Reselling Products Online: Dropship vs. Wholesale

Have you ever heard of a magical supply chain management system known as “dropshipping”?

Dropshipping is a way of purchasing products for resale without carrying an inventory. You sell products to customers, whether on eBay or your own website, and then you order those products from a dropshipper who ships them directly to your customer.

Dropshipping is a legitimate way to purchase products for resale, and more manufacturers and distributors are offering dropshipping services all the time. However, like any system, it has its pluses and minuses.

The purpose of this article is to compare purchasing products via dropship to purchasing from a wholesaler so you can decide which system would be the most beneficial to your online business. Dropshipping vs. Wholesaling is an intense battle, like Coke vs. Pepsi or Mac vs. PC. The system that works best for you will probably have a lot to do with your capital, the type of product you want to sell, and your commitment level.

An Overview of Dropshipping

Purchasing your products via dropship is beneficial because it prevents you having to carry an inventory. This means you don’t have to make a large initial investment, and you don’t have to rent or purchase a warehouse or other space to store your products in. You don’t have to buy packing and shipping materials or spend the time to package and mail each order. Because you have no inventory, your product line is extremely flexible: if a particular product isn’t selling, you can simply remove the listing from your website or eBay store – you don’t have to worry about unloading a bunch of unsold cowboy hats or roller derby skates.

The Negative Aspect of Dropshipping

The biggest negative of dropshipping is that you almost never get as good a price as you would purchasing wholesale. I recently contacted a supplier of hand-made bamboo furniture and the difference between dropship and wholesale rates was staggering: their chairs were discounted 75% off retail price when purchased wholesale, but only 25% discounted when purchased via dropship.

In general, wholesale products can be purchased for around 50% retail cost, and dropship products for 75% . Dropshippers may also charge fees – from $3 to $20 per order. Depending on the product and order size, this can take a significant bite out of your profits. Other issues revolve around supply. When purchasing from a dropshipper, you have much less control over the availability of products. Also, dropshipping does not allow you to dictate how the item is shipped, and returns can be tricky.

The Benefits of Wholesale Product Souring

By contrast, purchasing wholesale allows you more control but also requires a larger investment and greater commitment. Here are a few things to consider:

• You’ll get your products cheaper, but you’ll have to store, package, and mail them.
• You have to count the time you spend on order fulfillment as costing an actual dollar amount – the phrase “time is money” is not just a cliché.
• The hours you spend packing and shipping orders are hours that you could have invested into other aspects of your business, or used to earn income through another venue.
• When purchasing wholesale, you may have to make a large initial order (anywhere from $100-3000) or buy products in “packs” or “crates” (six pairs of jeans or a flat of 40 candles).
• If any of your products don’t sell, you’re faced with slashing the price or eating the loss.

Purchasing wholesale allows you to control your inventory and ensure you have the supply to meet your demand. You also have more flexibility in how you sell your products. Promotional offers like “free shipping on orders over $50” are much easier when you have control over the order and the way it’s shipped. You may be able to negotiate bulk shipping discounts with a post office or courier, and you can easily include fliers and promotional materials in your packaging. One of the biggest benefits of doing the order fulfillment yourself is the ability to exercise quality control – you can examine each product you send out and provide extras like a thank you note to your customer or gift wrapping.

3 Things to Consider – Dropship vs. Wholesale

1. Are you absolutely sure what product you want to sell? Imagine that you want to sell umbrellas online. If you are positive that umbrellas are all you want to sell and you’ve done the requisite market research, then you may want to go ahead and purchase wholesale. If, however, you think you might want to sell umbrellas, but are also considering golf clubs, teddy bears, and power tools, you could test-run your prospective products using a dropshipper.
2. Is there is a dropship or wholesale supplier available for your product? While almost any product can be purchased wholesale, dropshipping is not yet as diffuse. Brand-name products and certain other categories like clothing are more frequently available through wholesalers than dropshippers.
3. Can you afford to use a wholesaler? Purchasing wholesale simply may not be an option for you because you don’t have the capital or credit score for a large initial order. In this case you may want to use a dropshipper for a few months until you’ve built up enough profits to invest in a wholesale purchase.

Segueing from dropshipping to wholesaling or using a combination of the two systems is often the best option. Using a dropshipper allows you to experiment, to findwhat products work the best for you. You can test the popularity of your products before making a large commitment to them. In some cases, you may want to use a dropshipper for the majority of your product line, but purchase one extremely popular product through wholesale to get a better discount. Generally I encourage people to sell products from a dropshipper in the initial stages of their online business to get the hang of it, and they can switch to purchasing wholesale later to improve their profit margins.

If you are interested in finding dropship or wholesale suppliers, there are many databases you can access for small monthly or annual fees.

One of the best dropship companies I work with is WholesaleMatch.com. They provide a 100%

money-back guarantee, if you don’t make your money back within the year, as long as you give them the chance to work for you by accessing their services at least once a month.

Leah Darrow is a blogger for a wholesale dropshipping company. She also writes educational material for Fortune Learning Systems

and Stores Online, all geared toward helping people start online businesses. She and her husband Ryan were married in December 2008, and they live in Provo, UT.