If you are getting into e-commerce and contemplating your various options, an important thing to consider is how you will ship your product to customers. Two commonly used shipping models are fulfillment services and drop shipping.
Like with most choices, there are pluses and minuses to both. As an e-commerce business owner, you have to work out which is the best, given your situation and circumstances. So let's take a look at the differences between fulfillment and drop shipping.
Drop shipping explained
With drop shipping, your downside is limited and the upside is uncapped. If you never sell anything, you don't pay a penny
With drop shipping, you act as the middleman. You don't own the inventory, you don't touch it and you never see it. Pure and simple, you are an affiliate of the product in question.
One of the great things about drop shipping is that it allows you to test the waters regarding a new product. Whether you decide to base your entire product line on drop shipping is another question.
With drop shipping, your downside is limited and the upside is uncapped. You aren't paying for the inventory you are selling, so if you never sell anything, you don't pay a penny. In contrast, when you own inventory, a product that doesn't move is a drain on your finances. You have to pay to receive it, you have to pay to warehouse it and then you have to pay to get rid of it. So drop shipping can reduce your financial risk.
What to consider about drop shipping
Drop shipping may not be the way to go when it comes to items you are having no trouble selling. For one thing, you will be receiving a lower margin on the drop-shipped product. Secondly, the owner of the product has control of it and thus can decide how he would like it shipped. In the end, you may lose as much of 10 percent of your margin due to drop shipping. If you are selling a product for which the margins are already razor-thin, you may find it impossible to make money by drop shipping.
With fulfillment, warehouse employees manage every aspect of the process, but it's your product they are dealing with
The lack of control could be problematic. You know that feeling when you order something online, but the product takes forever to arrive and no one is responding to your emails? Often this happens due to drop shipping. So you have a customer ranting and raving at you, but there is nothing you can do about it. This is frustrating for all concerned and, even worse, not a good look for your business.
Fulfillment offers more control, but more risk
Fulfillment is when your stock and product reside in someone else's warehouse, whereby the warehouse's fulfillment team ships it out. Warehouse employees manage every aspect of the process, but it's your product they are dealing with. This can worry some sellers, since someone else is handling such an important part of their business.
There is nothing new with being a middleman—supermarkets and department stores have been doing it for hundreds of years and have made trillions of dollars out of it. Ultimately, though, it is about control. If you like to have it, you may find that relinquishing it in order to drop ship isn't for you.
So your best-case outcome would be that you drop ship the items you hardly ever sell, and use fulfillment services for your best-sellers.
Seth Boylan is the owner/operator of Xpert Fulfillment, an order fulfillment house with locations in Michigan, Minnesota and Europe. An avid race car driver, Seth also enjoys snowmobiling, offroad 4-wheeler trail riding and camping. He has 10 years of experience in the fulfillment and logistics industry.
Opinions expressed here may not be shared by Auctiva Corp. and/or its principals.
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