Dropshipping vs. inventory: Which is a better choice for your business?

With the global eCommerce market set to hit $5.4 trillion USD in 2022, it’s no surprise that more people than ever are looking to run an eCommerce store. If you are thinking of launching online, you’re likely taking into consideration the different methods for the business to become low cost, long-living and efficient.

One of the most common considerations the new online business owner had is whether they must utilize dropshipping or listed e-Commerce stocks for their store.

What is dropshipping?

Dropshipping is a business that sells a product or service that they don’t own or manufacture. Instead, the business pays a supplier to manufacture and ship directly to your customer, without the business owner ever needing to hold any stock.

Dropshipping pros and cons:

Pros:

• You don’t need to hold any inventory

• You can get started quickly

• The cost to establish your business is low

• It’s great for testing out multiple different products at low risk

• There are many supporting apps you can use to plug, play and build a business in 24 hours

• It’s easy to build systems and processes

Cons:

• You may not be in control of your branding or quality if you don’t sell a high volume

• You cannot control shipping speeds, and the COVID pandemic has made international logistics very inconsistent

• Profit margins had been significantly lower since you cannot negotiate better conditions with suppliers like pricing, payment terms and shipping speed.

• Dropshipping is becoming harder since there are many industries selling similar products.

• Advertising platforms will make it even harder to maintain and to turn the profit because of the increasing amount of promotion and the tight margin you can already be subject to.

What is inventoried e-commerce?

• Inventoried e-commerce is a more traditional e-commerce business model. Stock is either stored on site, at a warehouse, or manufactured by the business owner and sold to customers directly.

Inventoried e-commerce pros and cons:

Pros:

• You have control of your brand and the quality of your products

• A well-built brand demands higher multiples at exit

• You can build unique selling points and adjust your brand positioning as needed

• You have control over your supply chain and logistics

• It can be more difficult for other businesses to compete as it’s the brand that sells, rather than the product

Cons:

• You need space to hold your inventory

• Dealing with suppliers, manufacturers and global logistics may be a headache if you’re inexperienced

• Startup costs are significantly higher as you’re trying to meet minimum order quantities

• Systems and processes become increasingly more complex as the operation scales

Which model is right for your business?

• Everyone’s risk appetites and circumstances are unique. Therefore, when deciding which model to use, you should ask yourself three simple questions:

• How strong is my risk adversity? Consider how much risk you are willing to take, whether it’s money, time or even physical space.

• What is my start-up capital? Figure out how much money you’re willing and able to invest.

• How much space do I have to operate? Consider the physical space you have to operate in.

• Ultimately, regardless of which model you choose, the best thing to do is just start. The main thing is understanding your own parameters and trying to expand them.