Differences between dropshipping and wholesale

With the evolution of eCommerce, the dropshipping business model is flourishing. People can earn money online by running their own businesses at home on their laptops or mobile phones.

Similarly, wholesaling is another popular business model. Wholesale is lucrative as you sell goods in bulk by reducing the price per item which generates profits. It is getting even better with the emergence of online B2B marketplaces. They attract a large number of buyers and sellers.

Let’s see how these two business models differ from each other. But before that, we need to learn about both these models.

What is Dropshipping?

→ Introduction

Dropshipping is a business model where the seller does not have any physical stock. A drop shipper simply accepts an order, receives payment from a customer, and passes the order to their supplier. The manufacturer or supplier directly sends the product to the customer.

A drop shipper can have either a physical store or an online website. Customers simply order items online, make payments and receive their goods.

→ Revenue

Dropshipping industry is growing rapidly around the world with expected revenue of $196.7 billion this year.

→ Dropshipping Platforms

Currently, Amazon is the top platform for dropshipping where drop shippers generate a profit between $1,000 to $50,000. Other major platforms include BigCommerce, Magento, Shift4 Shop, and WooCommerce.

What is a Wholesale Model?

→ Introduction

Wholesaling is a business model in which a wholesaler buys products in bulk from a manufacturer or a distributor. Sourcing products in bulk helps reduce the price per item. 

It helps wholesalers earn profits as they sell in more quantities thus making more sales.

→ Revenue

Currently, Statista reports that wholesale goods have accumulated total sales of $8 trillion.

→ Wholesale Platforms

Alibaba is currently one of the world’s largest wholesaling platforms. Other top wholesaling platforms include eWorldTrade, SaleHoo, SeeBiz, and Tundra.

Capital Investment

Dropshipping is a profitable business as it requires very little investment. Since you do not have to invest in purchasing or storing inventory. If you run a physical or online dropshipping store, you have to invest only in setting up your store.

If it is a physical store, your expenses are shop rental charges and utility bills. If it is an online store, you have to invest in building a website and using different online tools to run your online business.

On the other hand, wholesaling business requires large business capital. You need to buy products from the supplier in bulk. You also need a budget to rent a warehouse and maintain your warehouse and inventory. You also need to deliver your products to your customers in bulk and bear shipping costs as well.

Inventory Management

In dropshipping, you do not need to keep any physical inventory. Suppliers possess and maintain the inventory themselves.

You simply take orders from your customers, transfer them to your suppliers and then they directly send ordered items to customers. You’re an intermediary between the supplier and the buyer who takes a cut of the deal without having to buy the inventory.

A wholesaler buys and stores inventory in the warehouse and manages all the goods in the inventory. You have to regularly audit and manage your stock. You also have to maintain a balance of your stock to avoid running out of stock or obtaining more excessive stock which may expire and turn into dead stock.

Product Quality Control

Since the drop shipper doesn’t have access to the physical product, therefore, they cannot check the quality of the product themselves.

This can have a drawback. If a product is damaged, you have to bear the responsibility for that and the customer complains to you about that deficiency.

In wholesaling, you have your inventory available with you so you can maintain the quality of your product. Whenever you receive an order you can check your product. If there is a damaged product you can replace it with another product in good condition.

Order Fulfillment

As a drop shipper, your supplier fulfills the order for you by sending the goods to your customer. You cannot provide an estimate of the specified time for delivery to your customer.

In contrast, a wholesaler has to completely fulfill an order. Order fulfillment involves:

● Receiving goods from the manufacturer or distributor

● Storing and managing inventory in the warehouse

● Picking goods and packing these in bundles or cartons

● Sending goods via shipping

Ratio of Profit

The dropshipping model is totally based on generating profit without investment. Dropshippers do make good profits, but they’re significantly lower than what a wholesaler makes. According to Blue Cart, drop shippers make 20 to 30 percent profit per sale. This makes an average of $100,000 annually.

Wholesalers sell products in bulk by setting cheaper prices per unit. By selling more items, they are able to generate more sales and earn a higher profit ratio.

For example, Hearst Corporation’s online news website Chron reported that pharmaceutical companies and cell phone companies make huge profits in wholesaling which sometimes amounts to more than 100 percent.

Conclusion

We have explained to you the differences between dropshipping and wholesaling in the following key factors:

● Capital investment

● Inventory management

● Product quality control

● Order fulfillment

● Ratio of profit

Now, you need to keep these factors in mind to determine the better option between dropshipping and wholesaling.

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