Online business has brought many opportunities for sellers without much requirement as traditional brick-to-mortar stores. Many types of internet businesses equip new vendors with fascinating benefits. In recent years, e-commerce and dropshipping have grown enormously worldwide thanks to the approachable format. However, each type of business has distinctions in operation and management. Is e-commerce better than dropshipping? This article will give you a thorough grasp by breaking down the difference between e-commerce vs dropshipping.
Contents
Definition
E-commerce
E-commerce, a.k.a electronic commerce, is a type of business that involves selling and buying on the Internet.
Sellers and buyers process orders online, but the delivery and payment can be handled in various methods, depending on the customer’s demand. E-commerce can be used in place of physical storefronts, while some companies choose to keep both.
Different E-commerce forms involve the relationship between business owners and consumers: retail, wholesale, dropshipping, drop servicing, subscription, print-on-demand.
According to Statista, worldwide retail e-commerce sales are expected to increase by over 5,000 billion USD in 2024 compared to 2014.
The comparison between the two models is actually a comparison of e-commerce fulfillment vs dropshipping. E-commerce fulfillment is the model where the merchant is responsible for inventory storage, receiving orders, packing, and delivering to customers.
Dropshipping
Dropshipping is a type of business where sellers don’t own inventory and instead fulfill customer orders by sending order information to third-party vendors.
It is a form of E-commerce, some people refer to it as E-commerce dropshipping. The drop shipper is the supplier who controls inventory and ships items to customers. And the responsibility of merchants is to attract clients to the online store and process orders.
Dropshipping is a favored business model of many new sellers with low inventory carrying and investment risks.
The Main Difference Between E-commerce Vs Dropshipping
E-commerce Fulfillment
Requirement
Like any business, you need to invest considerably to succeed with an E-commerce business. Inventory, website, registration certificate, marketing campaigns, warehouse, and software are the main elements that you should think about.
Order Fulfillment
Order fulfillment is the process of warehousing, picking, packing, and delivering products. With E-commerce fulfillment, sellers hold the inventory.
When a customer visits an online store and purchases, the order is addressed to a fulfillment center. For small businesses, in-house fulfillment is a standard option. This method allows packaging custom, complete control, and easy access.
However, it also has certain limitations, such as being time-consuming, difficult to scale, storage, and labor limited.
Therefore, for businesses that have significant operations of over 200 orders, choosing third-party logistics is worth considering. It can ease merchants’ processes, and there is no need to spend on the warehouse.
Cost
Depending on the niche you choose, the cost to start an E-commerce business can vary. The range is from $100 to $5,000 a month. Here are some fixed and essential costs:
- License, insurance cost
- Inventory cost
- Packaging & shipping cost
- Website cost
- Marketing cost
Profit
Compared to dropshipping, E-commerce merchants can earn higher profits thanks to the cut of middle distributors. You can flexibly adjust the price to compete with other businesses in the market.
And when purchasing in bulk from manufacturers, you can negotiate to get lower prices than dropshipping.
Pros & Cons
Pros
E-commerce business allows you to access high traffic of customers. Especially when Covid appears, it is beneficial to shift traditional brick-and-mortar stores to online stores.
The number of people shopping online keeps rocketing. Therefore, everyone can take the chance to approach potential customers.
In addition, merchants are more proactive in managing all processes, including inventory, packaging, delivery, quality control.
Compared to dropshipping, E-commerce enables complete control over products and customer service. If there is an issue with the product quality, you can negotiate with the wholesaler for a replacement or refund.
Cons:
Because owners hold the inventory, you need space for storage. hence, you may have to pay extra fees if the products are stored somewhere else not your house.
Moreover, because you hold products before selling, there’s also a chance of overstock. This doesn’t only mean you aren’t making profits with these products, but they are taking up space that can be used to keep more profitable items.
Dropshipping
Requirement
Dropshipping is straightforward to start with. All you need is to choose the right niche and determine the right provider. You’ll also need a legal payment method for your items. It would help if you could use software to keep track of orders.
Order Fulfillment
With dropshipping, merchants do not own inventory. Instead, the supplier will fulfill the order when a customer processes it.
Meanwhile, the retailer needs to access as many potential customers as possible to profit.
Let’s take an example. Imagine you partner with a clothing supplier. They require $15 for a T-shirt (including the delivery fee), and you want to earn profits with dropshipping.
If a customer wants to get a T-shirt, you charge them $20 for the item. Then you send the customer information to the supplier, and pay them $15. They will pack and deliver the T-shirt to the client under your name. So you earn $5 from this order.
