If you get a headache thinking about managing inventory, and processing and shipping orders, you might be considering using a third-party shipping service to fulfill orders. But it’s worth thinking twice. As it turns out, direct-to-consumer (DTC) sales account for one of every $7 in global ecommerce, and the industry is on track to keep growing—rapidly.
Despite the extra effort and time required with DTC fulfillment, you’ll benefit from total control of every sales channel and direct customer relationships—and potentially see higher profit margins.
What is direct-to-consumer (DTC) fulfillment?
Direct-to-consumer fulfillment is the system of delivering products directly to shoppers rather than going through a retail partner, dropshipper, or other fulfillment provider. DTC brands keep products in their own storage facility or make products to order. Once a customer makes a purchase, a brand representative processes, packs, and drops off the order at the post office or schedules a delivery pickup.
DTC operations can be challenging because you’re managing inventory and fulfilling orders on your own. However, some businesses save money and improve quality assurance by controlling their own fulfillment system. Keep in mind, a DTC fulfillment model might still have partners in its supply chain. They may deliver raw materials or finished goods before the company begins its inventory management and fulfillment processes.
DTC fulfillment process
Many ecommerce companies and small businesses opt for DTC sales so they can have more control over their fulfillment services and enhance efficiency. Here’s what a DTC fulfillment solutions model looks like:
- The customer makes a purchase. Whether customers purchase through a website or an app, the order triggers the beginning of the fulfillment process.
- The business prepares the order. The business may have the products in storage, ready to be packaged, or they may need to create custom products to order. Either way, they must prepare and package the product.
- The business ships the order. With the product packaged, it’s now ready to ship. The business itself—not a dropshipper or third-party logistics (3PL) service—delivers the product to the post office or to a transportation company like FedEx.
- The customer receives the product. When the packaged product arrives at the customer’s door, this marks the end of the company’s DTC fulfillment operations.
Brick-and-mortar businesses can also practice direct-to-consumer fulfillment. In this scenario, the customer visits the business’s storefront, makes a purchase, and leaves with the product in hand or schedules a delivery.
Reasons to use DTC fulfillment for your ecommerce business
Switching your company to a direct business-to-consumer model has plenty of upsides that can potentially boost both customer satisfaction and your profits. Let’s look at a few reasons you might consider DTC fulfillment for your business:
Better margins
When you partner with a middleman for ecommerce logistics—like order processing or fulfillment—you pay for it. Many traditional retailers choose to have a third-party logistics network handle ecommerce fulfillment to avoid logistical challenges, but that convenience isn’t cheap.
If you’re willing to fulfill orders and handle shipping processes on your own, you can eliminate that expense and enjoy higher profit margins. Plus, if you’re starting out, managing your fulfillment operations will allow you to learn every part of the online sales process in addition to keeping costs to a minimum.
Increased brand affinity
When a shopper discovers your product on the shelves of a big retail partner, they may be more likely to associate your product with the partner than your brand. A customer experience in which shoppers buy your product directly from you can increase their awareness of and affinity for your brand. One survey found that 73% of millennials and 69% of Gen Zers feel they have a more personalized experience when shopping with a DTC business.
Complete creative control
No middleman or third-party fulfillment center in your process means no one can tell you “no” when you have big ideas. When you sell directly, you call the shots. You could create custom packaging to boost your marketing efforts or update your branding overnight—there’s no one to stand in your way.
Erika Geraerts, founder of beauty brand Fluff, enjoys taking big swings with her sales and order fulfillment model. For example, Fluff operates through a “drop system,” which means the shop sells its reusable silver compacts only during four annual drops.
“It was an experiment for me,” Erika explains on an episode of the Shopify Masters podcast. “It was something that I wasn't sure would land or continue to land with our customers, but with each drop we see our audience base growing.”
She says she appreciates the way the unconventional sales model helps shoppers avoid impulse buys and reduce their environmental impact—something that would be difficult to pitch to a big retail partner looking for profits.
More customer insights
Receiving and fulfilling orders yourself gives you significantly more opportunities to gather data and feedback from your customers. You can track abandoned carts, coupon use, time on site, product page visits, traffic sources, and more—data that may or may not be available if you’re selling through a retail partner.
