February 8, 2025

Which is a better online retail strategy? Dropshipping vs owning products

dropshipping

Introduction 

Before you start an eCommerce business, it’s important to decide on a business model. Two popular options for new entrepreneurs are dropshipping and owning inventory. Many people find it difficult to choose between these two models. 

It’s hard to say which one is better because they both have advantages and disadvantages. To make an informed decision, you must first understand their fundamental differences. That’s why in this article, we’ll be having a detailed comparison about which is a better online retail strategy. 

So, let’s get right into it. 

What is Dropshipping? 

Dropshipping is a method in which a retailer transfers a customer’s orders directly to a wholesaler, who then ships the products to the customer. This basically implies that the items you offer to clients come from an outsider that ships straightforwardly to them. When dropshipping is used, online retailers neither see nor handle the products.

In dropshipping, the selling merchant does not own or stock inventory like a typical retail store owner. Instead, the merchant works with a manufacturer, wholesaler, or retailer to have orders shipped directly to customers. This is in contrast to owning and storing inventory in warehouses and fulfilling orders directly.

Dropshipping has become quite popular over the years due to its low operating costs. Overall, it is a great business model for both seasoned and novice entrepreneurs just starting out in the eCommerce sector.

What is Owning Inventory?

Owning inventory as an online retail strategy, is essentially having a stock of products ready to sell. Usually, these are finished goods that are stored in a warehouse where they can be shipped to customers quickly.

With this retail strategy, the products can be obtained directly from the manufacturer or distributor. This allows retailers to have control over the products they sell, as well as the ability to offer a wider selection of products to their customers. However, the majority of the time, you would buy in bulk to get the best price.

Dropshipping vs Owning Inventory: Side by Side Comparison 

Let’s compare the features of both retail strategies side by side now that you are familiar with their basics:

Purchasing of Goods

For dropshippers, order fulfillment is completely dependent on a supplier. Your business would cease all operations if your supplier ran out of stock.

On the other hand, you still have some leverage if you own inventory. You might still have some units in stock so you can plan ahead even if there is a shortage of that product on the market.

When it comes to product sourcing or purchasing of goods, owning inventory definitely has an advantage over dropshipping.

Total Investment

Dropshipping completely outperforms owning inventory strategy in terms of investment, which is undeniable. Launching a general product dropshipping store is the safest option if you don’t want to take risks or haven’t worked in the eCommerce industry before.

However, there is no avoiding the fact that marketing requires some capital, even when dropshipping. You will need to run ads at the very least to get people’s attention. Otherwise, you might find it difficult to sell your products organically.

The Risk Factor

Compared to dropshipping, the owning inventory strategy is unquestionably much more risky. When choosing a product, you need to be extra careful. It’s not a good idea to buy hundreds of the same product only to find that no one is interested in buying them. Additionally, the sale of your inventory shouldn’t take too long, as this would impede cash flow. You must also take into account the fact that the product’s value decreases over time.

Dropshipping, on the other hand, is pretty straightforward, and you only pay for products that you sell 100% of the time. Unless, of course, the customer files a dispute, which is a unique circumstance. Dropshipping is therefore the better choice if you don’t want to take risks or just want to learn more about the eCommerce industry.

Fulfillment of Orders

Dropshipping’s ease of use is one of the main reasons it has gained popularity recently. The only thing you need to do is accept your customers’ orders, send the information to your supplier, and pay. The supplier will then take care of everything else, from the shipment to the fulfillment of the order.

The inventory strategy, unfortunately, is more difficult. At the point when you have your own stock, you likewise need to figure out your own solution for coordinated operations. You can always try a logistics service provided by a third party, but you’ll still have to pay them extra.

Long-Term Expansion

If you launch a private label brand, dropshipping and owning inventory have tremendous long-term potential. Private labeling an inventory-based business, on the other hand, can be more difficult than private labeling a dropshipping store. You’d need to haggle with the makers and wholesalers and inquire as to whether they even permit it, in any case.

Private labeling a dropshipping business, on the other hand, is much simpler. You can even get help setting up your business by hiring a professional service that offers private label services.

Comparing Dropshipping and Owning Products in Terms of Customer Service

Your company’s success is negatively impacted by the level of customer service you provide. Sadly, however, providing excellent customer service as a dropshipper can occasionally become difficult. This is because you need to talk to the supplier in order to solve problems. And if the supplier doesn’t respond quickly, you’ll only have to tell your customers to wait.

The inventory strategy doesn’t work like this because you send all of the orders yourself. You won’t have to deal with a third party and can therefore offer better service to your customers if you sell your own products in-store. You won’t be caught off guard by customer complaints and can maintain strict quality control measures. In the event of a problem, you would know how to deal with customers to resolve it amicably.

Profit Margin

On paper, an inventory-based store has a higher profit margin than a dropshipping store. It only makes sense that purchasing products in bulk will result in a lower price. Therefore, hypothetically speaking, if you are able to successfully sell all of your products, you will be well-positioned to profit from your inventory-based store. However, it is typically not that simple, and for each return or refund that your customers request, you would lose the cost of shipping.

In the case of dropshipping, the suggested overall profit per deal is around 20%. Therefore, you can keep $20 for a $100 product, which, as we are aware, is not very impressive. But you can make a lot of money from each sale if you sell expensive goods. However, selling expensive goods via dropshipping is naturally difficult; otherwise, everyone would be doing it.

Overall, each of these retail strategies has its own money-making potential; the question is which one is worth your time and effort?

Ease of Operation

Last but not least, which of the two is easier to run? Dropshipping is the straightforward solution. Why? Well, most of your work is finished by the provider. Your supplier will deliver the order to the customer after you place it with them. Additionally, you can also simplify that with an automated dropshipping service.

You now know which retail strategy is best for you if you want to start a side business but don’t have a lot of spare time. However, keep in mind that success does not necessarily come easily. You still need to put in the effort if you want to see results.

Dropshipping vs Owning Inventory: The final verdict 

In different ways, inventory and dropshipping models are superior to one another. For example, having your own inventory can actually help you make more money. However, it is obvious that it is much more risky than dropshipping and requires more initial capital.

It is entirely dependent on personal preferences and long-term planning to determine which one is “better.” Eventually, on the off chance that you’re going for dropshipping, your primary point is to build a brand.

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