Drop Shipping vs Order Fulfillment: Taking eCommerce to the Next Level
Dropshipping is trending, and righteously so. Store owners need nothing but a computer and an internet connection to run an online eCommerce business and earn a living. This kind of business model enables you to sell products to a worldwide audience, without you needing to own or rent a warehouse.
Shipping is also taken care of, as manufacturers ship the goods for you. All you have to do is pick a bunch of products to list on your site and money will flow right in, right? Well, it is a relatively easy eCommerce business model, but it is not that easy. Dropshipping has its peculiarities which we will cover further in this article. Should you consider to start a dropshipping business and need more training, check out these helpful Udemy courses.
Dropshipping for Dummies
You may be wondering, how does drop shipping work? To put in layman’s terms, drop shipping is nothing more than you listing a range of products on your eCommerce site that will be delivered directly from- and by the manufacturer to your customer.
You do not own the inventory, you do not store or maintain it yourself either. The supplier takes care of all that. You just provide the platform customers can find products on.
You would have to list the products you want to sell on your eCommerce store. This could be your own website, running on for instance WooCommerce, Shopify or Magento, but you could also sell it on a marketplace like Amazon or Ebay. Yes, you can build your drop shipping business with WordPress. Granted that you did the required trend analysis and nailed your marketing efforts, orders should start coming in.
You, as the retailer, would then forward incoming orders including customer details directly to the drop shipping wholesalers in China. This is usually done automatically – so you can sit back and relax. The wholesalers would then pick and pack orders accordingly and ship them off to your customer, in your name.
How do I Start a Dropshipping Business?
First, you will need to do some research and find some dropshipping wholesalers. There are tons of them so the challenge is finding the right one(s). Some of the most noteworthy drop shipping suppliers are Aliexpress and Shopify could also help you find some.
Aliexpress lists out a whole range of products, from apparel to electronics, toys and beauty products. A lot more actually. Excellent candidates to sell on an eCommerce site. Quality and prices for similar products differ a lot across the site so be sure to do some research and not just settle for the very first attractive product you see.
This particular drop shipping platform is located in China, and the suppliers are Chinese. Most of their service staff speaks a decent amount of English, but you could always use third-party services to negotiate prices, do the talking for you and so on.
Shopify is known as a platform that enables you to create and launch your own eCommerce store. They provide you with the tools to build your own eCommerce website and connected it to all sorts of apps, like shopping carts, payment services and order fulfillment providers.
Shopify also partners with drop shipping suppliers, so you could find manufacturers through them as well. It is all integrated already so if you like convenience, you could consider using Shopify.
The question however is, what will you sell? Best would be to have your plan ready before heading over to Aliexpress. To know what you want to sell, what is trending, popular at the moment and will be a profitable endeavor. Make sure to do proper market research beforehand. Once you do, it will make searching for suitable products feel less like searching for a needle in a haystack.
How Profitable is Dropshipping, though?
Obviously, margins depend on the difference between the price the manufacturer on the drop shipping platform sells it for, and the price point at which you manage to resell the goods to consumers. It can be highly profitable as you won’t have many fixed costs. Again, you would not need to pay for warehousing or shipping.
You wouldn’t need to pay salaries for staff handling the pick and pack process either. This kind of business model does however rely heavily on paid advertising, such as Google Ads and Facebook Ads. You really need to do a great job on SEO and optimize your ad campaigns to minimize your ad spend.
It also depends on your competitors. The downside of this business model is that many people can sell the exact same goods, at different price points.
Now that we are talking about downsides…
When Dropshipping gives you Lemons
Falling out of Fashion
There are some issues with the nature of drop shipping. How long will you remain profitable? This question goes hand in hand with the concept of supply and demand. Drop shipping is easy, but that also means that the ease of entry into such a business is easy as well.
There are and will be many eCommerce businesses selling the exact same products, from the same Chinese marketplaces, from the same manufacturers or suppliers. Supply may suddenly overtake demand. Order volume could decline, which in turn leads to lower revenues.
Now, not selling anything would not necessarily cost you anything as you do not have anything on stock – besides the ads that are still running. It does however mean that you are not earning anything either.
Dropshippers always run the risk of selling goods that fall out of fashion and are no longer sought after. You have to constantly monitor your eCommerce business’ performance as well as the market and quickly make adjustments to stay relevant and fresh.
Suppliers Running out of Stock
Another issue that arises is the control you have over inventory. You do not have any control over what is in stock. Multiple eCommerce businesses may rely on the same supplier, and that supplier manages their inventory, not you.
If at some point, one or more of your competitors orders a lot from the same supplier you get your goods from, they may run out of inventory and thus you would not be able to ship out goods to your own customers as promised. They would not have enough stock to cater to your needs.
