A lot of people ask me, what should I start off with? A Dropship store or a traditional e-commerce store? Which one is better? Which is better to start out with and why? This makes for a great discussion! As some of you may know, I’ve been into the ecommerce world since 2013.
Now I know that’s not very long in comparison to some others I know of, but a lot can be experienced within a few years. Both good and bad. But that’s how I learned, through pure experience of trial and error. So without further delay lets get to this juicy e-com discussion.
So my first venture was a traditional e-commerce store. Was it a smart idea looking back? Probably not for someone who had no experience besides seeing some stores while I was working at Godaddy. Do I regret it? Nope. Not at all and here is why.
1. Starting up a traditional ecommerce store forced me to be able to hunt down manufacturers right away. During that hunt, I also learned how to negotiate pricing and order size. As a new guy without much capital at all, my hand was forced to buy in bulk, but at a smaller quantity than what most manufacturers wanted. You’ll often get responses that the minimum order quantity (MOQ) is 1000 pieces or something ridiculous.
2. After I had ordered and received the products I soon learned that I should probably should have validated my products first. What do I mean by that? I mean assess if there is truly a demand for the products. Yup I went into it blind using my gut feelings. Good thing now is that there are ways to validate your product ideas before even selling them. Ever heard of crowdfunding? Yeah platforms like Kickstarter or Indiegogo allow you to create some prototypes and then pitch to see if there is demand while giving you the funds for manufacturing if you reach your goal!
3. With a bunch of inventory sitting in my apartment, I soon realized how much it sucks to store inventory in your own place. Then I realized that it sucks even more to pack and ship items yourself and deliver to the post office. Luckily, I was a short walk away but still… Good thing you can send to distribution centers and they will pack and ship for you. But I had to run lean at this time.
4. Hmmm the thought of sitting on non selling inventory was a little nerve wracking. Bear in mind at this time that I was a complete noob to marketing. Again lucky for me, I was able to sell some in bulk doing a business to business sale. I straight up walked into a store to sell some of my inventory.
5. Traditional ecommerce taught me that it was a hassle for someone who doesn’t have a lot of funds to begin with. It also showed me that I’m kind of lazy and I know that sounds crazy, but there are some tasks I’d really rather not do. Its more responsibility, I like less responsibility.
6. Profit margins were very nice for the products I chose to be manufactured. But those profit margins get cut some with shipping the product to your place and then for shipping out to customers (unless you charge them shipping).
So with all of that experience, it actually drove me away from the traditional ecommerce model. Not saying its bad by any means, but for a noob, its probably not the best idea unless you have your product validated. And yes you can validate in other ways besides crowdfunding. Ever heard of private labeling? Yeah so you can find already proven selling products out there and simply get them manufactured with your own label/branding and purchase in bulk for great profit margins.
With everything that I know now, I could certainly come back into the traditional ecommerce model since I have the funds to splurge on manufacturing from the get go and know how to market. Why don’t I then? Well the real answer is, Im lazy. Yes i could get a distribution center that I would need to communicate back and forth with, yes I could have a team manage that, and yes I could hire somebody to make product design. But do I really want to do all of that? Not really.
But hold up, lets assess what I could possibly be losing out on.
1. Super brand loyalty. When a brand establishes its presence in a market, it creates confidence for potential customers and ultimately creates an environment for repeat buyers.
2. More sales channels. If its your own products, you are the only place to get them from unless you expand. You can now sell that product on other markets and to businesses like I did.
3. Brand equity. Again having that branding and market dominance gives you an edge on all channels and ultimately if you go to sell your business, it will be worth far more! This is huge!
4. Profit margins. Sure my dropshipping margins are already fantastic, but you can get monster profit margins by buying in bulk and selling for more since you’re the only seller of the product. Not to mention, some products yo can get made for cents or dollars and mark them up into the thousands!
Alright so what about this thing called Dropshipping?
Here is why I am a big fan of dropshipping.
1. No bulk purchasing of inventory.
2. Supplier/distributor handles all the shipping. That means you DO NOT have to pay for a distribution center to ship your stuff or have your own warehouse. (Now you can understand where my laziness comes in)
3. There are great profit margins to be found despite the popular belief. You just have to known where to find them!
4. At least with my method of low ticket items, its easy to sell worldwide since new shipping services have emerged recently.This means its easier to scale your business and on a global level! I don’t know about you but having the ability to be in every global market is huge!
5. You only pay for products AFTER the customer has already purchased the items on your site. Thus reducing any risk of having inventory sitting around idle.
Now remember when I was talking about Brand loyalty? Well for Dropshipping it probably won’t be as strong but it doesn’t mean you cannot do this well. With Dropshipping you can actually get things private labeled as well. Or if you’ve ever heard of the gigantic publicly traded company called Wayfair.com well they are a dropship site that sells furniture with massive brand awareness.
So for noobs what do I recommend? Dropshipping all the way. How about veterans to eCommerce? That will depend then on the level of effort you want to put in. I think there is a little to a lot more money to be had with the traditional method especially if you chose or created the right product!
Those are my thoughts. Both methods of ecommerce are valid ways of making money and require a considerable amount of skills. Anyone telling you that it is EASY is mistaken. It’s not easy but you can develop the necessary skills yourself or outsource when needed. But my opinion is that you should always learn first before you outsource. Otherwise how are you gonna train others to do what you need?
If you had to ask what I would choose at this point in time WITH ALL THE EXPERIENCE I’ve accumulated. I would go with the traditional/private label route.
Whether you're wanting to dropship or buy in bulk and have a fulfillment center send out orders for you... either way requires the same skills. The amount of time to setup things will vary though.
With dropshipping you could be selling literally in one day. With traditional e-commerce it's going to take more time to get products made and branded, then sent to a warehouse. And even before that you'll need to negotiate rates, setup integrations with the warehouse all before selling. Does this have to take a long time?
No not necessarily! Quite frankly this could all be done in a week if you know what you're doing. But for noobs, it's probably best to get your feet wet with Dropshipping. Learn how to market first and foremost and then once you have proven a product, you can move onto private label or getting a whole new product created!