Dropshipping vs eCommerce fulfillment: what is the difference?

Alibaba.com MARCH 24, 202112 MIN READ
Dropshipping vs eCommerce fulfillment: what is the difference?

The internet presents many opportunities for retailers to sell products without a physical storefront. A unique business model called dropshipping has emerged from this goldmine of opportunity. What makes this model so unique is that retailers can sell products without holding any inventory.

Dropshipping uses a different fulfillment method than standard eCommerce businesses. This causes some confusion, especially for small business owners that are new to the online business scene.

In this post, we are going to break down the differences between dropshipping and eCommerce fulfillment. We are going to take a close look at both eCommerce fulfillment and dropshipping before we compare the pros and cons of each approach. We’ll discuss where retailers can do dropshipping. To wrap things up, we will talk about whether or not Alibaba.com can be used for dropshipping.

The emergence of eCommerce

Over the past decade, the internet has become more and more accessible. As online payment portals have become secure, online shopping has also grown in popularity.

As a response to the growing demand for online shopping, more and more businesses have started selling online. Buying and selling online is referred to as “eCommerce.”

The beauty of eCommerce is that it is relatively simple to join in on the action. There are hundreds of platforms and resources that are available to support new sellers as they enter the eCommerce space.

Many businesses with brick and mortar shops have transitioned to online selling since it is much more affordable. This became even more prevalent during COVID-related lockdowns since it was safer for both shoppers and the people who work in stores.

There are several different eCommerce business models, but two of the most popular are eCommerce fulfillment and dropshipping. Let’s take a look at how each of these models works.

What is eCommerce fulfillment?

eCommerce fulfillment is a business model that involves purchasing items in wholesale quantities, selling them online, and fulfilling each order in-house. With this business model, the retailer holds an inventory of the products that they are selling.

With eCommerce, business owners create branded websites with built-in eCommerce capabilities. Shopify is a popular eCommerce website building platform. General website building platforms, like Squarespace and WordPress, have plugins to build online storefronts, as well.

Many people operate their eCommerce stores out of a garage or spare room in their homes when they are just getting started and they’re still selling on a small scale. However, as an eCommerce business grows, owners may be forced to rent out warehouses of fulfillment centers.

What is dropshipping?

Dropshipping is an eCommerce business model that involves retailers selling items that they do not have an inventory of. Automation and outsourcing make this business model a success.

These businesses can be set up in a very similar fashion to the eCommerce stores we talked about above. The only real difference is the way that orders are fulfilled, who holds the inventory, and the investment involved.

With dropshipping, you still build a branded online store. You also manage customer relations and customer support. Dropshippers manage all aspects of the business except fulfillment.

There has been a lot of buzzes about dropshipping over the past couple of years because retailers can get into this business without access to a ton of capital. With dropshipping, you don’t pay for the unit until it is sold.

Dropshipping vs. eCommerce fulfillment

Entrepreneurs have found great success with both of these business models. However, they each have their own pros and cons.

Let’s take a look at how these two business models compare.

Pros and cons of eCommerce fulfillment

Fulfilling your own eCommerce orders comes with some perks and some drawbacks. Some people find a lot of success with this business model, but for others, the many moving parts become too much work.

The eCommerce fulfillment route is great for entrepreneurs that want to sell their own products. This could mean products that they have sourced and branded or products that they have manufactured themselves.

The nature of this business model makes it possible to build a brand however you see fit.

One of the main benefits of eCommerce fulfillment is that you have more control over the entire situation. You don’t need to worry about your fulfillment partner dropping the ball if you do it all in-house.

The main downside of this business model is that it requires quite a bit of capital to get started. Not only must business owners invest in an online storefront, but they must purchase some inventory to get started. This poses a bit of a risk because there is always the chance that the business will not take off as expected.

If you are unable to sell your inventory, you are forced to take the loss. Even if the products from your original launch are a success, this is a concern as you incorporate additional products down the line.

However, if the business does take off as desired, eCommerce business owners must be prepared to spring into action. Orders must be fulfilled in a timely fashion in order to keep deliveries quick and customers happy.

Scaling a business of this nature takes a lot of careful planning. A physical location is a must for this type of business. A small operation that started in the garage could quickly grow to require a warehouse space. Scaling will cause growing pains and the costs will add up.

The reward of all of this is larger profit margins. By cutting out the middleman, entrepreneurs are able to source products for the best wholesale rates. However, this does take more time. As you grow the business, you’ll likely have to hire people to help you with day-to-day operations, so this will come at an extra cost. But the benefit here is that you have more control over the expenses.

Pros and cons of dropshipping

There are several advantages and disadvantages of dropshipping. Like eCommerce fulfillment, dropshipping definitely works for some people, but it isn’t for everybody.

What makes dropshipping so attractive is that it is relatively easy to get started. You don’t have to purchase any inventory aside from samples. This makes it very affordable and possible to set up without a physical location.

Since you don’t have to hold an inventory, there is very low overhead. A drop shipper’s biggest costs will be setting up the website and running ads. In order to scale, you simply must ensure that the vendor that supplies your products and fulfills your orders has the capacity to grow with you.

