Dropshipping vs Wholesale - Discovering The Most Lucrative Business Strategy

In recent years, eCommerce has rapidly expanded due to technological advancements. Giants like Amazon, Walmart, and eBay, alongside emerging startups, are seizing every opportunity to thrive in this expanding market.

While setting up an online store has become relatively easy with internet tools, the crucial factor for long-lasting success lies in choosing the correct strategy and business model. Let's delve deeper and uncover the most fitting strategy tailored to your business needs.

Overview of the thriving eCommerce industry

Firstly, let's zoom in on the exciting numbers in the eCommerce market right now and check out the development potential of this industry.

According to Forbes, the global eCommerce sales reached $5.2 trillion in 2021 and increased to $5.7 trillion in 2022. It is hoped that this number will mark $6.3 trillion in 2023. Forbes also forecasts that by 2026, this giant market's value will continue to increase and reach $8.1 trillion.

The Growth in Retail Ecommerce Sales Worldwide 2021-2026 

The robust growth in online shopping, expected to reach 20.8% by 2023 and 24% by 2026, underscores its convenience and consumer appeal. While the industry holds significant potential, a well-planned business strategy is essential for smooth operations. A strategic approach ensures efficient allocation of resources, adaptability to dynamic market conditions, and a competitive edge in the market.

It sounds a bit complicated, but two popular business models are worth spending on Dropshipping and Wholesale. So what exactly are these two forms, and how do you know which model your company or store should follow to optimize efficiency? Start delving in now!

Understanding Dropshipping

1. What is dropshipping? 

Dropshipping is a method of retailing goods in which the seller does not import products to store in his warehouse but orders them through a third party. The goods will be delivered directly to the buyer from this third party, meaning the seller will never see or handle the products.

The operating mechanism of dropshipping can be summarized in the following three steps:

• The seller finds a trustworthy supplier and then showcases products on an online store.
• The customer places an order on the online store and pays the retail price listed.
• The seller transfers orders to suppliers and the product will be packaged & shipped by the supplier. 

ColourPop is known as one of top Shopify dropshipping stores with their wide range of products and best services.

Learn more: Dropshipping vs. Print on Demand: Which one is the Best Choice for Beginners?

2. Pros and Cons of Dropshipping 

To better understand dropshipping, let's analyze the strengths and weaknesses of this model. This will help you maximize its advantages while being prepared for any limitations it presents.

Pros of dropship

• Easy to start: Setting up a dropshipping store is relatively easy compared to other forms of eCommerce. Platforms like Shopify with friendly and easy-to-use interfaces are effective sources of support for eCommerce starters. 

Pro tip: Using GemPages app to help create your top-notch online store that attracts viewers. No need to code! GemPages has already built lots of templates for you to choose.

• Low initial investment: Dropshipping requires minimal upfront investment, making it accessible for more people to enter the eCommerce market. Financial risks are reduced as buying products in bulk is unnecessary.
• Eliminate inventory concerns: With dropshipping, products are purchased from suppliers only after customer orders, avoiding worries about unsold inventory. 
• Location independent: As long as there is an internet connection, dropshipping businesses can operate anywhere in the world. They are not tied to the supply of goods and products, so they are very flexible and independent.
• Product diversification: With dropshipping, you can sell any product you find the most potential without stocking these items.  

Pro tip: Don't be too greedy when choosing products. Your store will probably look like a grocery store. Choose an attractive product line and create one or more collections for it to retain customers with many choices.

Cons of dropship

• Low Profit Margins: Due to widespread popularity, the dropshipping market is quite saturated, resulting in intense competition and low retail prices. Therefore, if you cannot buy with bulk prices from the supplier, the profit for each item sold in the form of dropshipping is quite low.
• Depends on the supplier: There will be many problems that arise and lead to customer dissatisfaction, but you cannot control such as delivery time, defective products, etc. This is one of the biggest nightmares for dropshipping businesses.
• Limited Brand Control: Dropshipping businesses often have limited options for packaging and branding, so it is difficult to establish a unique brand.

Learn more: 5+ eCommerce Tips and Tricks for Business Growth When You’re Stuck at an Early Stage

Success stories of Dropshipping businesses on Shopify

It's time to take a look at a few great dropshipping businesses in 2023 and find the answer to the question “How to start dropshipping on Shopify?”

