Dropshipping vs Wholesale: What’s the Difference? (2024)

Dropshipping vs wholesale: How do you make the right choice for your growing business?

How you source products for your ecommerce store makes a huge difference to your brand, your growth, and how profitable you’re likely to be. Both wholesale and dropshipping can offer excellent, convenient ways to fill your product portfolio.

However, there are some major differences between the two, in terms of upfront cost, and even the overall effort of running your store.

Today, we’re going to take a closer look at the differences between dropshipping and wholesale, to help you decide which method you should pick for your business model.

What is Dropshipping, and How Does it Work?

Dropshipping is one of the most popular ways to source products for an ecommerce store, and manage fulfillment for customer orders. Essentially, it’s a strategy that allows you to list and sell products created by a third-party manufacturer, without ever handling the items yourself.

You choose a dropshipping supplier to work with, either from a directory or a site like AliExpress, then list their items on your website. When customers place an order with you, their details can either be automatically or manually transferred to the dropshipping company.

The manufacturer you work with will then pick and package the order for you, and ship the items directly to your customer. One of the biggest perks of running a dropshipping store is you don’t have to handle any of the work of managing inventory or supply chain elements. Everything that happens after you make a sale (except customer service) is managed by the other party.

What is Wholesale and How Does it Work?

Wholesale is another excellent way to source new products for online and offline stores. With wholesaling, the merchant (you), sources merchandise from a manufacturer in bulk quantities. Instead of purchasing products one at a time after they’re sold (like with dropshipping services), you buy large volumes of items to store and manage yourself.

Buying large quantities of a product often means you can access a discounted price for your products, which helps to increase profit margins.

One you choose your wholesale supplier and purchase your products; you store them yourself in a warehouse or fulfillment center. You’re also responsible for packaging the orders and sending them to your customers via logistics companies.

Wholesaling gives you more control over the order management process, as well as cheaper rates for items, but minimum order quantities (MOQ) mean you’ll have a higher upfront investment cost to deal with than you would with a dropshipping store.

Factors to Consider When Choosing Dropshipping or Wholesale

Now you have an idea of what dropshipping and wholesale selling are, and how they both work, it’s time to start looking at the core differences, to determine which option is right for you. Let’s take a look at the core factors that influence dropshipping and wholesale results:

Startup costs: The initial costs involved with creating your website or store can be a big obstacle for a new business. Dropshipping has a distinct advantage in this area, because you won’t need to purchase any items upfront. Instead, your costs only include crucial tools for running your business, like a subscription to an ecommerce platform. With wholesale, you need to buy large quantities of products upfront, and find storage space for them.
Inventory management: With a wholesale store, you’ll be responsible for managing the inventory you purchase from your supplier. This means you need to think about warehousing options, managing orders, keeping track of your inventory, and hiring the staff members required to pick, package and ship orders. With dropshipping, all of the work of inventory management and fulfillment is handled for you.
Suppliers: Choosing the right suppliers is crucial to making any store a success. With wholesale buying, you can purchase products from B2B retailers or manufacturers. You can also request samples in some cases, and check the quality of products before sending them to customers. Alternatively, with dropshipping, you don’t always get an opportunity to check the quality of the products you source before they’re delivered to your audience.
Competition: There will always be other sellers in the same market as you, trying to connect with similar buyers. However, with dropshipping, there’s a much higher chance that you’ll be selling the exact same products as a range of other brands. Wholesalers are a little more cautious about who they partner with, and may offer a wider range of product options to choose from, so you can more easily differentiate your brand.
Shipping: As mentioned above, dropshipping companies handle a lot of the work involved with order fulfillment, including picking, packaging, and shipping orders. This means you can focus on other parts of running your business. With wholesaling, you’ll need to handle the full fulfillment process yourself, working with third-party logistics companies and shipping brands directly, which could lead to slightly higher costs and more complexity.
Effort: Though there are tools you can use to simplify your wholesale store processes, such as warehouse fulfillment management tools, you’ll still need to put a lot more work into ensuring your business is a success. With dropshipping, you can automate many of the processes involved with managing your store, and ignore complex things like tracking inventory, which could reduce the barrier to entry for beginners.

The Pros and Cons of Dropshipping

All business models have benefits and drawbacks to consider. While dropshipping stands as one of the most popular strategies for store owners today, thanks to its simplicity and low initial costs, it does give you less control over the order management process.

Let’s look at the pros and cons of running a dropshipping business.

