This article is going to explore the pros and cons of dropshipping and wholesaling.
When you want to get started selling online, there are two main ways you can get the stuff to sell.
You can buy a bulk-load of the goods from a wholesaler, get them shipped to your house (or warehouse/storage, if you want to get fancy), and then sell individual units separately…
… Or you can buy the goods from a dropshipper, and have them send them directly to your customer once you’ve made the sale.
There are definite pros and cons for each method — largely coming down to how much money you have up-front, and how much you’re prepared to risk. In this article I’ll walk you through the advantages and disadvantages so you can decide which one is best for you right now.
Pros and Cons of Dropshipping
If you’re not sure how dropshipping works, make sure you take a quick look at this brief introduction.
- You don’t need any start-up money. Because you only have to buy the items once you make a sale, you can get started even if you don’t have two pennies to rub together. This makes it great if you’re just starting out.
- There is less risk of losing money. Because you don’t have to buy stock in advance, there’s no chance of being stuck with goods you can’t sell. (Wastage!)
- You can sell bulky, heavy things. Normally it wouldn’t be financially viable to buy things like furniture or grand pianos because the shipping charges would eat into your profits too much. You’d have to get the item shipped to you, and then ship the item to your customer. For large items, this will almost certainly obliterate your profits. But with dropshipping everything is sent direct to your customer, so shipping charges are drastically reduced.
- No storage headaches. With dropshipping you’re not restricted by the size of your apartment or garage, because you don’t actually have to store anything. It all ships straight from the supplier.
- No trips to the post office. You don’t have to worry about packaging the item, working out postage charges, bubble wrap, boxes, styrofoam or making regular trips to the post office. The supplier does all that for you.
- Lower profit margins. Dropshipping usually has lower profit margins than products you purchase wholesale, because you’re only selling one item at a time. You don’t get a bulk discount. To overcome this you need to find the right items with high profit margins.
- You could be competing with your supplier. A lot of dropship suppliers will list their own items on eBay and Amazon themselves. What’s even worse… they will always be able to sell it for a lower price than you, thereby stealing away your customers. To make sure this doesn’t happen, you need to find a supplier who doesn’t compete with you.
- Your supplier can destroy your business. There’s always the possibility of meeting a scammy supplier who will take your money and run, regardless of whether you’re dropshipping or buying wholesale. The difference with dropshipping is that you’ve got a short space of time to get the product to your customer before they write YOU a negative review. Too many disgruntled customers and nobody will buy from you ever again. This is why it’s extremely important to make sure you’re using genuine, reliable dropshippers.
Pro’s and Con’s of Wholesale Selling
- Higher profits. Buying goods in bulk from a wholesaler will usually give you higher profit margins than dropshipping, because you get the bulk discount price.
- More choice. There are more wholesale suppliers than dropshippers, meaning you have a wider range of items available to you.
- More control. Because you pack and send the items to your customer from your own house or storage facility, you have total control over the process from start to finish. You can make sure the items are packed well and shipped promptly, instead of just hoping the dropshipper does a good job.
- You can add value. One way to differentiate yourself from other sellers is by rebranding your items, giving them new packaging, or bundling them with other items. You can do this because you actually have the goods in your possession. With dropshipping you can’t do this, (although some of the best dropshippers will rebrand their goods for you, but this isn’t common.)
- It is a lot riskier than dropshipping. if you purchase items in bulk and no one buys them, then you lose money on stock you didn’t sell. (And you have a whole lot of really awkward Christmas presents for your friends and family.)
- You need start-up money to purchase stock outright. A lot of wholesale suppliers will have minimum orders of $500, $1000 or more. If you don’t have the cash, expect to pay a LOT more, or just get ignored by the wholesaler.
- You’re choices are limited. Even though there are more wholesalers than dropshippers, you’re limited by the amount of storage you have, and the cost of shipping them items twice.
- You have to ship the item to your customers yourself. This can take a lot of time and running around, so you need to make sure the money is actually worth it.
So which should you choose?
After weighing up the pro’s and con’s of dropshipping and wholesale selling, I’d recommend you try dropshipping first if you’re just starting out.
It’s a fantastic way to get used to researching suppliers, creating listings, and seeing what sort of products and descriptions sell best. If you screw anything up… no big deal. Because you haven’t had to purchase the goods first, it’s no harm, no foul.
The con (downside) is that you’ll typically make less money than if you’d bought a bunch of the product in bulk from a wholesaler. There are ways around this. If you download my ebook (below) you’ll see how I find dropshipping items with profit margins over 100%. (That’s good!)
If you’re a more experienced seller, and you have money to play with, then there’s great money to be made wholesaling. You have more control over the process, and more choice of goods.
The problem with wholesaling is the risk. You want to have a firm grounding in what sells and what doesn’t (you can learn this through dropshipping) before you drop any hard-earned cash on a big shipment of stock.