Dropshipping vs eCommerce which one is better?
Dropshippers don’t hold inventory. E-commerce retailers do and they're more involved with the product brand & innovation. Dropshippers need to be experts at social media marketing & following trends to get impulsive purchases, while e-commerce people need to be experts at product creation, design & innovation and using more long-term branding & content marketing strategies to attract customers to them.
You can make good money with both, but there are some unique pros & cons to consider. It’s up to you to decide which one fits best with your end goal & your innate skills or passions.
1. Dropshipping Business Model Explained
Dropshipping is headed for a market value of $557.9 billion before 2025.
This model is about finding products that's already produced by a supplier at a cheap price and then selling it at a higher price by using clever interruption marketing on social media. The goal is to grab the attention of your target audience by using a hook or a pitch.
Your ad needs to invoke emotion because you're interrupting someone and creating the impulse for them to buy something that they weren't even looking to buy.
The above ad targets an audience of pet lovers that are already passionate, and the LED angle invokes on their fear of losing their pet in an unfortunate accident at night.
You don’t need to buy inventory up front or deal with inventory management. You act like a middleman:
- Make The Sale
- Pay Your Supplier
- They Ship The Product Directly To The Consumer (order fulfillment handled by your supplier)
You pay nothing upfront. Only after you make the sale on your Shopify store, you put an order in to your supplier for that customer. Your supplier handles all shipping and logistics. But you're still responsible for customer service and support.
Drop Shipping is a lower-risk venture than e-commerce, because you're not buying any inventory upfront or worry about a warehouse. However, you still need to take some risks spending money on paid ads.
Why 90% of Dropshippers Fail
People underestimate the difficulty of finding the right product & creating the right ads that convert high enough where you're actually making profit after the ad cost. Anyone can create a Shopify dropshipping store & start running ads.
Facebook will gladly take your money, whether you're converting or not.
It's all about finding the right product & the right ads.
Too many people pursue products based on their personal passion or interest. All that matters is your audience. Are they responding to it or not? If not... then you have to quickly change things up.
As a drop shipper, you don't control the product or the branding, like you do in e-commerce. So this is more about being able to move fast. It's about catching the trend and getting in front of the right customer at the right time with the right product that invokes tons of emotions to get the conversions.
What may work today may not work tomorrow. So the key is to test, test, & test.
Most dropshippers fail because they don't have the tenacity to keep testing. Testing different FB Ads, different products, studying trends. A lot of these tests will end up in failure.
The problem is a lot of gurus out there made this business model sound like a get rich quick. So people get discouraged & quit when they can't find a winning product after few tries.
They test 1-3 products in 1 week and if that doesn't work; they say this business isn't legit. But what they don't get is, they should've tested 10 different products in 1 week.
Volume & massive action trumps all.
Also, just because you found 1 winning product, that doesn't mean you can just stay profitable forever. You need to keep looking out for the next product because trending products eventually lose steam.
"The most important single thing is to focus obsessively on the customer." Jeff Bezos
Increase Your Chance For Success With Dropshipping:
"84% of retailers report reliable suppliers being their biggest obstacle with dropshipping”. Shift4Shop
3. E-Commerce
91% of the USA population is predicted to shop online by 2023. And global sales from e-commerce are expected to reach $5 trillion in 2024.
Global market predicted to reach $6.54 trillion in 2023.
E-commerce is about being able to identify opportunities in the marketplace where you can innovate on a product that solves people's problems in a better way and building a brand so compelling that it can compete with existing brands that may have way more capital & attention than you.
Unlike dropshipping, you're actually responsible for the entire business. Coming up with a great product, manufacture it, invest in inventory and handle logistics & customer service.
This business model is based on attraction marketing. Building trust with your target audience. Unlike dropshipping, building your reputation matters. You just spent all this capital to manufacture & get inventory, you can't just switch niches like in dropshipping when something isn't working.
The biggest challenge is how to take a brand no one knows about, and create enough buzz so that you get enough sales to stay alive & scale.
Smart marketing strategy is everything in an ecommerce business. Here are the top tips.
With the right product, message & marketing strategies. You can create that awesome brand and start getting loyal customers, which leads to long-term brand value.
There's also more profit margin than dropshipping because you cut out all the middleman.
"78% of consumers are more willing to buy from a brand with a social media presence". Sprout Social
"Consumers are looking for differentiated experiences and brands they can connect to." Morgan Brown VP Growth Marketing, Shopify
Comparison of Dropshipping & E-Commerce (side by side)
Category
Dropshipping
E-Commerce
Barrier to Entry
low: much less upfront capital & work because you're outsourcing most of it, having the supplier ship directly to customer
high: much higher upfront capital & time, because you're creating a product, brand, invest in inventory & warehouse
Niche Selection
Find niches that have a passionate audience. Find products that can invoke emotions & trigger an impulsive purchase. Follow other dropshippers and see what products are trending / selling on social media right now.
Find niches you already have a passion for. Find products you feel you can create a unique value for.
Product
Find suppliers on Alibaba (an ecommerce marketplace) with the product ready to ship
Buy samples from competitors, study negative reviews, come up with ways of improving the product
Branding
No branding
Create logo, brand's unique voice, values, vision, visuals. Brand needs to speak to your target audience. Opportunity to create longterm value.