The low overhead makes it easy to experiment with different advertising methods and products. If the business fails, you’re not out a ton of money.

Dropshipping is a suitable business option for digital nomads or expats that want to be able to work from anywhere with their laptops and Wi-Fi.

Unfortunately, there are some notable downsides to dropshipping. The primary drawback is having minimal control over the fulfillment and delivery process. The vendor that supplies the products and handles fulfillment could drop off at any time, which would put a drop shipper in a tight spot. Sometimes, drop shippers find themselves in legal situations due to suppliers that run illegitimate operations.

Another drawback is that dropshipping makes it difficult to build brand awareness. Although people purchase items from a branded website or storefront, the items usually reflect the supplier’s branding. Customers will likely associate the item with the brand on the product that they have received.

Also, the profit margins are lower. This should be expected since dropshippers automate and outsource the bulk of the work in the business. Dropshippers don’t typically get their products at wholesale rates, and if they do, they’d have to pay some sort of fees for fulfillment.

A side-by-side comparison

Let’s take a look at how eCommerce fulfillment and dropshipping stack up when compared side by side.

eCommerce FulfillmentDropshipping
Pros
  • More control over fulfillment
  • You can sell your own products
  • Potentially larger profit margins
  • Possible to build a brand
  • Control over the branding of products
  • Less potential for legal issues
  • Very low overhead
  • Minimal startup costs
  • Easy to get started
  • Don’t have to worry about manufacturing
  • No need to worry about packaging
  • Easier to scale No physical location required
Cons
  • Must invest in inventory
  • Must invest in fulfillment (time or hire staff)
  • Rent for a fulfillment center may be costly
  • Larger initial investment
  • Requires a physical location
  • Less control over the fulfillment and delivery process
  • Lower profit margins
  • Must pay fees for fulfillment
  • Products may not be able to be branded
  • Very competitive
  • Prone to legal issues (possibly illegitimate suppliers)
  • More difficult to build a brand

Deciding which to pursue

There are plenty of opportunities for entrepreneurs in both dropshipping and standard eCommerce fulfillment. Which route you take will depend on your current resources, interests, and long-term goals for the business.

Dropshipping is often seen as an easier approach since half of the process is outsourced. Fewer funds are required to get started with dropshipping, which means this business model is more attainable for more people. Dropship businesses are also relatively easy to scale as long as you

Since so much of the dropshipping process is outsourced, the profit margins are considerably lower. However, you may opt to go this route to get started in order to build up funds for a different eCommerce product.

If you have the resources available to you and you have the desire to put in the work, taking the eCommerce fulfillment approach is a viable option. This approach takes more work but the appeal is that it is easier to build a brand and the profit margins are higher. Not only can you sell branded products, but you can sell products that you are creating.

Both of these approaches require building out a website and building a brand for your shop. Some level of design skills are required here, so if you’re not skilled in this area, you may have to hire a specialist.

There are some other commonalities between dropshipping and eCommerce fulfillment. In order to maximize your success, you will need to invest in marketing and advertisement. It is common to run ads on Google, Facebook, Instagram, and other platforms to gain exposure. You are also responsible for providing customer service in both models.

Neither one of these business models are better than the other. It all boils down to how much time and resources you have to put into the business and what you want to achieve.

Where to do dropshipping

If you decide to dropship your products, you need to decide whether to sell them in an online marketplace or your own site.

Some dropshippers create their own sites since it gives them more control over the branding. On the same token, many dropshippers sell their products on established B2C marketplaces in order to tap into existing customer-bases. It is totally possible to use a combination of these two methods to sell your products.

Some of the best platforms for building your own online storefront are Shopify, Magento, WooCommerce (WordPress), and Squarespace. These platforms allow you to easily build a drag-and-drop website. Some of these platforms allow for a little custom coding if you have a more unique vision.

AliExpress, a B2C eCommerce marketplace from the Alibaba group, has some great tools for dropshipping.

With AliExpress, you can customize your storefront to suit your brand and best display your merchandise. Some other popular platforms set up for selling online include Amazon, Etsy, and Wish.

Something to consider in both of these approaches is search engine optimization (SEO). If you aren’t running ads and using social media content marketing, you’ll likely rely on organic traffic. If you are listing projects on your own website, you’ll need to optimize your site pages to rank on Google and other major search engines. There are also ways to optimize listings for the built-in search engines on online marketplaces. Since the marketplaces tend to have fewer listings than what major search engines scan, your products will likely be easier to discover on a dedicated eCommerce platform.

Final thoughts

Both dropshipping and eCommerce fulfillment are great ways to make money online. With the right product, adequate branding, and a solid marketing strategy, you should be able to find success in either approach.

As a B2B wholesaler, your role in dropshipping would likely be to supply merchandise to retailers, fulfill orders, and ship them directly to buyers. You could also serve as a supplier for standard eCommerce businesses.

You can use Alibaba.com to connect with dropshippers and eCommerce businesses from around the world. Our platform is equipped with the tools you need to connect with clients and streamline the sales process.

Create an account today and start reaching B2B buyers on Alibaba.com!

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