Drop shipping is a business model that allows online retailers to source products from a third party supplier or manufacturer rather than stocking their own inventory. With drop shipping, the retailer does not need to keep any of the products in stock but instead can pass along the order information to the supplier who then ships the product directly to the customer. This makes it easier and more cost effective for small businesses and entrepreneurs to enter into ecommerce without having to invest in a large inventory.
Drop shipping is often compared to wholesaling where retailers purchase products in bulk from a supplier and then sell those products individually on their own platform. With wholesaling, retailers must purchase larger quantities of merchandise upfront and risk being stuck with unsold goods if there is not enough demand for them. Conversely, drop shipping requires no upfront investment as orders are only fulfilled when customers place orders with the retailer.
Another difference between drop shipping and wholesaling is in terms of logistics management. Wholesalers are typically responsible for managing their own warehousing, order fulfillment, distribution, and returns while they also have control over pricing margins on each item they sell. On the other hand, drop shippers can rely on suppliers for all aspects of logistics management including warehousing, order fulfillment, distribution, returns processing and pricing margins in exchange for higher fees per product sold.
In addition to these differences there are some similarities between drop shipping and wholesaling such as lower overhead costs associated with not needing space to store inventory or staff to manage it as well as quicker turnaround time since items are shipped directly from the supplier after an order has been placed by a customer.
Overall, when determining which business model is best suited for an online business it’s important to consider your own particular needs such as financial resources available upfront or how much control you want over pricing margins on each item you sell since both models come with its own unique set of advantages and disadvantages.