Needless to say, these kinds of delays could lead to dissatisfaction with your customers and ultimately lead to negative reviews and word of mouth. Needless to say, this could be disastrous for your dropshipping business.
No Clue What Goes in the Box
A third potential problem is the lack of control during the pick & pack stage. You would have no control over what the supplier puts in the box, what the box looks like and thus, what the customer unboxes in front of their Youtube audience.
You make agreements with suppliers, but ultimately, it is out of your control. This may potentially lead to damaged goods, customers not receiving what they ordered, missing parts and other equally frustrating issues. You would have no control over the quality of what the customer eventually receives.
Running a successful business means that you don’t just handle all the pre-sales stages, but also what goes on after people place an order and hand over their money. You would need to have some level of customer service. In the event that received products don’t meet expectations, or are simply broken, customers would need a person to talk to, vent their frustrations and discuss a solution with.
You may have people working for you who would pick up the phone, answer emails and collect complaints, but communicating with the drop shipping supplier could be less than smooth considering that they are mostly based in China and in general don’t speak much English.
This could lead to some less than ideal situations and frustrations not just with you, but also with your customers. Remember the part about receiving bad reviews? That is what could happen in this case as well.
Going beyond Drop Shipping
When drop shipping gives you lemons, you may seek for ways to turn it into lemonade. Turn challenges into opportunities. You may feel that it is time for the next step in your career as an entrepreneur. Fear not, drop shipping is not the only option when you want to run an efficient and successful eCommerce business.
What is eCommerce Order Fulfillment?
eCommerce fulfillment is the process from the moment an order exits your shopping cart when a payment is made, to the point where the package is delivered at the customer’s doorstep. It is the process that
- gets each and every SKU that you sell on the shelves of the fulfillment center or warehouse.
- The picking and packing of incoming orders.
- The labeling of the right delivery addresses on the box and
- the worldwide, cross-border shipping through so called 3PL’s, third party logistics partners that the order fulfillment provider works with and often has price agreements with.
Order fulfillment providers ship large quantities and therefore are able to ship at more competitive rates than you would if you would take care of your own shipping.
Considering that the vast majority of products sold globally are manufactured in China, you may want to find an order fulfillment provider located in either mainland China or in Hong Kong. This would help decrease transfer and shipping times drastically, and also is a little better on the environment since you keep the shipping route shorter.
As you can see, choosing order fulfillment is not such a bad idea. Lets dive deeper into the differences, shall we?
The Difference Between the Two Business Models
Unbranded, common products
As discussed previously, drop shippers mainly sell unbranded products, widely available on both Chinese drop shipping supplier platforms, as well as on eCommerce sites across the world.
Many online shops sell the exact same products produced by the same Chinese manufacturers. Product offerings are therefore not exactly unique, thus, drop shippers often experience a lot of competition and may suffer from these price fights.
When you choose to sell your own products, developed by your own company, branded with your own brand name, eCommerce order fulfillment would be the way to go.
Your fulfillment provider would
- store your unique goods in its warehouse(s),
- their software would integrate with your eCommerce platform,
- when orders come through they would be pick & packed by the provider and
- send out through logistics partners your fulfillment provider got agreements with.
This allows you to still keep your costs low, just like when drop shipping, but sell unique goods at higher margins, rather than selling goods that everyone is selling at low margins.
Selling Branded products
E-Commerce businesses that use order fulfillment services usually sell their own branded products. They design, prototype and manufacture their own products somewhere in the world, often in China, and do their own quality control. Once manufactured, they ship their goods to the fulfillment provider who then puts it on shelves in warehouses owned or managed by the fulfillment provider.
Quality of drop shipped goods is also not necessarily the best. Branded products usually add value to the product by putting in place quality control measurements. With drop shipping, you rely entirely on the quality control conducted by the manufacturer you procure your goods from. Ensuring a certain level of quality to your customers may therefore be hard. You would require more customer service personnel to ‘fix issues’ that arise from the lack of pre-shipping quality control. Remember those language barriers? Yeah, you would be facing those because you would have to communicate with the manufacturer and they may not always care.
Software and Integrations
Drop shipping stores or Amazon stores based on a drop shipping business model integrate with the manufacturers or with supplier marketplaces like Aliexpress. That is pretty much all there is to it. An order comes in and the supplier gets a signal. They would then send it out, usually packed in the cheapest packaging, shipped with the cheapest shipping service.
Product order fulfillment businesses usually developed their own software, API’s that integrate directly with a multitude of eCommerce platforms, such as WooCommerce, Shopify, Magento or Amazon. The software comes with a load of features allowing you to, for instance, track and trace individual orders down to the very detail as well as manage returns.
