Dropshipping is the cheapest way to kickstart an eCommerce business. Yet, for a business to grow and prosper for a long time, transitioning to a branded eCommerce business is the only way to go.
Dropshipping products allow selling of goods to customers without holding an inventory. It became a popular business model for entrepreneurs who want to earn money with low risk and low startup costs. Yet, the limitation of this model hampers a business owner’s ability to grow and take full control of his business.
To fully understand the advantages and disadvantages of a dropshipping business and a branded eCommerce business, let’s discuss briefly each of these business models.
Dropshipping Business – The Pros and Cons
Dropshipping is a great way to venture into the world of eCommerce without carrying a physical inventory. It enables new entrepreneurs and small business owners to quickly start an online business with lower risk and investment and without worrying about inventory management, storage, order fulfillment, and shipping. In a dropshipping business model, your focus will just be on building your dropshipping store, marketing and selling product, and providing great customer service.
- Low-risk business model. The absence of physical inventory allows you to change product lineup anytime you want.
- Minimal startup capital. No need to buy products upfront and no storage, picking, and packing costs.
- Streamlined processes. Your dropshipping supplier handles the picking, packing, and shipping of orders to your customers allowing you to manage your business remotely.
- Easy management. You do away with renting and managing a warehouse, packing and shipping orders, and dealing with staffing issues.
- Very low margins. While you have fewer costs with this model, creating significant profits will be very challenging. You need to sell a lot to see lucrative profits.
- Massive competition. The low barrier to entry encourages more people to join dropshipping. This means more people selling the same or similar stuff like you and you’ll need to have incredible marketing strategies to stand out.
- Inefficient inventory flow. Your supplier can run out of stock with little to advance notice. If you receive huge orders on unavailable items, the delay in shipping purchases will reflect poorly on your business. Not only that, issues on refund and chargeback will likely arise as a consequence.
- Third-party errors. You have to take responsibility for any errors made by your dropshipping suppliers. It will be you who will apologize to customers about bad packing, delayed deliveries, and botched shipments.
Branded eCommerce – The Pros and Cons
Branded eCommerce is the key to create a truly distinguished company. You’ll have more control over your brand and create unique products that cannot be found anywhere.
- Complete brand control. You create your branded products and you completely control your brand.
- No price limitations. By manufacturing your products, you’ll have full control over your prices. There will be no MSRP (manufacturer’s suggested retail price) and MAP (minimum advertised price) to follow.
- Higher profit margins. With lower costs per unit and complete control over pricing, you’ll be able to generate bigger profits.
- Quality control. Manufacturing your products gives you more control over their quality.
- High startup costs. You’ll likely have a high manufacturing cost in producing your products.
- Excess inventory. You can get stuck with a high volume of branded inventory that makes it difficult for you to quickly pivot your business.
- Longer time from product concept to creation. Coming up with the final product to market might take a long time especially if they’re being manufactured overseas.
- High-risk for fraud. Working with foreign manufacturers can be risky. The manufacturers may cut corners to lower production costs or produce more inventory of your products and offer them to other retailers for re-branding.
Why Build a Brand?
Branding is important in changing the perception of shoppers towards your eCommerce business. It increases brand awareness, conversions, and loyalty. Pivoting your dropshipping business into a branded eCommerce is creating a long-term business. You are giving your business a future by creating a valuable asset.
When you create a brand, you’ll have further leverage in the eCommerce industry. People will trust you more and would confidently buy from you. By branding, you’ll have a recognizable business associated with a set of values. You’ll be the go-to business of people with specific problems that you can solve. Creating a brand will also raise the customer lifetime value which is critical to the future of your business. A branded eCommerce business will help you build a strong brand and win over your competitors to become a top player in the world of eCommerce.
How to Move from Dropshipping to a Branded eCommerce Business?
When you’re ready to move from dropshipping products to owning your inventory, these are the necessary steps to ensure a smooth transition:
- Design your product
- Conduct in-depth market research
- Find a reliable manufacturer
- Create a business plan and budget
- Crop up a unique product line
- Create custom product packaging
- Develop a logistical plan for distribution channels
- Make your brand different from your competitors
- Plan out a solid marketing strategy to launch your products
- Update regularly your website and social media accounts
- Implement a superior customer fulfillment process than your competitors
Dropshipping is a great opportunity to break into the world of eCommerce. Yet, if you’re planning to build a long-term eCommerce business, owning your inventory can seriously increase your profit margins and gives you better control of your product’s quality and inventory flow.