Gymshark

Gymshark is a well-known Shopify store that specializes in sports gear and apparel for both men and women.

Try Gymshark if you want to start in the fashion industry

The top store offers a wide selection of premium sportswear in a range of styles, colors, and materials at affordable costs, giving customers the best choices. 

The top-notch store get over 8M visits monthly 

Gymshark maintains its leading position with over 8 million average monthly visits. This is how they reach  that achievement: 

• Product diversification: Gymshark offers a wide range of goods that are categorized into distinct categories, such as Leggings, T-Shirts & Tops, Sports Bras, Shorts, Hoodies & Jackets, Joggers & Sweatpants, etc. that meet all customer needs and make it an one-stop shop for sports enthusiasts.
• Professional images: Gymshark products are worn by models and photographed in professional studios, helping demonstrate product quality and foster customer trust.
• Attractive promotional initiatives: the store has a “50% Off And Above” section for both men and women products, helping to expand the customer base to those with more limited incomes.

Learn more: 18 Best One Product Shopify Store Examples in 2024

Mous

Mous is another successful dropshipping store on Shopify, specializing in phone and laptop accessories. According to Similarweb analysis, the store is currently ranked 96th among all eCommerce websites worldwide.

An eye-catching Above the Fold to retain viewers.

Now consider the characteristics that contribute to the success of this store:

• User-friendly web design: categories are logically arranged for every device and use case, making it simple for users to select the item they want. In addition, Mous features reviews and top-selling items directly on its homepage, giving customers additional options to choose from. 
• Clear and attractive illustrations: All photos are in high definition and taken from many different angles to give customers a clear understanding of the product. Mous even incorporates videos into some products to enhance their vividness.
• Easy payment process: Mous has many payment methods such as Visa, Paypal, Apple Pay, Google Pay, etc. so that customers can easily choose the method that best suits them. CTA buttons like "Add to card" or "Shop Now" or "Shop Gift" are also clearly displayed to help buyers choose the desired product and start the payment process easily.

Understanding Wholesale

1. What is wholesale?

Wholesale involves selling goods in bulk at low unit prices in a B2B model. Wholesalers supply large quantities to buyers, who can resell or use the items for various purposes. 

In eCommerce, store owners purchase goods in bulk from suppliers, store them, and sell to customers at higher prices, fulfilling orders themselves.

With wholesale, sellers need to buy products in bulk

2. Pros and Cons of Wholesale

Just like dropshipping, wholesale has its own strengths and weaknesses. The following are some of the main benefits and drawbacks of wholesale:

Pros of Wholesale

• Economies of Scale

Wholesale allows businesses to benefit from economies of scale by purchasing goods in large quantities. This frequently results in lower unit costs.

• Lower Prices

Wholesalers typically offer products at a lower price than retail stores. This allows retailers to achieve higher profit margins when reselling the products.

• Efficient Distribution

Wholesalers play an important role in the distribution chain, assisting in the efficient movement of goods from manufacturers to retailers. This simplifies the supply chain and reduces the logistical burden on individual businesses.

• Variety of Products

Wholesalers frequently stock a wide range of products, allowing retailers to access a diverse range of goods without dealing directly with multiple manufacturers.

• Bulk Packaging

Products in wholesale transactions are frequently packaged in bulk, making it easier for retailers to manage their inventory.

• Risk Mitigation

Wholesalers help retailers avoid overstock by providing goods in quantities that correspond to market demand.

Learn more: Boosting eCommerce Average Order Value

Cons of Wholesale

• Large Initial Orders

It can be difficult for small businesses with little funding when wholesalers demand big initial orders from retailers.

• Reduced Wholesaler Profit Margins

Retailers have higher profit margins per unit than wholesalers do. Selling greater quantities is necessary for them to be profitable.

• Limited Customization

Retailers may find it difficult to differentiate their products from those of wholesalers if they only provide a limited number of customization options.

• Competition

Many companies are fighting for the attention of retailers in the wholesale market, which can be fiercely competitive. Pricing and terms could be impacted by this competition.

• Logistical Challenges

Coordination of the logistics of receiving and managing large quantities of products can be difficult for retailers, especially if they have limited storage space.

