a simple and easy way to make big money, so the number of participants in the dropshipping market has increased over the past two years.
2020 dropshipping market status
Is Dropship dead? Is dropshipping still profitable in 2020, even in 2021? You’ll get the answer from google trends. It is still sought after by people. Due to the special circumstances of this year, the global e-commerce market has been further expanded, including dropshipping. There are more and more online buyers, and online payment is more convenient, all of which make e-commerce still develop in a good direction. Of course, it is undeniable that this also means that there are more and more competitors and the competition is getting fiercer. If you are interested in more details, and wanna to know how to start dropshipping step by step, don’t miss this article.
What is wholesale
Wholesale refers to all activities that occur when goods or services are sold to customers who purchase them for the purpose of reselling the goods or for business use. Wholesale means that you buy goods in bulk from wholesalers or manufacturers and resell them to consumers at retail prices. Generally speaking, the wholesale price is related to the quantity of products you wholesale. The larger the wholesale volume, the lower the price. Most of large wholesalers have MOQ requirements.
If you want to build a long-term business, this will be the first choice because you will have complete control of your e-commerce business. From product quality control to communication with consumers, you will participate in every part.
Similarities and differences between dropship and wholesale
- The concept of making money in drop shipping and wholesale is the same. What you earn is the price difference between buy and sell.
- The target customers are the same. The customers of both are consumers.
- Product selection is one of the most important steps in the operation of the two. Since it is aimed at consumers, choosing high-quality and best-selling products will greatly help sales. It is especially important for dropshippers.
- The most direct and significant difference between dropshipping and wholesale is that droshipper does not need to stock up on goods in advance, which saves storage costs.
- The buying price of dropship and wholesale is different. Since the wholesale price provided by the supplier is related to the quantity of the product, the price generally obtained in wholesale will be lower.
- Dropshipper does not directly participate in product delivery and logistics.
Pros of dropship
- Low barriers to entry. Dropship has no business experience requirements, and you do not need to know warehouse management, packaging and delivery, which means you can enter this industry at any time.
- Low starting capital. You don’t need to invest too much money in product storage, transportation, and packaging, and you don’t have to worry about the loss of costs due to excessive storage of goods that cannot be sold.
- It is easy to scale up. You are able to choose bulk different types of products to place in your online store for sale, and invest money in advertising to promote products and gain traffic, and expand the scale of sales.
- Strong flexibility. Dropship does not need to deal with product delivery, packaging and other steps. It only needs a laptop and a smart phone to do your business at home. This model is particularly suitable for housewives, freelancers or part-timers.
Cons of dropship
- Fierce competition. Every thing has two sides. Although low entry barriers are one of the advantages, it has also caused fierce competition in this industry and made it more difficult to sell products.
- Unable to get the wholesale price. From the source, dropshipper has no way to control the price he/she gets low enough. The low price is what most consumers are looking for. This means that you may not have a competitive advantage in this area. If you choose to lower the price, your profit may be lower.
- There may not be a stable source of customers. What dropshipper pursues is to use the best-selling products to make profits. The best-selling products and categories are constantly changing. Therefore, the products provided by dropshipper are often few and will be replaced every certain period of time. It is difficult to accumulate stable customer resources.
- Too many uncertain factors. The convenience of dropship also creates many problems. Product quality, order execution, packaging, transportation, etc. are not in the control of dropshipper, but depend on the supplier. Therefore, once the product provided by the supplier has quality problems, or is out of stock, delayed delivery, etc., it is not friendly to your store.
- Unable to establish your own brand. Branding is crucial in e-commerce, because shoppers tend to go to their favorite online stores first. The products distributed by dropship are all products provided by suppliers, and product packaging and thank you cards cannot be used to enhance your brand. This is not good for sellers who want long-term development.
Advantages of wholesale
- Price advantage. You will be able to get better prices per unit for products purchased in bulk. The more items you buy, the lower the price per unit. For example, Nihaojewelry, although there is no minimum order quantity requirement, will also give discount prices to customers who purchase a large quantity.
- Product quality assurance. Since the products are purchased wholesale and stored in your warehouse in advance, you will ensure the quality of each product, thereby reducing the possibility of disputes due to product quality and wrong delivery.
- Stronger controllability. From product purchase to delivery, you are fully involved. Therefore, for product packaging, the delivery speed is more controllable. Thank you cards, discount coupons, etc. can also be placed in the package to increase the customer’s repurchase rate.
- More professional. Generally, retailers will focus on products in a certain industry, unlike dropshipper, which sells most popular products in recent periods(Products in various industries may involve). Therefore, wholesale is more professional and easier to establish your own brand. The long-term cooperation with wholesale suppliers will be even longer.
Disadvantages of wholesale
- The startup cost is high. Generally, there is a minimum order quantity requirement for wholesale, so you need to buy a lot of products as an investment, and you need a certain amount of space as a storage room. In addition, logistics, transportation, packaging and other procedures also require certain costs.
- It may be risky. You need to have a certain estimate of product sales. If products are not selling well, some of your funds may be stuck in your inventory. In severe cases, it may even lead to loss of capital chain disconnection.
How to choose between dropship and wholesale
Which is better, wholesale or dropship? It varies from person to person. As mentioned above, both have their advantages and disadvantages. And you need to judge based on your actual situation. Try to ask yourself a few questions:
Do you plan to treat it as your future career?
If you want to engage in this industry for a long time and are willing to study, wholesale is more suitable.
What is your start-up capital budget?
If you don’t want to invest too much capital and are unwilling to take certain risks, dropship will be more appropriate.
How much effort and time will you invest in it?
Wholesale requires a lot of effort and time cost, because participation process is more complicated. Compared with dropship, it will be easier.
A full understanding of the advantages and disadvantages of these two modes may help you choose more favorably. If you are interested in dropship or wholesale, follow our blog for the latest information. If you have any related questions, please comment and discuss with us.