Dropshipping Versus Third-Party Fulfillment
There are two main options for fulfilling your online orders: dropshipping or third-party fulfillment. Both have pros and cons, so how do you decide which is right for your business? In this post, we'll break down the differences between dropshipping and third-party fulfillment, so you can decide which option is best for you.
What is Dropshipping?
Dropshipping is a fulfillment method where online sellers display products for sale without purchasing inventory. Instead, they partner with suppliers who ship orders directly to customers. This allows sellers to run lean operations without investing in warehousing and inventory.
How Dropshipping Works
When a customer places an order, the dropshipper sends the order details to their supplier. The supplier then packages and ships the product to the customer. The supplier charges the seller a wholesale price while the seller sets their own retail price.
Benefits of Dropshipping
- Low startup costs - No need to invest in inventory
- Easy to get started - Just set up accounts with suppliers
- Flexibility - Quickly test and pivot on new products
- Wider selection - Offer more products without overhead
- Higher margins - Suppliers handle fulfillment costs
Drawbacks of Dropshipping
- Less control over order fulfillment and quality
- Longer shipping times from remote suppliers
- More customer service issues to resolve
- Harder to build a consistent brand
What is Third-Party Fulfillment?
With third-party fulfillment, sellers purchase inventory wholesale and store it in a warehouse operated by a logistics provider. When orders come in, the provider picks, packs, and ships products to customers.
How 3PL Fulfillment Works
Sellers purchase inventory upfront and ship it to a third-party warehouse. These providers handle receiving, inspecting, and shelving inventory. When an order is placed, they pick items from warehouse shelves, pack orders, and arrange delivery to the customer.
Benefits of 3PL Fulfillment
- More control over order quality and branding
- Faster shipping from domestic warehouses
- Lower long-term storage costs
- Focus efforts on sales and marketing
Drawbacks of 3PL Fulfillment
- Requires more upfront capital investment
- Limits ability to test new products quickly
- Risk of excess and obsolete inventory
- Ongoing inventory management required
Choosing the Right Fulfillment Method
When deciding between dropshipping vs 3PL, consider factors like product mix, order volume, startup costs, and branding. Dropshipping suits ecommerce beginners testing new products. Established brands selling at higher volumes benefit more from 3PL.
Blend different fulfillment methods to match your business needs. For example, use 3PL for your core products while dropshipping new items. There's no one-size-fits-all solution - choose the approach that aligns with your business goals and constraints.
Next article: Everything You Need to Know About Drop Shipping on eBay
FAQs
What is dropshipping?
Dropshipping is an ecommerce fulfillment method where the seller displays products for sale but does not actually keep inventory. Instead, when an order comes in, the seller purchases the item from a third party supplier or manufacturer, who then ships it directly to the customer.
What is third-party fulfillment?
Third-party fulfillment is when an ecommerce seller stores their inventory in a warehouse operated by a separate company. That company manages storage, order picking/packing, and shipping on behalf of the seller.
What are the main pros of dropshipping?
The main pros of dropshipping include lower upfront costs since you don't have to purchase inventory, easier scalability as you grow, and the ability to test products more easily without getting stuck with unsold stock.
What are the main cons of dropshipping?
Cons of dropshipping include less control over product quality, longer and less reliable shipping times, and more customer service issues to handle if orders have problems.
What are the pros of 3PL fulfillment?
Pros of 3PL fulfillment include more control over product quality, the ability to customize packaging, shorter shipping times, and variable storage costs that can save money long-term.
What are the cons of 3PL fulfillment?
Cons include tying up more capital in inventory, potential limits on product selection, and still having to handle core inventory management responsibilities like monitoring stock levels.
Which is better for my business?
The best fulfillment method depends on your product types, business size, growth goals, and more. Compare your needs to the pros and cons of each to decide which model fits you best.
