How do you choose between dropshipping and holding your own inventory?

1 What is dropshipping?

Dropshipping is a method of e-commerce where you sell products that you don't own or stock. Instead, you partner with a third-party supplier who fulfills the orders for you. You only pay for the products after you receive an order from a customer, and you keep the difference between your selling price and the supplier's price. Dropshipping allows you to start an online store with minimal upfront costs, risk, and hassle.

2 What is holding your own inventory?

Holding your own inventory means that you buy and store the products that you sell on your online store. You have to manage the inventory levels, packaging, shipping, and returns of your products. Holding your own inventory requires more capital, space, and time than dropshipping, but it also gives you more control over your product quality, branding, and customer service.

3 Benefits of dropshipping

Dropshipping is an attractive option for e-commerce beginners or entrepreneurs who want to test new markets or products due to its several benefits. For example, you don't need a lot of money to start as you don't have to buy or store any products. Additionally, you don't have to worry about inventory management, such as stocking, tracking, or replenishing your products. Furthermore, you don't have to handle shipping or returns as your supplier can manage the logistics of delivering and returning the products. This also allows you to offer free or fast shipping to your customers without affecting your margins.

4 Drawbacks of dropshipping

Dropshipping has some drawbacks that need to be taken into account before selecting this option. One of the drawbacks is that you have less control over product quality and availability. You are dependent on your supplier to provide products that align with your descriptions and images, as well as enough stock to fulfill orders. If your supplier makes a mistake or runs out of stock, it could result in lost customers or damage your reputation. Additionally, you have lower profit margins and more competition due to having to compete with other dropshippers who might sell similar products. Furthermore, you have to pay a higher price for your products than if you bought them in bulk or directly from the manufacturer, which leaves less room for marking up prices or offering discounts. Finally, there is less branding and customer loyalty since you have less control over how your products are packaged and shipped. This makes it difficult to create a strong brand identity and build a loyal customer base.

5 Benefits of holding your own inventory

Holding your own inventory has many benefits that can help you grow your e-commerce business and stand out from the competition. You have more control over product quality and availability, allowing you to choose which products you want to sell and adjust inventory levels according to demand and seasonality. Furthermore, you have higher profit margins and less competition when sourcing products from cheaper or exclusive suppliers or even manufacturing your own products. This gives you more flexibility to set prices and offer discounts or incentives. Additionally, having your own inventory allows for more branding and customer loyalty opportunities, as you can customize packaging and shipping to reflect your brand personality and values. This can create a memorable customer experience, which in turn encourages repeat purchases and referrals.

6 Drawbacks of holding your own inventory

Holding your own inventory has some challenges that you need to consider before you choose this option. For instance, you need more money to start, as you have to buy and store your products, which can eat into your profits. You also have to worry about inventory management, such as stocking, tracking, and replenishing your products, as well as dealing with the risks of obsolescence, theft, or damage. Furthermore, you have to handle shipping and returns, which requires finding reliable and affordable shipping carriers and options. You also have to deal with customer service issues that could arise from delays, damages, or losses.

7 How to choose between dropshipping and holding your own inventory

There is no one-size-fits-all answer when it comes to whether you should dropship or hold your own inventory. The best option for you depends on your particular situation and goals. To help you decide, ask yourself questions such as: how much money do you have to start and run your e-commerce business? How much time do you have to manage it? What level of control do you want over product quality, availability, branding, and customer service? How competitive is your niche? And how loyal are your customers? By answering these questions, you can determine the pros and cons of dropshipping and holding your own inventory, and make the choice that best suits your needs and preferences. Keep in mind that you can also combine both options or switch between them as your e-commerce business progresses.

8 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?