We’ve written a lot about eCommerce fulfillment and drop-shipping best practices. Now, our friends at Red Stag Fulfillment are chiming in on what the differences are between the two because they often get confused. Here’s what they have to say…
You know that, to succeed, your business needs to provide an amazing shopping experience, products, and delivery. You’ve mastered the art of the online sale and chosen awesome goods to share with the world, but the shipping side of things gets a little tricky.
There are a lot of shipping options you can use, but which one is the best for your business?
In the digital store space, you’ve got two very common options and they’re tailored to the two biggest differences in online businesses: simple and sales-oriented or a product-focused company that is willing to pay up front to be a sales powerhouse.
Which business you are today, and which one you want to be tomorrow, can help you choose your best shipping options. Together, we’ll look at ecommerce fulfillment and Drop-Shipping, two ways for you to accomplish your goals and leave more satisfied customers than George R. R. Martin leaves bodies.
Traditional Ecommerce Order Fulfillment: More Cash, Products, Control
Order fulfillment is the process your businesses uses to get products to a customer after they’ve created an order. More specifically, ecommerce fulfillment is the version of this that’s designed for traditional eCommerce businesses.
With a traditional ecommerce fulfillment model, your customer creates an order with you, and your online store recognizes it, processes the payment, and provides a notification of the order. Your software takes the notification, creates a ticket, and sends that ticket to your fulfillment center. There, your team or a partner choose from the bulk goods you own and pack the order. Then they ship it to your customer.
You own the goods and website, and have some control over how your products are packaged and shipped to the customer—even when you use a third party like Red Stag Fulfillment, you get a say in the presentation so that your branding is paramount.
When your online store uses traditional ecommerce fulfillment services, you’re paying more for inventory up front, but have greater control and are using your own products.
You pay a supplier or manufacturer to create your product and ship it to you, where it is stored in a warehouse owned by either you or a partner. You pay for storage space and a small fee when products are shipped to a customer.
Who does traditional order fulfillment benefit?
Don’t let the thought of paying more scare you off completely, because that initial cost may also lead to greater revenue for your business.
In this order fulfillment model, you can sell your own goods and compete against other stores in a variety of ways, from product quality and quantity per order to overall price. By owning all the inventory before the sale, you can also offer more deals and repackage your goods in a wide variety of ways in order to make the sale.
Bulk ordering your products may also end up creating a lower cost per unit for you compared to Drop-Shipping.
Ecommerce Fulfillment gives you greater flexibility and control over your goods, with your branding being the only present, so it often makes sense for companies who are trying to differentiate based on their own products and for eTailers that have grown significantly and want to take advantage of cost reductions when ordering in bulk.
Drop-Shipping: Less Cash, Handling, Risk
Drop-Shipping operates in a very similar way to traditional ecommerce fulfillment, but with two big differences:
- The online store doesn’t purchase any inventory before a sale takes place.
- You’re typically limited to competing based on price and brand recognition.
In a Drop-Shipping setup, your business is a storefront selling goods. When a customer places an order with you, you then place an order with a warehouse or other Drop-Shipping partner. You buy the goods from them and tell them your customer’s address. The supplier ships the product directly to your customer.
Your business is the middleman, allowing you to run a very lean operation. You don’t have to pay for goods before you need them or rent any warehousing space, and you are spending a fixed cost per product and shipment.
The products you have to offer depend on what your partners have in their inventory. In many cases, you won’t be the only person accessing this inventory, so you’ll have direct competition.
Therefore, you’ll be competing on price more often than not, and you’ll have less control over fulfillment speeds and costs. You might end up with less profit compared to other models due to these factors.
When Drop-Shipping makes sense
Companies can benefit from drop-shipping when they have minimal cash for an upfront investment, are unsure of their market, or want to focus solely on the sales side of the business. Drop-Shipping frees you up to spend less and narrow your scope by removing the risks and worries of maintaining inventory levels and a large workforce.
Another big benefit of the Drop-Shipping model is that you can test out new products and new markets with minimal investment. All you have to do is create the relationship covering the new products and add them to your digital storefront; your shipping partner takes care of all of the other logistical requirements of the product introduction.
This setup means that you can test multiple products and offerings, quickly getting rid of what doesn’t work, without the running the risk of having a warehouse full of products you can’t sell.
There’s no need to drop all your cash, so you’re protected. It’s one of the big reasons we think startups should (almost) always consider a dropshipping model.
Ignore All of That for Some Game of Thrones
We know, you’re probably reading this at work while secretly trying to figure out what the next big reveal in Game of Thrones is going to be (we are too). So, let’s skip the boring text and take the Drop-Shipping versus traditional ecommerce fulfillment debate where it belongs: to Westeros.
Check out this quick video below to see if trying to dominate the eFulfillment world with your own Khaleesi’s Koffee is the right model, or if you want to back a few different horses by choosing drop-Shipping for Cersei’s Roast and Jon’s Blend.
And remember, like the ruler of the Iron Throne, no decision is 100% right for everyone. Sometimes there’s a need to channel your inner Varys and change partners when it’s right for Westeros (your business) as a whole.