E-commerce and dropshipping are some of the hottest business models nowadays. Both offer entrepreneurs the opportunity to sell their products online. But which one is right for you? Whether you prefer managing inventory or a hands-off approach, both have their benefits. For a broader look at online income opportunities, check out the guide to Making Money Online.
This article will compare traditional e-commerce and dropshipping pros and cons, start-up costs, and profitability. Finally, we will guide you on how to start with each model step by step.
Understanding Traditional E-commerce
In conventional e-commerce, you buy and sell goods online. Here you place orders for your inventory upfront, which you then stock in a warehouse. Every time an order is received, you dispatch the product from there. This makes you totally in control of your products and inventory.
Now, apart from managing everything in the business, you have to source products, arrange storage, and ship orders. In addition, you have to manage customer service and returns, which involves a lot of personal time and effort, but control is more accurate.
What is Dropshipping?
The system of dropshipping basically comes as an alternative to the traditional e-commerce model. Here, you do not need to hold any kind of inventory. Instead of this, you have an association with those suppliers who maintain and ship the products for you. As soon as a customer places an order, the supplier directly sends a shipment to them.
You act as a middleman between the customer and the supplier. In this model, you can entirely focus on marketing and sales. You don’t need to bother about storage and shipping. It’s less hands-on but offers you less control over products and delivery.
Advantages of Traditional E-commerce
The traditional mode of e-commerce has several advantages. For one, the person having control over the inventory means that he can check out the items and make sure that they are of good quality before shipping them out. This would ensure a more satisfactory retention of customers.
You can also enjoy more profit margins with this approach. It is possible to negotiate a better price when buying in bulk. This then increases earnings as you sell at the usual retail prices.
Finally, branding is much easier in traditional e-commerce. You can customize packaging and create a unique customer experience. This way, the loyal customer base and strength of brand identity develop.
Disadvantages of Traditional E-commerce
On the other hand, there are disadvantages to traditional e-commerce as well. One major one is the high start-up cost. You invest in the inventory upfront. Storage space and shipping costs can quickly add up to an uncomfortable number.
Another is the inventory management. You have to follow the stocks and reorder the products within the proper time. If you fail to do so, the orders might not come on time or even worse, there could be stockouts. This will hurt your business and annoy customers as well.
Lastly, traditional e-commerce takes a much longer time and effort. You are liable for various tasks from sourcing the products up to customer service. It is way too much work for new entrepreneurs.
Dropshipping Advantages
Dropshipping also has its benefits. The biggest advantage is the low start-up cost. You don’t have to buy inventory upfront. That makes it reachable for entrepreneurs who have limited funds.
Another benefit is flexibility. You can sell an extended range of products without worrying about storage. As the supplier handles the shipping, your focus remains on sales and marketing.
Moreover, dropshipping enables you to run your business anywhere. You do not need an office to house your inventory. This therefore gives one the flexibility of working from anywhere since no physical storage is needed. It can hence be perfect for those looking for flexibility in life.
Disadvantages of Dropshipping
Although dropshipping is advantageous, it has its negative effects. Perhaps the most serious drawback is the lower profit margin. You buy from suppliers one by one, so that makes the cost per item higher. In turn, that reduces what you make from each sale.
This means that you have less control over the customer experience, too. Shipping falls to the supplier, so there is no guarantee of delivery times. If the product has flaws, returns and refunds are a hassle to deal with.
Lastly, this kind of e-commerce is highly competitive. Anybody can get into it easily, so this would come down to numerous vendors selling the same products. It’s hard to create a niche and fight for customers in such an environment.
Comparison of Start-up Costs
Traditional e-commerce start-up costs tend to be much higher. One has to spend money on everything from the inventory and supplies for storing it up to shipping supplies. The amount depends on products sold and may vary from several thousands to tens of thousands of dollars.
On the other hand, there are very meager starting costs for dropshipping. You do not need to buy inventory upfront. Primary expenses lie in setting up an online store and marketing. You can begin with just a few hundred dollars.
Comparison of Profit
Both business models can be profitable but different from one another. Traditional e-commerce has higher profit margins. You buy products in bulk so you sell them for higher markup. However, the higher investment costs mean it takes longer to break even.
This may lead to thinner margins, but the low costs to start a dropshipping business make it easier to get started. You could see quick profits, but each sale brings in much less. You will have to shoot for large volume and marketing to bring in better revenues with this model.
Step-by-Step Guide to Starting a Traditional E-commerce Business
- Choose your niche: Choose a product category you will sell in. Preferably, pick one that you have an interest in. Make sure there is a demand for the product in the market.
Find and settle on a supplier of your product. You may get products from the manufacturer, wholesaler, or distributor. Ensure that you check the quality of the product before getting into a contract with your supplier. - Setup of store: Choose an e-commerce site to design your store. There are quite several free and paid e-commerce sites, among which are Shopify, WooCommerce, and BigCommerce. You can also personalize your site under your brand.
- Buy inventory: Order your stock. You should have enough inventory but not so much that it will lead you into being overstocked. No matter what, remember that you have to manage your inventory properly.
- Market your store: Market your store using social media, email marketing, and SEO. The more traffic you have on your site, the more sales you can generate.
- Ship out your orders: Once a customer purchases on your website, you need to get the order shipped out to him or her. Make sure to put tracking info on the package and address any customer service requests.
Step-by-Step Guide to Launching Dropshipping
- Select a niche: First, you will determine the niche or a category of products where you are likely to have your online store. It should ideally be a product in high demand with minimal competition. Google Trends is a good resource for finding trending products.
- Find a supplier: The following step would entail finding reliable suppliers for your products. Some great tools for dropshipping are AliExpress or Oberlo. Suppliers must provide good quality products and the ability to ship out as quickly as possible.
- Setup your store: Set up your e-store using the resources Shopify or WooCommerce. Keep the design simple and user-friendly enough to attract customers.
- Add products: Importing the actual product from your supplier to the store. The seller should alter the product description and images so that it is not like everybody else’s.
- Encourage the store: Drive people into the store through digital marketing. You may apply the above social and email marketing, along with SEO, and use social media ads. The more people walking in, the higher the chance of making sales.
- Order Fulfillment: Once a customer has placed an order, the product will directly be shipped from the supplier to the buyer. Monitor your orders and let the customer know about the status of the order.
Conclusion: Which Model Is Suitable for You?
As you can see from this comparison, the choice between traditional e-commerce and dropshipping can depend on your goals or resources. Traditional e-commerce gives you better control, with higher margins, of course, but will be more demanding of your resources in terms of investment and labor.
Dropshipping is a business model perfect for entrepreneurs with minimal capital for starters. It’s easier to begin with and more flexible, but the profit margins are significantly lower. You will have lesser control over the experience of your customer as well.
Both models can work successfully if the case is right. Consider your skills, budget, and time commitment before deciding.