Many e-commerce businesses use either dropshipping or 3PL(Third-party logistics) method to ship their goods to buyers. For entrepreneurs investing in an online store, both of these terms can be confusing if you don’t know what they entail.
Read along to know more about the drop shipping service, its advantages, and whether it is worth investing in it. We will also compare the dropshipping method with third-party logistics, so there is lots more to learn in this post.
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What Is Dropshipping?
Almost 27% of online retailers that sell various products use drop shipping fulfillment services for their online buyers. So, what is dropshipping? In short, it is an order fulfillment method where an online retailer sells goods without stock or own inventory. What does that mean?
Well, it means that retailers using the dropshipping fulfillment services don’t keep the products that they sell in stock. Instead, what they do is once they receive an order, they buy the product from a third party company and get it dispatched directly to the customer.
This business model is unique and has been in use since a long ago. It is an excellent way to start your online store since you don’t need to have much capital. Yes, it involves a lot of effort and time to push products to the potential buyer, but you don’t have to buy the goods you sell online in bulk. Here is what the procedure entails:
- Start an online store and promote the products to sell
- The potential online buyer visits your e-commerce website, gives an order, and makes the payment.
- Once you receive the order, you contact a manufacturer or supplier to pack the order and ship it to the buyer. Or you can do it in a easier way, Drop shipping companies like oberlo can facilitates drop shipping by connecting merchants with suppliers, who then ship products directly to consumers.
Sounds simple, right? It seems like the simplest way of starting ecommerce businesses if the supply chain goes smoothly. If you want to start small and eventually expand your business, then drop shipping could be the best option for you. However, we must also compare it with another alternative, i.e. 3PL.
Drop shipping vs. 3PL
You already know what dropshipping is, but what is 3PL? Well, it stands for third party logistics that means an order fulfillment method where a ecommerce website relies on a third-party fulfilment company to take care of the warehousing, packaging, and shipping of an order.
3PL fulfillment companies work as an intermediary body between the retailer and an online buyer. A retailer buys products to sell online in bulk and gives them to the 3PL company. Once the retailer receives an order online, since the ecommerce website is connected with fulfilment system of 3PL company. Orders will be pushed into fulfilment system. The 3PL company pick, pack and ship the goods to the buyer. Thus, in most cases, retailers avoid the dropshipping method and prefer to dispatch their inventory to 3PL partner.
So, what is the similarity, and what are the differences between the two?
Similarity: In both the drop shipping and 3PL methods, the retailer does not handle the goods. That means third party companies do the packaging and shipping of the products, making it easier for the online sellers.
Differences: Firstly, in 3PL method, the retailer buys products in bulk and gives them to a third-party company. So, if the retailer sells potentially costly or highly customized products, then he/she would go with 3PL to avoid keeping an in-house order fulfillment. In dropshipping, he or she doesn’t have to own inventory. Furthermore, in drop shipping, the manufacturers are the ones responsible for shipping orders to customers while in 3PL, the 3PL company does all the operations from warehousing to packaging and shipping.
Advantages of Drop shipping
Now, some of you may think of using drop shipping as your way of fulfilling orders. So, what benefits do you get when you use the drop shipping method? The following are the key advantages of the dropshipping fulfillment service:
1. You Require Less Capital to Venture In:
Since you don’t have to buy in bulk, you don’t have to have much cash to start your online store, which makes it look convenient for beginners.
2. It Is Easy to Start:
Of course, since you don’t need to have all the products in-store, it is easier to start your E-commerce business with such a straightforward business model. All you have to do is calculate your profit margin, set up an e-commerce website, and start marketing your products to get orders.
3. Low Overhead Expenses:
An online supply chain can be stressful, overwhelming, and costly. A retailer has to deal with packaging, shipping cost, and also monitoring the goods on transit. With a drop shipping fulfillment service, you don’t have to worry. The manufacturer or supplier takes care of how the products reach the customer.