API’s allow fulfillment companies to directly receive incoming orders as they come in, start the pick pack process within 24 hours and then ship it through a multitude of logistics partners all with their own pros and cons, prices and features.
At Floship, this entire process is entirely automated, no manual syncing required. This may seem self-evident, but the majority of order fulfillment businesses to date still require daily manual syncing or the sending or uploading of CSV files to upload orders to the system of the fulfillment provider.
We understand this is a hassle, so we automated it. At Floship the only manual task you would have is the first time you upload your SKU’s to our system through the upload of a CSV file. After that, it is all auto pilot. No daily syncing required.
More Shipping options
As eCommerce stores these days no longer only serve their domestic market, but rather the whole world, parcels would need to be shipped cross-border, worldwide. Each country however, has its own policies, tariffs and taxes. Some countries have a less developed logistics infrastructure and parcels may get lost when shipped through ordinary land mail.
Drop shipping companies get limited options for shipping. Chinese manufacturers likely just send packages by the cheapest, often slowest option available and shipping can take up to 3 weeks or more. Shipping options would be the same for each and every country. In a day and age where people expect their orders to arrive ASAP after placing an order, 3 weeks is obviously a long, long time.
Fulfillment providers offer a lot of flexibility, per country or region as they work with different 3PL’s. Some cheaper, some more expensive. Some faster than others. Some specialize in shipping products that include batteries or liquids, while others can’t ship such goods due to regulations. Floship’s fulfillment system allows for each individual parcel to have individual shipping options.
More Packaging Options
Often times, eCommerce brands working with order fulfillment companies require branded packaging – something drop shippers usually don’t offer or need. It is that next level of customer experience that could bring your business to the next level.
There may also be marketing inlays, such as leaflets or catalogs. Fulfillment companies are usually more flexible in terms of how they can package your orders and what they can add to it in terms of value and brand experience.
As you have more control over how things are packed, damages during shipping are therefore also minimized. At Floship, we love to help the environment even though we do recognize that shipping is not exactly an environmentally friendly industry. However, we minimize our packaging size as much as possible using smart algorithms to pack products in such a way that there is no wasted space and therefore no waste in materials or excessive weight.
Scaling your business
When you drop ship, you sell the same products over and over and rely on your ads to get the majority of your traffic to your site. You would compete a lot, sooner or later. Even if you manage to find a niche and offer products that not many other e-commerce stores offer, sooner or later someone will – as the ease of entry is very low. You would not be able to scale your business that fast.
Order fulfillment companies however allow you to ship your own unique, branded goods, the way you strategically plan to ship it, offering customers the best possible brand experience.
At Floship, we got dedicated account managers and are happy to consult you on best practices to enter specific countries. Cost efficient while still providing you with the required quality and reliability. Feel free to reach out for a free consultation. No strings attached. We would love to understand your business needs and help you scale.
You win some, you lose some. While drop shipping suppliers store your goods for you and don’t charge you for that, order fulfillment companies store them for you, but do charge you for the shelf space occupied by your goods.
As a consequence, costs may be somewhat higher than when you run a drop shipping business. You should therefore make a cost calculation and see what option is best for you.
The advantage of working with a fulfillment provider however is that you know exactly how your storage is being taken care of. You are also very welcome to come check out our facilities if you would like to see it for yourself. Just reach out by filling out this form and mention it during our first talk.
So, What are the benefits of Order Fulfillment?
- Custom shipping solutions and various shipping options per country or region.
- Offering Branded, environmentally friendly packaging with marketing inlays.
- Selling unique products rather than unbranded goods many competitors sell, at higher margins.
- Track & trace options, transparency per individual order.
- Returns services.
- Fulfillment providers are specialized in cross-border shipping, can advise you on tariffs, taxes and more.
All in all an experience your brand needs to go global, be successful and scale to new levels.
Floship Order Fulfillment Services
If you are ready for the next step and go global with your own eCommerce brand and provide customers with the best possible shipping experience while simultaneously keeping costs low for your business, order fulfillment services may be the right move for you.
Floship is one of Asia’s largest and most experienced order fulfillment providers. We pride ourselves for functioning more as a partner, rather than just as a vendor. We are here to listen, consult and help you grow your business. We provide each client with a dedicated account manager, so you always know exactly who to talk to and do not have to go back and forward between several parties.
Floship develops all our proprietary software in-house. This means we can quickly roll out new features, and also create custom-made API integrations for eCommerce platforms other than the 65 we already offer.
Interested in learning more? Get in touch and we will listen to your needs, walk you through our services, fees, show you a demo of our system and answer any other questions you may have related to order fulfillment.