Wednesday, May 15, 2019

What Is The Difference Between Dropship and Wholesale?

There are people who want to try being their own boss and be out of the 9x6 shift as an employee.  There are several options on how to start up a business. Today, we will talk about two of the most common product acquisition when setting up a business, and the difference between the two: dropshipping vs wholesale.


What is the difference between drop shipping and wholesale?  The main difference between drop shipping and wholesale is the handling of inventory of products.  Both are product acquisition which relates to retail. Drop shipping does not need an inventory of products, while in wholesale - product inventory is important because the items are bought at larger quantities.
Let us talk about the differences in drop shipping and wholesale as we go along the post.  We will discuss in details, the advantages and disadvantages of both product acquisition methods.


How Does Dropshipping Work as an Acquisition Method?
The idea of dropshipping is simple.  Drop shipping allows you to sell items that you do not own to a customer (third party selling).  Drop shipping is not only product acquisition but is also a product fulfillment. You get the orders from the buyer (customer) and process it on behalf of your supplier.  The supplier will then pack the products and ship it directly to your customer.
What are the Advantages of Dropshipping?
Now that we already have an idea of how dropshipping works, of course, we want to know how you can benefit from dropshipping.  This will give you an idea as to what option you will choose should you wish to start your own business, right?

Low Start-up Cost:
For starters, you are certainly concerned about capital expenses.  This is a big factor to consider especially to those who do not have experience in setting up a business.  High capital means higher risk. Dropshipping is the cheapest option among all other product acquisition methods available.  


Earlier, we said that we do not hold inventory for dropshipping.  This is a fact and also the reason why the cost is low when starting up.  To gain suppliers for your business, you have to source either directly from a manufacturer, or dropship suppliers and have them ship the items straight to your customers.  


Product Variation and Selection
Another advantage of drop shipping is being able to sell a wide variation of products on your store.  Due to the fact that we do not keep inventory, the number of products and variations you can post online is not limited.  In addition, you have the ability to pull out items easily if you see that the products you are selling, do not make a significant sale.  


Client Relationship is Not Limited
In drop shipping, your suppliers are considered as your client.  Because there is a large number of suppliers and manufacturers who are engaged with drop shipping, as a business owner, you are not limited to building a relationship with one dropshipping supplier or manufacturer.  This is very important because one of the challenges in dropshipping is getting out of stock orders.


Low Risk for the Business
Previously, we said that the major advantage of drop shipping is being able to set up the business with a low start-up cost.  You are right. This is somehow related to the inventory of products. First, you do not need to spend on inventory. Secondly, you don’t have to worry if the items were not sold.  You can easily make a switch on the products you can sell, at different kinds, variations, and styles.


Convenience and Efficiency
Remember that dropshipping is an order fulfillment method.  Hence, the products are coming directly from your supplier or manufacturer.  They also take care of the packaging, shipping, and delivery of the products.  This goes straight to your customer reducing the risk of packaging issues.


What is the Disadvantage of Dropshipping?

You get a minimal margin from drop shipping because the price of each product you sell online is only the difference of the net price and your mark up. 

You pay for membership fees or annual subscriptions.  

Unable to do a quality check on the products because you have no visual of the items you are selling.  

The competition is quite high in dropshipping.  

You have to deal with out of stock items because you do not have control over the stocks


How Does a Wholesale Work?
A wholesale, just like a drop shipping, is a low risk straight forward process in acquiring a product from manufacturing in bulk quantities.  The items are purchased at a discounted rate, and resell it at a higher rate.
Advantages of a Wholesale
For wholesale, you do not need to spend money time doing an inspection for a quality check because the manufacturer already did it for you.

You also get a better margin because you spent little on the products and be able to resell it at a higher price.  You have the right market to sell the products giving you more chances to increase your earnings. In addition, the products being sold are known.

You get a faster turnaround of the sales.  There are variations of products and are readily available on stock.


Disadvantages of a Wholesale
With wholesale, the competition is tight. I think this is true for most product acquisition methods.  But with wholesale, because the products you are selling are known to the market, there are many resellers who will be selling the same product.

There is a price control for items that are sold from a manufacturer.  You do not need to worry because the products were bought at a discounted rate giving you guaranteed earnings.  

The manufacturer is the one setting the minimum product purchase.  Which means, you need a space enough for your inventory. Bigger stock room means larger expense.


Summary:
Both product acquisition method has its own advantage, and disadvantage both for you and the business. In choosing the acquisition method for your start-up business, we all want what is appropriate based on our capacity to make it work.  Hence, the amount of capital is a very important consideration. When you already know the product you want to sell as well as your market, you can decide whether you choose to go for drop shipping or wholesale.

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