Dropshipping vs eCommerce fulfillment

Although, there are many different eCommerce business models, but dropshipping and eCommerce fulfillment are two of the most popular ones.

Updated: December 6, 2024

Dropshipping vs eCommerce fulfillment

Retailers have many opportunities to sell products in the internet, without a physical storefront. Dropshipping is one of them in which retailers can sell products without holding any inventory. 

Dropshipping causes some confusion, especially for small business owners who are new to the online business scene as a different fulfillment method than standard eCommerce businesses are used in this model.

The emergence of E-Commerce:


Over the past decade, internet accessibility has increased, and online shopping has become more popular due to secure online payment portals. As a result, many businesses have shifted to online sales to meet the growing demand. E-commerce refers to the buying and selling of goods and services online.

Various platforms and resources are available to support new sellers entering the e-commerce space, making it easier to join the market.

Many brick-and-mortar businesses have transitioned to online selling because it is more affordable. The demand for e-commerce surged during the COVID-19 pandemic, as it provided a safer option for both shoppers and employees during lockdowns. While there are various e-commerce business models, dropshipping and e-commerce fulfillment remain two of the most popular options.


What is E-Commerce Fulfillment?


E-Commerce fulfillment is a business model which involves purchasing goods in wholesale quantities, selling them online, and fulfilling each order in-house. The retailer holds an inventory of the products which they are selling in this business model.

Branded websites are created by business owners with built-in eCommerce capabilities with eCommerce. Generally, plugins are there in website building platforms to build online storefronts. E-Commerce stores can be stared from  a garage or spare room in the homes and still can sell on a small scale. However, owners need to rent out warehouses of fulfillment centers as an eCommerce business grows.

What is Dropshipping?


Dropshipping is an eCommerce business model where retailers sell products they don’t keep in stock. This model has gained popularity due to automation and outsourcing. Setting up a dropshipping business is similar to launching an eCommerce store, with the main differences being how orders are fulfilled, who manages the inventory, and the level of investment required.

In dropshipping, you still create a branded online store and handle customer relations and support. The key distinction is that fulfillment is managed by a third party. Retailers can enter this business with minimal capital since they only pay for products once they’ve been sold.


Dropshipping vs. E-Commerce Fulfillment:


Both of these business models are found to be beneficial for entrepreneurs. However, each of these model will have their own advantages and disadvantages.

Advantages and Disadvantages of E-Commerce Fulfillment:


While the eCommerce fulfillment model can lead to success for many entrepreneurs, it can become overwhelming for others due to its complexity and the numerous moving parts involved. This model is ideal for entrepreneurs who want to sell their own products, whether they are sourced, branded, or self-manufactured. It offers greater flexibility in building a brand according to your vision.

One of the key benefits of eCommerce fulfillment is the level of control it provides. You don’t have to rely on a fulfillment partner if you handle everything in-house, giving you full oversight of the process.

However, a significant amount of capital is required to start this business model, which is its main drawback. Entrepreneurs must purchase inventory and invest in an online storefront, which presents a risk—there’s always the possibility that the business may not succeed as expected. If you're unable to sell your inventory, you’ll have to absorb the loss, even if your initial products perform well.

If the business takes off, you must ensure timely order fulfillment to keep deliveries swift and customers satisfied. Scaling such a business requires careful planning and substantial investment. A physical location, such as a warehouse, becomes necessary as the operation grows, and costs will increase accordingly.

The reward for these efforts is larger profit margins, as you can source products at wholesale prices by cutting out the middleman. However, this requires more time and effort. As your business expands, you’ll likely need to hire staff to manage daily operations, adding to your expenses. The upside is that you’ll have more control over your business’s costs and operations.


Advantages and Disadvantages of Dropshipping:


Dropshipping definitely works for some people, but it isn't suitable for everybody like e-Commerce fulfillment. Dropshipping is relatively easy to get started which is its main advantage. It very affordable and possible to set up without a physical location as you don't have to purchase any inventory apart from samples. 

There is also very low overhead as you don't have to hold an inventory. Setting up the website and running ads is the only investment required for a drop shipper. You need to ensure that the vendor that supplies your products and fulfills your orders must have the capacity to grow with you in order to scale your business.

You can easily experiment with different advertising methods and products because of the low overhead. You are not in a risk of lossing much of your money if the business fails. Dropshipping is a suitable business option for people who are able to work from anywhere with their laptops and Wi-Fi.

Having minimal control over the fulfillment and delivery process is the primary drawback of this model. A drop shipper will be in a tight postion when a vendor that supplies the products and handles fulfillment drop off at some point of time. Drop shippers may also find themselves in legal situations due to suppliers that run illegitimate operations.

It is difficult to build brand awareness with dropshipping which is another drawback of this model. Although, items are purchased from a branded website or storefront, usually the branding of supplier are reflected on the items. It is likely to associate the item with the brand on the product that the customer have received.

The profit margins are also lower as the bulk of the work in the business are automated and outsourced. Typically, dropshippers do not get their products at wholesale rates, and they have to pay some sort of fees for fulfillment if at al they get it.

Deciding Which to Pursue:


Plenty of opportunities are there for entrepreneurs in both dropshipping and standard eCommerce fulfillment. The one that is suitable for you will depend on your interests, current resources, and long-term goals for the business.

In general, dropshipping is an easier approach since half of the process is outsourced and fewer funds are required to get started. This business model is more adopted by people as it is also relatively easy to scale.

The profit margins are considerably lower as much of the dropshipping process is outsourced. However, this model can be an option to get started in order to build up funds for a different eCommerce product.

E-Commerce fulfillment approach is a viable option if you have the resources available for you and have the desire to put in the work. Although, more work is required to be done in this model, but it is easier to build a brand and the profit margins are higher. You can not only sell branded products, but also can sell products that you are manufacturing.

Building a website and building a brand for your shop is required in both of these approaches. You may have to hire a specialist if you are not skilled in this area as some level of design skills are required here.

You will need to invest in marketing and advertisement in order to maximize your success in both the models. Providing customer service in both models is also a must requirement. How much time and resources you have to put into the business and what you want to achieve matters when you are going to decide from these two models.

Where To Do Dropshipping?


If you choose to dropship your products, you must decide whether to sell them on an online marketplace or through your own website. Creating your own site gives you more control over branding, while selling on established B2C marketplaces allows you to tap into existing customer bases. You can also combine both methods to sell your products.

Search engine optimization (SEO) is important for both approaches. If you aren't running ads or using social media content marketing, you’ll likely rely on organic traffic. To rank on Google and other search engines, you’ll need to optimize the pages of your own website if you’re listing products there. Likewise, listings on online marketplaces can be optimized for their built-in search engines. Products sold on dedicated eCommerce platforms are often easier to find, as these marketplaces typically have fewer listings compared to major search engines.