Dropshipping, Fulfillment Center or Self-Operated?
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Starting an online business can be quite overwhelming, especially in the early days. There are a lot of factors to consider, but one of the first will the product. What will it be? How will it be made? Will there be suppliers’ involved? But one of the most important questions is how to get it to your customers. And for that we can consider 3 major models: Dropshipping, Fulfillment Center or Self-Operated.
So, in order for you to judge which is best for you and your business, today we will explain in what these 3 models consist on and their main pros and cons.
Dropshipping is a model where the product is sold by you, but made and stored by the manufacturer.
Essentially, the seller looks for different manufacturers, buys the products for their total price and then these are kept by the manufacturer. When one of the products is sold, the information is forwarded to the supplier and the supplier deals with the entire delivery process.
Low Initial Investment
Since you will only buy the product when you sell it, your costs will be related to the platform where you will sell them. These are, typically, your website or Marketplaces.
When dropshipping, there are endless possibilities as to which products you can sell. So you can have a diversified product catalogue.
Reduced profit margins
Since the entire process will be the manufacturer’s responsibility, the margins for the seller will be very low.
A common occurrence when dropshipping is that your manufacturer will also sell the same product to other companies. So you will compete with companies that operate the same way, with the same product. That means that standing out will become even more complicated.
In addition to very low profit margins, the amount of power over product delivery will also be low. So whenever your customer has a problem with orders, you cannot do much to help them. You can contact the supplier to find out the problem, but that is pretty much it. At the end of the day there is not much you can do.
A fulfillment center is essentially a third-party system responsible for product storage, order processing and shipping.
It receives the inventory, checks for missing or damaged items – and if so they communicate it to the company almost immediately. Then it organizes and stores the inventory based on the information given by you. This can be the identification of products, existing quantity, whether the products are new or if they are restocks, etc.
When there is a sale, it is communicated to the warehouse with all the necessary information about the product and the customer. Then the center deals with the rest of the process, which translates to the moment it leaves the shelf of the warehouse until it reaches the customer’s hands.
Infrastructure and knowledge
By hiring a specialist company, in addition to gaining their expertise on the logistics process, you also gain their infrastructure. There are specialists who are capable of storing large quantities of inventory and who are located at various strategic locations. This makes the delivery process much faster and more efficient, almost at Amazon’s level. That this is something hard to achieve in a smaller business.
As with dropshipping, when there order processing errors, customers will turn to you for answers. And because you’re dependent on the fulfillment center, there is not much you can do to solve your problem.
Usually, a fulfillment center is something that entails high costs. Therefore, depending on your turnover, it may be better for you to take care of your orders instead of paying the centers fees.
As the name implies, this is a system fully operated by you. The whole process, from the storage of inventory, to the sale of the product, until it is in the hands of the customer is taken care by your company.
Since you are responsible for all stages of the process, your company has much more control over the activities it carries out. So you don’t need to contact others to solve a problem.
Since your company is the one dealing with customer orders, you are always aware of what is happening to their purchases. Therefore, when the customer has any question about an order, you will be able to give them you all the information they need. This builds up trust.
Since there are several areas that are crucial for a smooth, functioning business, operating by yourself is very ambitious. And when companies try to focus on all areas simultaneously, this is often leads to overlooking certain aspects, which are also important.
So if you are willing to try this model, make sure you have the means to make it work.
Dropshipping, Fulfillment Center or Self-Operated?
Now just to recap. With a dropshipping system you just have to worry about selling the products. The rest of the process will be handled by the manufacturer. Through a fulfilment center you will have access to the knowledge of a logistic specialist and their infrastructure, but you will have to pay well for it. And if you choose a system that is totally operated by you, the power is all yours. But you have to ensure that all the wheels of your company are working well.
If you still have questions about which one is best for your company, Dropshipping, Fulfillment Center or Self-Operated, we can help! Contact us and we will help you.