After figuring out the type of eCommerce business you want to create, you are probably confused about the selection between dropshipping and private labels for your eCommerce model.
Many successful organizations always recommend dropshipping to beginners since it provides the opportunity to acquire products with fewer investments and expertise. However, aspiring entrepreneurs should closely look for the pros and cons of both the business model before directly plunging into it.
This blog post will allow you to choose the best eCommerce model suitable for your business.
Why Is Everyone Talking About Dropshipping?
Dropshipping is a low-risk business model that enables you to sell products without incurring tremendous running costs probably like a wholesaler. The lower costs make the dropshipping business model more profitable and faster in comparison to other business models.
Retailers who sell their products through dropshipping are not required to keep a stock of products beforehand. It is popular among several eCommerce businesses. After all, they do not have to worry about stocking inventory and shipping, especially the newbies.
Dropshipping has gained tremendous popularity and is expected to reach $557.9 billion by 2025. Today, almost 27 percent of online stores are using dropshipping. It helps you to earn 50 percent more profit than keeping your stock of inventory.
Dropshipping business model will continuously increase with an increase in the eCommerce business.
Pros And Cons Of Dropshipping
The Pros
Online stores enjoy the following dropshipping advantages:
Economical
The dropshipping business model eliminates the need for purchasing inventory or creating a brand for the product, thereby minimizing the initial investment. This reason makes it a relatively affordable option for entrepreneurs.
Lower Risk
When you opt for Dropshipping as your business model, you don’t have to order a wide range of products beforehand. You can even pull out the product that is not in high demand by your customers. It enables you to select fresh and new products for your eCommerce store without worrying about the excess inventory.
Wider Product Offerings
Dropshipping provides the online store with broader product offerings. Small businesses that are unable to offer multiple products due to stock issues enjoy the dropshipping advantages of selling a wide range of products.
Flexibility
Dropshipping enables a brand to operate its business from anywhere and offer different types of products. It also allows them to change their offering according to their market preference.
The Cons
Apart from the mentioned advantages, Dropshipping has limitations as well.
High Competition
Dropshipping is used by several entrepreneurs because it is easier to start and requires less investment. But that brings in high competition for you to make it difficult to stand out from the crowd.
Depending On Third-Party Supplier
Online stores using dropshipping services have to rely on their suppliers. They have to pay the price of the complaint posted by the customers whenever there are some complications with the third-party supplier. They do not have any control over the product availability and quality if they are using a dropshipping business model.
Tight Profit Margins
The order fulfillment process entirely depends on the third party in dropshipping. High volumes are the only way to earn more.
What Is a Private Label?
As the name suggests, enterprises having Private label business models sell their product with their own company’s label. They can make their product, buy unbranded items and put their labels on them, or find a manufacturer ready to build a product under their brand.
But, they have to contain a considerable number of items in stock to fulfill their customer’s demands. So, you need a good amount of capital to start, a place to store the inventory, and sufficient time to manage all the orders in the Private Label business model.
The Good And Bad Of Private Label
The Good
Some of the entrepreneurs consider Private Label a good business model to implement in their online stores. They enjoy the following benefits because of this business model.
Product Branding
With the help of Private Labels, businesses can create their private model. It enables them to create a business name and logo for a product and packaging guidelines provided to the manufacturer.
Eliminates Competition
Are you running an online store where the prices of the product are set according to your competitors? Then, you should consider Private Labels.
It sometimes allows you to buy products from the supplier without having a label on them. You can charge the price according to the prices and discounts that are given by your competitors.
Additionally, you can entirely control the sales of your product and can even ask the suppliers to make necessary changes to the product to address the problems faced by the customers.
Increased Profit Margins
Private Label products incur no extra cost to the supplier. The supplier has to spend an additional amount in promoting branded products.
If the organization only buys these branded products and private labels them, it will not only reduce the cost of the product but also save enormous money that is usually spent on marketing and promoting the brand.
The Bad
The private label business model also has some downsides. But, if planned strategically, you can eliminate the following drawbacks for your enterprise.
Minimal Orders
The manufacturers require minimal orders when they are asked to produce products for private labeling. Sometimes, the large quantity of this order restricts you from purchasing it.
The good news is that you can solve this problem by wisely negotiating with the suppliers. Ask them to extend the expiry date from the product or produce similar products with different colors, shapes, or sizes to fulfill the order requirement.
Expired Inventory
Retailers order the private label line of products before investigating their demand in the market. It leaves them with inventory that becomes relatively arduous to sell.
They can acquire reimbursement for branded products. The case is completely different with private-label products. This problem can be solved by providing the customers with massive discounts on these types of products.
Dropshipping vs Private Label
From the article, we understand that dropshipping involves selling branded products manufactured by other companies. And, the private label business model includes selling products under your brand.
You can manage the development and manufacturing process of the product and can also sell the pre-made products under your brand name in the private label business model.
Dropshipping allows you to examine different products without risking your business’s future. If a specific item is not highly demanded by your customers, you can always remove it from your list and add the ones that are demanded the most.
On the contrary, if you assume a particular product making a vast profit margin for your online store, you can manufacture similar products and start selling them under your name. You can even add products that are not offered by any other online store.
The Crux
In an eCommerce business, one size does not fit all. Different businesses have different methodologies. For sellers who focus on selling the products, they have purchased from third-party suppliers, like a wholesaler or manufacturer can select dropshipping as the suitable business model. However, the sellers who tend to have their brand can go for private labels. Choose the one that is a perfect fit for your business and maximize your profits.