In addition, DTC sales means you have direct communication lines with your shoppers. If there are shipping delays, you can preemptively reach out. If they have fulfillment questions, they can get in touch with you directly. You can also send follow-up surveys to make sure you can meet customer expectations, and ask for product reviews. With continuous improvement, you’ll develop more specialized knowledge of your shoppers and have targeted strategies for providing exceptional customer experiences.
Challenges of using DTC fulfillment
While DTC fulfillment can offer cost savings and creative control, there are some difficulties if you go down this route:
Pressure on your website
If your ecommerce site is the only way shoppers can make a purchase, you’ll want to design your website for the perfect customer experience. Selling exclusively through online channels and ecommerce platforms requires you think through your branding, ecommerce user experience (UX), and checkout flow to make sure the buyer’s journey funnels visitors from first impression to purchase smoothly.
On an episode of the Shopify Masters podcast, David Levy of Bola Grills says it was essential to have his brand’s website prepared, intuitive, and user-friendly before launching his first line of tabletop grills. Using his background in web design, Levy customized a Shopify site template and set his product pages up for success—all before his products even arrived from the manufacturer.
“It really felt like getting to the end of a journey, but then realizing that the journey is really just starting,” David says of the moment he launched his website and product.
Storage responsibilities
Bypassing traditional retail channels means being responsible for storing the products you’re selling. Storage space expenses can add up fast—especially if you have bulky products. And you have to keep a tight watch on your entire supply chain to ensure you don’t receive too much inventory at once. Storing products yourself means getting comfortable with real-time inventory tracking software.
David had a big decision to make when it came to storing his bulky, heavy grills—products he could not easily keep at home.
“I was not going to put this in my garage, or my wife would kill me,” he says.
He had initially planned on using a warehouse, but the cost of $1,600 a month made him nervous about his margins. He ended up going with a smaller storage unit—a cheaper option, but one that also lacked a warehouse’s support staff. Even with the help of a few movers, unloading all the products from the shipping container to the storage unit was a challenge.
“It was a crazy day, to say the least. We were all drenched,” he recalls.
Time spent shipping
With package prep, UPS runs, size and weight restrictions, and international rates, consumer shipping is no joke. While many small brands sell and ship products on their own, it can take serious time (and a lot of practice). And if that’s not enough, your shipping times will often still be slower than major brands with significant packing and shipping infrastructure, which means longer delivery timelines for your customers. In a world where customers expect fast shipping, this downside can cut into your profits.
Expansion difficulties
Although you will have more control with a consumer DTC fulfillment strategy, it’s difficult to match the resources and expertise that traditional retail channels provide. You’ll be managing your own sales channels and optimizing your marketing strategy for customer engagement and brand loyalty—all while fulfilling and shipping orders. Depending on the type of product you sell, you may also have to monitor regulatory developments to ensure compliance.
Working to meet customer expectations can take more time and money as you scale, meaning DTC fulfillment can add strain in the long term. You’ll need to hire employees to keep fulfillment in-house or look for fulfillment partners that can take some of the work off your plate. You may find yourself wanting the expert knowledge and services of third-party fulfillment services. They’ve already streamlined fulfillment processes, ensuring increased customer satisfaction and repeat purchases when fulfillment goes smoothly.
DTC fulfillment FAQ
What is DTC and how does it work?
DTC fulfillment is when a business processes orders and ships products directly to consumers without using dropshipping options or fulfillment partners. The company stores the inventory, processes orders, and ships out the products to customers directly.
What does DTC mean in shipping terms?
In regards to shipping, DTC fulfillment means a business manages all order processing and shipping itself, rather than using a third-party company. The business ships products directly to the consumer through a post office or a transportation company like FedEx or UPS.
What is the downside of DTC?
While brands selling directly to consumers can save on costs by cutting out the middleman, choosing DTC fulfillment also means investing significant time and effort into the order processing side of your business, including storing inventory yourself, printing labels, and scheduling delivery pickups with local transportation carriers.