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Pros 👍

Low startup and operational costs: Perhaps the biggest benefit of dropshipping for any business owner is its affordability. With the dropshipping model, you don’t have to invest in large amounts of inventory initially, and you only pay for items when orders are placed. You don’t pay warehousing costs, and may even be able to access discounts on shipping.
Simplicity: With a dropshipping business, most of the work of managing your orders is done for you. The dropshipping supplier handles all of the picking, packaging, and shipping for you, so you can focus on growing your business elsewhere. You don’t have to manage inventory, or deal with complex supply chains.
Minimal risk: Because you don’t have to purchase large volumes of products with a dropshipping store, there’s less risk. You won’t have to worry about figuring out what to do with inventory that doesn’t sell, because you’ll only pay for items when orders are placed.
Easy to scale: Dropshipping makes it easy to add new products to your inventory whenever you choose, and scale your business according to your needs. No matter how many customers you get, or how broad your product portfolio becomes, you won’t have to invest in extra warehousing tools or staff members.

Cons 👎

Profit margins: While dropshipping stores come with lower overhead costs, the returns can be lower too. Since you’re not selling particularly unique products, or accessing volume discounts, you might not make as much money.
Competition: Dropshipping companies work with lots of different entrepreneurs, giving everyone access to the same products. This can make it difficult to differentiate your business from other vendors, and create a compelling brand.
Control: With dropshipping, you won’t have a lot of control over labelling, packaging, and shipping your orders. There are fewer options to track product quality, and ensure you’re delivering excellent solutions to your customers.

The Pros and Cons of Wholesale

Just like dropshipping, wholesale has its positives and negatives to consider.

While you have more control over your inventory and fulfillment process, you’ll also need to invest more time and effort into growing and managing your store.

Pros 👍

Higher profit margins: Discounted prices for items purchased in bulk give you more scope to increase your profit margins. You may also be able to access more unique products, which could allow you to charge higher prices than most.
Branding: Because wholesalers work with fewer companies, there’s more scope to create a unique brand and differentiate your business from the competition. You can even personalize the unboxing experience for customers.
Variety: Wholesaling can give a business owner access to a wider range of products and solutions, so they can sell unique products across channels from Shopify, to Amazon, Ebay, and Etsy, increasing revenue potential.

Cons 👎

Higher upfront costs: You’ll need to adhere to MOQ requirements when purchasing wholesale products, which means you’re going to need to invest more initially. You also need to pay for warehousing and inventory management tools.

More work: With the wholesale model, you need to keep track of every order a customer places, and ensure you’re tracking your inventory numbers. There’s a lot more work involved with this fulfillment method, even if you utilize helpful tools.

Dropshipping vs Wholesale: Which is Best?

Choosing whether to be a dropshipper, or a reseller of wholesale items can be difficult. Both options have their pros and cons to consider, and both can help you access high-quality products for your ecommerce business.

The right option for you will depend on a number of factors.

If you want to maintain complete control over the order fulfillment process, access more unique products, and handle things like labeling and packaging yourself, then wholesale is a great choice. If you’re looking to launch your online business with minimal upfront costs and effort, dropshipping offers low start-up costs, and simplicity for small businesses.

FAQ

What is the main difference between dropshipping and wholesale?

The main difference between wholesale and dropshipping is how much work you’ll need to put into running your online store. With dropshipping, you outsource the order fulfillment and shipping process to third parties. With a wholesale business, you handle those operations yourself.

Which business model offers higher profit margins?

Discount wholesale prices generally allow you to earn slightly higher profit margins with wholesaling than you would with dropshipping. You can also save money on things like managing your own inventory and warehouses, so you keep more cash in your pocket.

Can I combine dropshipping and wholesale?

Some providers offer the option to combine wholesale and dropshipping. In this instance, you’ll generally buy products in bulk, but pay a fee to have your wholesaler manage the products in their own warehouses, and deliver items on your behalf.

How can I find reliable suppliers for dropshipping or wholesale?

Research is key to finding the right suppliers for either a dropshipping or wholesale business. Consider examining customer reviews for the manufacturers you want to work with. It’s also worth looking for companies who offer an opportunity to order sample products for quality control.

Is dropshipping more suitable for beginners?

Dropshipping is definitely an easier business model for beginners, as there are fewer processes to manage and run yourself. However, you’ll still need to build your own online store or storefront, invest in marketing, and ensure you find the right partners to work with.

Are there any legal considerations when starting a dropshipping or wholesale business?

The most important thing to keep in mind when working with dropshipping or wholesale vendors, is copyright protection. Make sure you have the right to sell any products you’re offering on your store, and avoid any items which may look like “copycat products”.

How do I handle returns and customer support with each business model?

With wholesaling, you’re responsible for handling all of the returns and customer support processes yourself. You’ll need to manage returns in your warehouse, and track your inventory. With dropshipping, some suppliers will handle some of the returns process for you, but you’ll still be primarily responsible for customer service.

Can I transition from dropshipping to wholesale or vice versa?

Yes, there’s nothing to stop you from experimenting with both business models. You can start with wholesaling and venture into the dropshipping world or vice versa. Or you can consider combining both models to expand your product collection.