One does not have to start the business at a specific place. The business model does not restrict anyone in terms of location or time. For example, you can do dropshipping from china while you operate the business online outside of China.
5. One Can Deal With a Wide Variety of Products:
You don’t have to be specific on the products to sell. You can sell various products and have the manufacturers of the products do the packing and shipping.
Disadvantages of Drop shipping
The business models can’t be perfect, nor is the dropshipping. The retailer gets limited customization, and branding privileges as the manufacturer handles them. Besides, there can be supplier errors that the retailer gets the blame.
1. Limits Your Profits
When you buy something in bulk, you typically get a considerable discount. The bigger the quantity you purchase, the larger the discount you get. In drop shipping, you buy products one at a time. Therefore, you need to pay at large price. It ultimately reduces your profit margin.
2. Less Control Over the Products
When you use a dropshipping method, you rely on a manufacturer. So, you don’t have complete control of the products and their availability. Sometimes, manufacturers give priority to their direct customers or other partners. Thus, you can’t say how much inventory is available on a particular day, especially during rush seasons or vacations.
3. Slower and Costly Shipping
In the drop shipping method, you don’t have control over the shipping speed. Also, you can’t say from which place the manufacturer is shipping that particular order. As a result, the shipping process can get slower and costly. In the long run, a late delivery may affect your customer satisfaction ratio.
Is Dropshipping Worth it?
Well, dropshipping fulfillment is sometimes worth it. But you can’t rely on it. Also, the profit margin might be minimal as compared to 3PL. If you look at the below advantages, a retailer has a lot to gain by using the 3PL service.
Advantages of 3PL Over Drop shipping
Being the best fulfillment solution out there, 3PL has some exclusive benefits that surpass the dropshipping in many ways.
1. Limitless Inventory Volume
With a 3PL service, you get a lot of options to store large quantities of products. In short, inventory storage is limitless. Warehousing does not have to be costly. NextSmartShip offers 30 days Free storage.
2. Highly Scalable and Flexible
A 3PL company allows you to reduce or add up extra space, depending on your needs. Thus, it creates more flexibility for your business growth.
3. High Convenience at Minimal Cost
3PL services are often inexpensive but offer higher convenience. Their services outweigh other fulfillment alternatives in terms of cost and convenience.
4. Saves Your Time and Money
Outsourcing order fulfillment can save a considerable amount of money and time. A professional 3PL company handles a lot of tasks that can cost you more if you control them independently. It saves the money that you would probably invest in the shipping, technology, warehouse space, and office staff.
5. Customer Satisfaction
Managing own inventory can be expensive. At the same time, packing and shipping orders to different places can be stressful. 3PL boosts the customer satisfaction ratio by shipping your orders fast.
NextSmartShip provides branding-friendly fulfillment solutions to power the growth of your business. Including custom packaging, kitting & Assembly, marketing inserts. It has more than 10 fulfillment centers across the world, which means your customers can get the products sooner.
Drop Shipping With a Fulfilment Company
Drop shipping and 3PL can have different benefits. Depending on the current business needs, you can choose any of these methods. When the business needs change, you can switch to another option.
Or else, you can also use both of them at the same time. If you have a well-established product line, then you can use 3PL. Similarly, if you want to check a few new products before getting them into stock, then choose dropshipping.
Remember, the fulfillment companies with worldwide fulfillment warehouses take care of processing the receipt, packaging, and delivering the goods to the buyer and even handle returns in case there is any. Outsourcing allows a retailer to focus on the sales and growth of the online store. As a result, it also improves quality control and customer service.
Over to You!
Dropshipping is an order fulfillment process where the manufacturer takes care of order packaging and shipping. It is a good business model for an e-commerce business owner who is starting small with less capital.
However, using a professional order fulfillment company helps the supply chain to be smooth and more manageable for you to focus on the marketing and growth of your online store.
Still confused? NextSmartShip experts can help you pick the best service. Get in touch for more details.