If you’re looking to start selling online, you’re likely searching for products, considering marketing, and wondering how to handle shipping and fulfillment.
Should you start an ecommerce store and manage overhead, inventory, and shipping yourself? Or get your foot in the door of the online business ecosystem with dropshipping?
From a customer perspective, the difference between purchasing from a classic ecommerce site and a dropshipping site is likely imperceptible.
Here are the critical differences between ecommerce and dropshipping to help you choose the best path forward for your online store.
What is ecommerce?
Ecommerce—short for electronic commerce—is the buying and selling goods or services online via websites, mobile apps, or online marketplaces. Ecommerce businesses come in all types and sizes, including retail stores selling physical products (as well as online), digital product creators offering downloadable items, and service providers offering their services online.
An ecommerce store lets an online business reach customers beyond its local area and operate 24/7. It also provides a convenient online shopping experience with features like online payments, order tracking, and customer service.
What is dropshipping?
Dropshipping is a retail fulfillment method within ecommerce where you don’t keep the products you sell on hand. Instead, when a customer places an order, you redirect the order to a third-party supplier, who then ships the product directly to the customer.
As the store owner, you function as a conduit between the customer and the supplier. The dropshipping business model lets you start an online store without needing to invest in inventory or manage complex logistics.
Think of dropshipping as a specific ecommerce strategy where you delegate inventory management and fulfillment to third-party suppliers. You could then sell some products traditionally and dropship others. For instance, you might manufacture your own manual coffee grinders and dropship branded beans to upsell and increase your average order value.
Dropshipping vs. ecommerce: essential differences
- Inventory management
- Profit margins
- Control over product quality
- Shipping and fulfillment
- Branding and customization
- Customer service
- Scalability
- Competition
Traditional ecommerce and the dropshipping model have similarities, but there are also differences to consider when choosing between the two. Here’s what online sellers need to know:
Inventory management
Ecommerce typically involves purchasing products in bulk, storing and managing inventory, and fulfilling orders yourself or through a fulfillment center. It requires an initial investment in your own inventory and storage space, but it gives you complete control over the stock and fulfillment process.
Dropshipping lets you sell products without holding any inventory. Orders are sent to dropshipping suppliers, who ship the product to the customer. This means minimal start-up costs (no inventory to purchase) and no need for inventory management, but less control over the types of products you can sell and shipping times.
Profit margins
With typical ecommerce business models, profit margins can be substantial; you can buy products wholesale and have the flexibility to set retail prices. This direct purchase and sale of goods allows for clear-cut margin calculations and the potential for bulk discounts from suppliers, adding to the profitability of each sale.
In contrast, a dropshipping business generally yields thinner profit margins because suppliers take a substantial cut (after all, much of the work falls on them). Since products purchased from dropshipping suppliers typically cost more, there’s less room for markup, leading to smaller profits per transaction.
Control over product quality
Ecommerce business owners have considerable control over product quality because they source and inspect their inventory before selling. This hands-on approach can help establish high-quality standards and address any concerns before products reach customers, ensuring a consistent and pleasant customer experience.
Dropshipping gives you less control over product quality since you depend on suppliers to maintain standards. Without direct oversight, you must trust your suppliers to uphold product quality, which can vary and is often outside your immediate influence. This can lead to customer dissatisfaction.
Shipping and fulfillment
With the ecommerce business model, managing shipping and fulfillment in-house gives you more direct control over delivery methods, shipping costs, and wait times. You can negotiate rates with carriers, customize ecommerce packaging, and ensure prompt dispatch of orders.
A dropshipping store puts shipping and fulfillment in your supplier’s hands, letting you focus on other tasks. Though this model demands less logistics management, it can lead to less control over shipping speed, which may affect customer satisfaction and complicate customer service.
Branding and customization
Ecommerce businesses can customize their branding, from unique packaging to personalized inserts. Owning your online store affords complete control, enabling a distinctive brand experience to differentiate you from rivals. However, it obliges the online retailer to allocate considerable effort and resources toward crafting brand strategies and assets, a potentially substantial investment.
A dropshipping business can customize its online store and curate desirable products, but since the products are shipped directly from the supplier, they often arrive in generic or predetermined packaging. This approach reduces both responsibility for product packaging design and initial costs, it may also limit your ability to build a distinct, recognizable brand. This could hinder differentiation in a competitive market.
Customer service
In ecommerce, direct control over customer service allows for tailored support, quick responses to inquiries, and easy handling of returns and exchanges, which can lead to higher customer satisfaction. However, this level of involvement often requires a dedicated customer service infrastructure, which can be costly and require significant maintenance as the business grows.
On the other hand, dropshipping can complicate customer service because you need to coordinate with suppliers to resolve issues, leading to potential delays and communication breakdowns. While your customer service workload may be lighter without direct involvement in shipping and returns, reliance on third parties can decrease your ability to provide immediate and effective solutions, which may impact customer loyalty.
Scalability
Ecommerce businesses can scale significantly by increasing inventory and expanding their business operations, leading to bulk purchasing benefits and better profit margins over time. However, scaling up typically requires significant investment in inventory, storage, and workforce, along with navigating the complexities of larger, more intricate logistical operations.
A dropshipping store offers a more flexible model for scaling up since it doesn’t require purchasing inventory in advance. This allows for the addition of new products and adjustment of offerings quickly without significant investment. Yet, the dependency on one or multiple suppliers means that scaling is limited by their capacity and reliability, which can introduce challenges in maintaining product quality and customer service standards during periods of rapid growth.
Competition
Ecommerce businesses can select or produce unique products and leverage brand identity to differentiate themselves in the market, potentially reducing direct competition and allowing them to carve a unique market niche. However, the challenge relies on constant market research and product development.
Dropshipping businesses often encounter higher levels of competition because many dropshippers source from the same suppliers and sell similar products. This can make it challenging to stand out to customers, resulting in a marketplace where price competition is fierce and margins are thin. Differentiation in dropshipping therefore often hinges on marketing strategies and customer service.
Ecommerce vs. dropshipping FAQ
How do you choose between ecommerce and dropshipping?
The choice between ecommerce and dropshipping depends on your budget, the level of control desired, and your willingness to manage inventory. Ecommerce offersmore control but requires higher startup costs, while dropshipping has lower entry barriers but less control over product quality and shipping.
Is ecommerce the same as dropshipping?
No, ecommerce and dropshipping are not the same. Ecommerce is a broad term that includes all types of online selling, while dropshipping is a specific ecommerce fulfillment method within ecommerce where the seller does not keep inventory on hand.
Is Shopify the same as dropshipping?
No, Shopify is not the same as dropshipping. Shopify is an ecommerce platform that lets you create online stores and sell products, while dropshipping is a fulfillment method that can be used on Shopify or other ecommerce platforms.
Is dropshipping legal?
Yes, dropshipping is legal if the seller complies with applicable laws and regulations, such as tax obligations and consumer protection laws. However, it’s essential to ensure your products are legitimate and not counterfeit or prohibited items.