In the world of online commerce, one often hears arguments that dropshipping and fulfillment are similar and interchangeable. In fact, these concepts cannot be directly compared, although they have a lot in common. Fulfillment is a logistics tool, while dropshipping is a strategic e-commerce business model. Both dropshipping and fulfillment offer outsourcing, delivery, and fulfillment options. Let’s get into the details.
Dropshipping is an online earning scheme in which the seller sells goods on his site from the supplier’s warehouse.
Fulfillment is a set of works on the logistics of goods, which is performed by a third-party service company. A fulfillment company is responsible for the storage, picking, packing, and delivery of goods.
Most online stores use both of these models for warehouse outsourcing and order processing.
What is dropshipping?
Dropshipping has become very popular in recent years. A seller finds a niche of interest, makes an agreement with a supplier, and sells goods as an intermediary using his website. The buyer places the order and makes the payment using the details of the dropshipper. The partner company then sends the order from its warehouse directly to the customer. The supplier (often the manufacturer) of the product is responsible for the entire supply chain cycle. His concern: warehouse, product, inventory, logistics, and delivery.
Dropshipping does not require a huge investment of funds, so it is one of the easiest ways to start a business online. With it, without investing in goods, you can easily expand the range of online stores and test new ideas. A dropshipper doesn’t have to think about where to store merchandise. He doesn’t have to worry about freezing funds in merchandise, excess inventory, storage, and seasonality. To start a business, it is enough to buy a domain, pay for hosting and make your site on the simplest constructor or dropshipping platform.
Unfortunately, in this business model, the seller is completely dependent on the supplier, on his performance and integrity – this is the main disadvantage of dropshipping. The dropshipping store has no control over the quality of the goods it sells. Delayed delivery, low-quality products, product replacement issues – all this negatively affects primarily its reputation. The search for goods most often begins with direct delivery services (dropshipping services), such as AliExpress, Alibaba, SaleHoo, and Megagoods.
Usually, the expected profit in the dropshipping scheme is 25-30%. The seller and the supplier most often draw up a standard dropshipping contract or agreement on a trade intermediary.
Dropshipping is an ideal solution for retailers working with a small number of suppliers and for those who use a single trading platform to search for goods and partners. Professional online platforms with large dropshipping bases help partners close deals and offer lucrative niches and profitable solutions for suppliers. They verify the certification of goods displayed on the site, and carefully control the purity of counterparties and deals.
What is fulfillment?
As soon as the flow of orders in a regular online store increases and the situation when a supplier’s warehouse is missing a needed and popular product begins to recur, it becomes clear that working as before is not going to work. Need to change something, and urgently. For example, to buy goods, to rent their own warehouse for storage, and change the delivery scheme. Or use the services of a fulfillment company.
A fulfillment service is a third-party logistics service provider that stores, packages, and ships orders on behalf of its customers. In other words: after a customer pays for an order in your online store, you can use a fulfillment service to have that order picked up from their warehouse and delivered directly to the customer, bypassing your store.
What can you outsource?
The seller’s site works as an online storefront, and the fulfillment company takes care of all the processes involved in processing the order. Or some of them. What can be outsourced:
- storage
- picking and packing
- shipping
- returns management
The classic scheme of fulfillment looks like this. A retailer buys goods in bulk from a manufacturer or distributor and sends them to a warehouse of a fulfillment company. A fulfillment contract stipulates that, in addition to storage, the fulfillment services provide: labeling, further packaging, and delivery logistics.
What do you prefer: dropshipping or fulfillment?
Dropshipping and fulfillment essentially work for retailers who need to solve different problems. If you’re planning to open an online store but aren’t sure which business model is right for you, do an analysis of your resources, and weigh the pros and cons.
1. Profit
Dropshipping is a low-margin business, but it usually makes a profit faster than standard e-commerce stores, often in as little as three months. Getting into the business is simple: you can try different niches and destinations without having to buy merchandise or build your own inventory.
Profits online store working on a traditional model of bulk purchasing, much higher, but requires considerable investment. Buying goods in bulk, the seller freezes his money for an unknown period. Rent part of the warehouse for the needs of the business on a fulfillment and store products geographically closer to the buyer, profitable.
2. Shipping
A dropshipper relies entirely on his supplier to be responsible for shipping, logistics, and timing.
Fulfillment allows for small and competitive delivery times. The seller procures the goods himself, so he is responsible for their quality, he can’t have any surprises with them, which minimizes possible returns.
3. Merchandise Inventory
The warehouse of fulfillment company stores the goods that the online store owns. It is its property. The seller clearly knows his inventory. A situation where he sells merchandise that he does not have in stock is virtually impossible.
The dropshipper does not own any inventory of products, he advertises and promotes products that the vendor owns. His store is a storefront.
4. Customer
The supplier in dropshipping is most often closely connected with the manufacturer and is familiar with the product, and knows its appearance and parameters. He can easily deal with the nuances of the order, and solve individual issues. Clients of HLTS ltd know that the company is always responsible for the quality of the goods it offers.
Companies that are professionally engaged in fulfillment, specialize in packaging and delivery of orders.
5. Testing
Dropshipping is a versatile tool for market research. It allows you to test different ideas quickly and cheaply without any financial risk. An online store can simply and quickly track consumer reactions to a particular product. If a product does not interest the customer, it is simply removed from the store pages.
In a regular online store getting rid of products that are not profitable and lie in storage, is much more difficult, and more expensive.
6. Restrictions on delivery
Dropshipping service has virtually no restrictions. The supplier undertakes the delivery of bulky goods and bulk goods. Retailers, large online stores, and wholesalers find it easier to work on single platforms, where you can find system-tested suppliers and certified goods. For example, equipment for construction, special equipment, raw materials for the pharmaceutical industry, agricultural products, electronics, and textiles. You can find it all in one place – on the online dropshipping supplier platform HLTS.
We need to consider that many operators of fulfillment do not work with bulk chemical ingredients for medicines, bulky goods, heavy equipment, and goods for agriculture.
So what should you choose – dropshipping or fulfillment? Ultimately, there is no easy answer to this question; it all depends on the specific goals and objectives of the business. If you have the ability to buy large quantities of goods in bulk, but you do not want to spend money on renting a warehouse, you can try fulfillment. By outsourcing either all or only part of the logistics. For example, storage or delivery of goods. However, if you are looking for an inexpensive way to quickly and easily start an e-commerce business, dropshipping might be a good option for you.
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