Best ideas to start a wholesale business

Organic foods

With people becoming more health conscious, the market for organic food is rapidly expanding. Despite the fact that many people are already involved in this industry, there is still room for more.

If you can capture the market, you will be able to grow as a wholesale distributor not only in the domestic but also in the international markets.

Biolife is a successful store on Shopify with clean fruit and vegetable products

Snacks

This, like toys, is a large and always in-demand market. There are numerous snack options available on the market that are consumed by people of all ages.

People who are health-conscious may prefer baked or non-fried snacks, whereas children may prefer a different variety. However, the market is large, as is the opportunity.

Toy business

This is one of the world's largest and never-failing markets. Children will always play with toys, and parents must bring these toys to them no matter what.

These products have a high profit margin and are always in high demand. As a result, wholesale distribution of children's toys is a lucrative industry.

Bannor Toys has many unique toys that help train children's intelligence

Kitchenwares

The kitchen is the heart of every home, and every kitchen requires utensils like pans, cookers, serving dishes, crockery, and so on. There are numerous items that can be sold.

You must find high-quality products for your customers and make them available at reasonable prices or with irresistible offers.

What is the difference between Dropshipping and Wholesale?

If you have read this far, you probably have a clear understanding of dropshipping and wholesale and somehow imagine the difference between these two models. Now let's point out and compare the most basic differences between dropshipping and wholesale.

• Inventory Control

Dropshipping: The retailer, often known as the dropshipper, does not keep or handle inventory in dropshipping. Rather, upon a sale, goods are dispatched straight to the customer from the manufacturer or supplier.

Wholesale: In wholesale, the retailer keeps the inventory and buys goods in large quantities from a manufacturer or supplier. Up until they are sold, the store is in charge of overseeing and storing the merchandise.

• Order Completion

Dropshipping: The supplier receives orders from the dropshipper and fulfills them, including packing and shipping.

Wholesale: The retailer is in charge of completing orders placed by clients. They oversee the shipping, delivery, and packaging procedures.

• Upfront Investment

Dropshipping: Because the retailer does not have to make inventory purchases in advance, dropshipping involves a little initial outlay of funds.

Wholesale: Since retailers buy goods in bulk before making sales, wholesale frequently requires a sizable upfront investment.

• Risk and Profit Margins

Dropshipping: Because dropshippers only buy things after closing a deal, their risk is lower. Profit margins per unit are typically lower, though.

Wholesale: Compared to dropshippers, wholesalers frequently have larger profit margins per item, but they also have the risk of having to purchase inventory upfront.

• Products Control

Dropshipping: Since the supplier frequently handles these details, dropshippers have little control over the branding, packaging, and quality of their products.

Wholesale: Wholesalers own and manage the inventory, so they have more control over the quality, personalization, and branding of the products.

• Customization and Branding

Dropshipping: Due to their reliance on suppliers' goods, dropshippers frequently have less possibilities for customization, such as branding and packaging.

Wholesale: Wholesalers can customize products, packaging, and branding to create a unique brand in the market.

• Customer Service

Dropshipping: The supplier may handle customer service duties including answering questions and accepting returns.

Wholesale: Wholesalers are solely in charge of handling customer service, which includes answering questions, refunds, and problems pertaining to products.

• Scalability

Dropshipping: Since dropshipping eliminates the need to handle physical inventory or fulfillment operations, it is sometimes regarded as a more scalable option.

Wholesale: Although wholesale businesses can grow, handling larger inventory and fulfillment procedures might provide logistical difficulties.

Conclusion: Dropshipping or Wholesale? What should we choose

In conclusion, there are differences between dropshipping and wholesale regarding order fulfillment, inventory management, and business operations. Numerous factors, including financial resources, inventory control, business objectives, and customer service, must be considered to determine which model is best for you. Pay attention to the differences between dropshipping and wholesale outlined above, and you will make the right choice. 

eCommerce is predicted to have a dynamic future that is shaped by ongoing technological advancements, shifting consumer behavior, and trends in the global market. Both dropshipping and wholesale are likely to remain relevant in the changing business environment because they each have unique benefits that entrepreneurs can take advantage of. Select a business model that works for you, then embark on this exciting and promising eCommerce journey.

FAQs about dropshipping vs. wholesale