Cost
With dropshipping, you can cut down on the cost of holding inventory. The main focus should be driving more traffic to your online shop. Some merchants choose social media as a marketplace to find potential customers.
However, it is beneficial if you can advertise products on a website. The cost for an e-commerce website varies, depending on your demand. Usually, it ranges from $5 to over $500 per month.
Websites make your shop more professional and optimize the user experience. Marketing can also contribute to your budget. Google ads and Facebook ads are popular advertising platforms to increase traffic to your website.
Profit
Dropshipping allows no stock, no inventory, and the delivery cost is included in your price.
It is a low-risk business model, so retailers often get thin profit margins. The average margin is 10% – 20% depending on the niche you choose.
The supplier often includes many costs in the end price they inform you. Because they need to pay for labor to pack, ship the item, and manufacture. Consequently, it isn’t easy to set a competitive price compared to big brand names.
Pros & Cons
Pros
As mentioned, dropshipping is a low-risk business model. Merchants do not need to own inventory to start. And it is also easy to broaden your categories with various items.
The test for new products is at minimal risk. And it takes less time to head down on dropshipping, unlike E-commerce fulfillment which requires specific preparation.
Cons
Since everyone can start dropshipping with a small investment, the market becomes more competitive.
In addition, retailers will have less control over products. You will be passive with the quality, packaging, and delivery because you never see the physical item.
It’s more challenging to handle replacements or refunds if buyers are unhappy with the goods. And profiting from consumers is lower than E-commerce fulfillment.
How To Start E-commerce And Dropshipping Without Rookie Mistakes?
Despite differences in operation, E-commerce and dropshipping have similar approaches to starting.
1. Choose the right niche
Choosing the right niche enables you to make relevant decisions and scale your business.
Think of any products or services people want and filter the list down to specific items. It is also essential to pick a less competitive niche and easy to approach.
In addition, you should target a specific audience with as many demographic details as possible, such as interest, age, habit, and geographic location.
Internet is a great source to explore, or you can refer to friends that have succeeded in E-commerce or dropshipping.
2. Research market and competitors
After listing a few potential niches, you should thoroughly research the market and competitors. It is essential to answer several key questions:
- What are the opportunities and threats of the market?
- Who are your competitors? What are their strengths and weaknesses?
- What do customers like and dislike about products from your competitors?
- What makes your product attractive compared to your competitors?
- Why should customers buy your products?
Answering these questions helps you have a clear overview of your business. And it is constructive for a well-planned project.
3. Find the right supplier
Some sellers only care about finding the best price from suppliers. It is not an optimal approach. Keep in mind that product quality is of importance for a successful business.
Customers will likely pick your brand without much advertising effort if you can deliver excellent quality. Especially with dropshipping, when you can’t see physical products, you should prioritize standard quality suppliers.
For e-commerce retailers, you can order some samples to check their quality first. Price is also a required element to consider.
Everyone wants to maximize profit and minimize cost, so choosing a supplier who can offer reasonable prices is critical. You should negotiate for discounts if you purchase in bulk.
4. Build a website
For an e-commerce business, developing a website is necessary. It is a great tool to list your products and reach online shoppers.
Websites also enable you to build trust from customers, increase brand awareness and present your items professionally. Consumers can quickly notice your updates and new product launches.
For dropshipping, it is also recommended to build a website. This approach allows a fast connection between you and customers. And because you cannot control the products thoroughly, enhancing customer support through a website is worth considering.
New retailers often have a hard time finding a good website developer with a limited budget.
Tigren‘s extensive developer team can help you build a functional website at a fair cost. We have rich experience in website development after ten years of working. Our team has top-skilled developers to fulfill your demand for a premium e-commerce site.
5. Optimize Marketing
Marketing is a powerful tool to bring traffic to your website. Optimizing marketing enhances consistent and positive outcomes. You can promote your products with many online marketing platforms.
Social media, video, email, SEO marketing are popular forms for online merchants. However, it’s helpful not to overbudget the cost of advertising campaigns.
For instance, monitoring the daily budget and pay-per-click is essential when running Facebook, Google, or Tiktok ads. If a keyword spends $10 without any orders, you should disable that keyword to save money.
Many tools and software can help you keep track of advertising metrics; take advantage of them.
Final Thoughts
E-commerce and dropshipping are great business models that can contribute to your success. Each model has both pros and cons. E-commerce promises to bring you high profits, and dropshipping can help you lower the initial cost without holding inventory.
However, it is vital that you research the market and invest considerable time to develop appropriate strategies to scale your business. All the best!
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