Packaging
the supplier will do it for you
have to create your own, but a great opportunity to differentiate yourself from the competition
Inventory & Warehouse
not needed, supplier will ship directly to the customer per order
Need to invest in inventory (more risk) & manage warehouse + logistics or hire a company (more upfront costs)
Shipping
4-8 weeks since products are being shipped from overseas, this will lead to customer complaints & chargebacks (one of the biggest downfall of dropshipping)
fast shipping since you will have products in a warehouse in the states. You're responsible for your supply chain.
Profit Margins
Slim, since you're the middleman selling unbranded products and the business is mostly outsourced. Main expense is the product cost & paid ads.
More margins since branding & control over product quality & innovations allows you to sell for higher. Customers pay more for great brands.
Marketing
Mostly paid advertising on FB & IG. Model after other dropship ads. Since margins are slim, you have to be on top of your game on paid ads.
Multiple channels. Organic SEO, Paid Ads, Influencer Paid Promotions / Partnerships. You have more options because you have more margins.
Time to launch
1-3 days
6 months minimum
Scaling
Easy, simply increase ad spend
More difficult, hire more staff, invest in more space, maintain efficiency
SUMMARY
E-commerce requires a lot more risk and resources to get started. Dropshipping is much faster & way less risks, therefore it's more suited for a beginner.
However, ecommerce has a lot more long-term upside if you succeed because you're building your own brand. With dropshipping you really only have to master 1 skill which is paid ads, with ecommerce you have to master multiple skills including innovating products, creating memorable brands, master multiple channels of marketing & being responsible for more mundane aspects of business like order fulfillment.
Case Study: Baddie In Business
Entrepreneur and e-commerce sensation. Isabella started as a dropshipper with marginal success. But she didn't view the business model as a long-term venture. She wanted to hold inventory and have more control of her business.
So she switched from dropshipping to e-commerce at the beginning of the pandemic and blew up the TikTok algorithms. By becoming a content creator, she could fine-tune her selling strategy.
As a result she turned $100 into $400,000 in a year without the use of paid ads.
She created a TikTok channel for her dog that blew up. Then she started her own e-commerce channel where she sold:
- Lashes & Accessories
- Holiday Make-Up Bundles
- Bundles
- Kid-Friendly Niche Products
The lashes and accessories didn't sell well and the holiday bundles were seasonal. Consequently, she started manufacturing her own merchandise bundles and her e-commerce store took off.
She picked the perfect niche that was right for her. Who she is as a person speaks directly to the ideal target audience of those products. The marketplace will always respond to authenticity.
Be A Content Creator:
She had "no idea how to create business content" on Tik Tok. But she posted regularly and created marketing videos. Isabella monetized several social media platforms and made $71,736.21 in one day after getting almost 10 million views from a YouTube video.
But she didn't stop there. She got brand deals and continued to manufacture new products.
"Monetize basically all over the internet". Baddie In Business
She also started an online store selling manufactured products for her dogs' Tik Tok followers. And funneled those viewers to her e-commerce store.
Isabella's case study shows the importance of being a great content creator on social media. Does this mean if you want to start an ecommerce business that you have to be the one making videos online? Not necessarily.
Josh Snow the owner of the $100 Million tooth whitening ecommerce brand... His main strategy was influencer marketing, leveraging celebrities clout & fan base to boost the image & reach of the brand.
SUMMARY
Isabella shows us that you don't need to have everything figured to get successful. Different inspirations will come to you as you take action. What separates Isabella from most people is that she is willing to take action and figure it out along the way, by taking action, failing, learning from mistakes and replicating the things that worked.
By leveraging and monetizing multiple social media platforms, Isabella has secured many income streams. And was able to turn $100 into $400,000 in a year.
Conclusion
Dropshipping gives you less risks but minimal control. E-commerce is higher risk but more control.
Dropshipping is all about being fast. Catching trends with crafty ads that target customers at the right time to get impulsive purchases. Products ship directly from suppliers to customer so you never have to invest in inventory. It allows you to move quickly and test many products with little consequence. Once you find a converting product & ad, you can scale instantly and make some short-term, fast money. However, this is not long term. Eventually you'll tap out your audience and then it's back to testing again to find the next product. You can still make decent money this way, just catching trends and selling other people's products.
E-commerce is much more of a slower, long-term play. You need to invest some serious capital $10-20K to get your product off the floor. Product design, manufacturing, branding, warehouse, inventory, logistics, marketing & more. And there's still no guarantee it'll take off. So it's a lot more risks involved and more hurdles. You should be passionate about the product, otherwise you won't have the persistence needed to deal with all the challenges. However, once you do succeed in ecommerce, you have huge upsides because you're building your own brand. Eventually, retailers may show interest or get offers from other companies wanting to buy your brand.
Shopify dropshipping is more like a hustle, because ultimately you own nothing. E-commerce is building an entire business & brand but these are assets that you own. It requires a lot more forethought. Whichever is right for you really depends on what gets you excited. Making some fast money and going on vacations? or grinding nonstop for the next couple of years to build an awesome brand?
Another option... if you find a successful dropshipping product & you feel some passion in it. You can turn it into a proper brand & transition to the e-commerce business model.
I had success selling onesies which I detail in this dropshipping case study, but this is a product that I had zero passion in so I simply wouldn't be able to sustain the interest to spend all that time & money to turn it into a real eCom brand.
