What is Dropshipping and what is Fulfilment?

In-house or outsource?

For the processing of orders and the management of your stock, there are roughly 3 options:

1 - You manage your own stock and ship the orders to customers yourself.
2 - You have your own stock, but leave it managed by a third party. This party also packs and ships orders for you: We call that 'fulfillment'.
3 - And the most far-reaching solution: You don't have your own stock, but show the stock of a partner in your web store. Orders you receive are forwarded to this partner. The partner picks up the ordered item from his own stock and ships it under your company name to the customer: This is called 'dropshipping'.

In this article we will explain what the pros and cons of dropshipping and fulfillment are, compared to each other and compared to managing everything in-house. 

Fulfilment

In case of fulfillment, the online business owner enters into an agreement with a logistics service provider and moves his own stock to the warehouse of this company. The business owner remains responsible for the purchase and composition of the stock, just as it would be with his/her own warehouse. The big difference lies in the fact that from now on the web store will automatically send the orders (usually via an API) to the fulfillment company. Here the ordered products are then taken from the warehouse, packed and shipped to the supplied delivery address.

The fulfillment company uses your own packing material and adds your packing slip, so that a customer won't know that you have outsourced this part of your business process. After shipment you will receive a track & trace through your API with the fulfillment company. This link you can share with your customer (often again automatically).

Fulfillment therefore saves you a lot of time packing and shipping. And in our experience fulfillment is not expensive for small and medium-sized web stores, because you can benefit from the lower shipping rates that fulfillment companies receive from shipping companies. As an indication: From a minimum monthly amount of 75-100 pound/euro/dollar you can already make use of a fulfillment solution. In many cases you will directly save money through a fulfillment company compared to doing everything in-house. (In addition, you can only go to the post office until closing time and fulfillment companies have better opening hours).

So if you are acquisring an online business that still has the order handling and stock in-house, then it is certainly an idea review the options of fulfillment. We have good experiences with various fulfillment companies that we could bring you into contact with.

Dropshipping

Dropshipping takes outsourcing a step further than fulfillment: in this type of cooperation you no longer have your own stock. Your risk decreases considerably, so at first glance this seems like a smart concept. Comparable to fulfillment, your web store is linked to your partner's systems. But in this case you show the (current) stock of the dropship partner in your shop. Orders that come in will be forwarded and handled by the dropshipper under your company name, which is also comparable to fulfillment.

In practice, the dropshipment partners are often wholesalers. In the past they sold their products to web stores in the traditional way and by offering a dropshipping soluton, they reduced the barirers for online businesses to get started. In addition to the absence of stock risk, dropshipping often also has a cash flow advantage: At the moment a customer orders from you, the customer usually pays at the same moment , but you only afterwards settle with the dropshipper.

Make money with dropshipping

On the other hand, you may assume that these advantages have a lower margin as result for the business owner. Whether dropshipping is an interesting alternative must be thoroughly calculated. Another disadvantage is that your assortment will not be unique, because the dropshipment parther probably supplies to competing online businesses as well. This will gives an additional pressure on the margin. In practice, for these reasons you will often see that a start-up will make use of dropshipping in the first period. At the moment that he/she better understands the market and the business, a move to a fulfilment solution or doing everything in-house is often seen.  

There currently are 10.000's of small and large companies in Europe that offer themselves as a dropshipment partner, where one has arranged its processes better for this process than others. It therefore is worthwhile to make a thorough investigation before you acquire an online business!

All online business for sale.