Dropshipping might be best for those who are quick on the hustle. Or can jump on trends and stay one step ahead of the curve. So the model is ideal for people who don't want to deal with packaging, branding, or order fulfillment. eCommerce might be better for sellers who wish to be involved in day-to-day operations. (Like taking care of order fulfillment and inventory management).
This model is a good choice for people who want to create a brand and grow an online business. But, ultimately, 90% of people fail with ecommerce AND dropshipping. So to be successful, you need to learn the skills. First, you need to know how to dominate your market and be ready to do the work. Then, of course, you need to consider the pros and cons of each business model.
In this article, we look closely at the differences and similarities between drop shipping and ecommerce. We uncover why people fail with both models and tips on how to succeed. Consider a business like lead generation if you want to make money online in 2023. It has a higher success rate and less competition than drop shipping or e-commerce. (And it has better profit margins).
What Are The Pros & Cons Of Dropshipping vs E-commerce?
The Benefits Of Dropshipping
The biggest benefit of dropshipping is that you have access to an extensive inventory you don't need to own or store.
Dropshippers can automate the entire process and scale quickly
The dropshipping business model boasts lower start-up costs (because you don't need to buy dropship products).
The Challenges Of Dropshipping
The biggest challenge of dropshipping is dealing with narrow profit margins.
Dropshippers have no control over fundamental aspects of their business.
Dropshipping is competitive. (Plus, you're not only going up against other dropshippers but also competing with big players in the industry like Amazon and Wayfair).
The Benefits Of Ecommerce
A major benefit of e-commerce is that it has a better profit margin. (Because you have more control over the costs of your products).
Ecommerce small business owners manage other costs like shipping, packaging, etc., so customers get their products quickly.
Ecommerce companies have complete control over the quality of their inventory, packaging, and unboxing options.
The Challenges Of Ecommerce
The biggest challenge of e-commerce is the need to handle all of the fulfillment service, shipping, and logistics of the business.
You need more capital with the e-commerce model to start because you need to cover your inventory and storage costs.
There's a risk you might get stuck with stock that doesn't sell.
How Do You Start A Dropshipping Business?
You can start a dropshipping business with minimal cash and don't need to own or house inventory. Instead, find a winning product and make the sale. Then your supplier handles all the order fulfillment and heavy lifting at the back end, and you make a profit.
The Dropshipping Business Model Process:
Dropshipping is a low-cost business model, but it's not free, and you need at least $500-$3000 to start drop shipping. You need to have enough money to cover the cost of things like:
- Domain & Shopify store
- Product testing & paid ads
- Third-party tools & automation software
But the industry is competitive, and hundreds of new dropshippers are entering the market every day. (And it's not getting easier). So you need to connect with a reliable dropshipping supplier who offers fast shipping times and high-quality products. Then your dropshipping suppliers handle all the order fulfillment, and you act as the go-between them and your customer. (But you're still responsible for customer support and service).
But dropshippers pay nothing upfront, and only after you make the sale on your Shopify store do you put an order into your supplier for that customer. Then your supplier handles all shipping and logistics. So you need to have the skills to drive traffic to your Shopify store.
You also need to be prepared to test and fail (maybe more than once) before you find a winning item that can generate profits. So you need to pick a profitable niche or a trending product that is selling well now. The best dropshipping products are things that:
- Solve a problem
- Make a person's life easier
- Fill a gap in the market
- Are difficult to find
But the market is headed for a market value of $557.9 billion before 2025, so the future of dropshipping is lucrative. First, consider that about 2.14 billion shoppers now buy items online. But you need to get your product in front of as many eyeballs as you can. Consider that the business model is about finding products already produced by a supplier at a low price. Then you sell them at a higher price using interruption marketing on social media.
So the goal is to grab the attention of your target audience by using a hook or a pitch. But your ad needs to invoke emotion because you're interrupting someone. And you want to create the impulse for them to buy something they weren't even looking to buy. But you need to learn the skills to develop scroll-stopping videos and ad copy that get people to check out your store.
Why Do Most Dropshippers Fail?
Most dropshippers fail because they underestimate the difficulty of finding the right product. Or they don't have the skills to create the right ads that convert high enough to make a profit after the ad cost. Consider that anyone can create a Shopify dropshipping store and start running ads; Facebook will gladly take your money. (Whether you're converting or not). So it's all about finding the right product and knowing how to create the right ads if you want to be successful with the business model.
But 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, you have to change things quickly. But as a drop shipper, you don't control the product or the branding like you do in e-commerce. This online business model 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 conversions.
So the key is to test, test, test again. But most dropshippers fail because they don't have the tenacity to keep testing. For example, they need to try different FB Ads and other products, study trends, and do better where the competition is lacking. But the hardest part of dropshipping is staying consistent and being a better marketer than the competition. And that's why only about 2% of people succeed with dropshipping long-term.
The other problem is that many gurus present the business model as a get-rich-quick scheme, so people get discouraged and quit when they can't find a winning product after a few tries. So 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 ten different products in a week because the volume and massive action are the only way to win.
The other issue that causes people to fail is that just because you found one winning product doesn't mean you will stay profitable forever. So you need to keep looking out for the next hot-ticket item. Also, consider that a trending product will eventually stop selling, or the market will become saturated. So you need to be ready to stay one step ahead of the curve if you want to make money with this model in 2023.
How To Be Successful With Dropshipping:
What Is E-Commerce?
Ecommerce is the buying and selling of products or services on the web. First, consider that 4.95 billion people use the internet, and nearly 2.14 billion people shop online. Plus, with global ecommerce sales worth $5.5 trillion, the business model is one of the best ways to make money online in Jun. But where is the best place to build your ecommerce store? And what sells products the fastest?
E-commerce is about identifying opportunities in the marketplace where you can innovate on a product that solves people's problems better. Then, build a brand so compelling that it can compete with existing brands that may have way more capital and attention than you. If you establish your store on an ecommerce platform like Shopify or Wix ecommerce, you can control every aspect of your business.
But no one knows who you are, so you need to rely on paid ads to drive online traffic to your online store. But the competition is considerable, so you need to have a product people want to buy. You need a great offer, a good price, and fast shipping options. But unlike drop shipping, you're responsible for the entire business.
This includes you coming up with a great product, manufacturing it, investing in inventory, and handling logistics, the fulfillment method, and customer service. Your goal as an ecommerce business is to increase the average transaction value in retail. So you need to use marketing tactics like:
- Up-selling & Cross-selling
- Bundles & Promotions
- Discounts & Loyalty Programs
You need to invoke the FOMO or an emotional response from a potential customer. Then, have a clear call to action and a compelling hook with an offer they can't refuse. But that's how you make more sales and achieve better profit margins.
"Consumers are looking for differentiated experiences and brands they can connect to." Morgan Brown VP Growth Marketing, Shopify
Remember, eCommerce is based on attraction marketing and building trust with your target audience. So unlike drop shipping, you are building your reputation. (And it matters to your customer). Also, you spent all this capital to manufacture and buy inventory. So you can't just switch niches or find a new trending product when something isn't working. (Like you can with the dropshipping model).
But the biggest challenge with the ecommerce business model is how to take a brand no one knows about and create enough buzz so that you get enough sales to stay alive and scale. So you need to consider your marketing budget for your business and adopt a smart strategy that includes the following:
Tips On How To Design A Marketing Budget For Your Ecommerce Business
But with the right product, message and marketing strategies, you can create that great brand and get loyal customers, leading to long-term brand value. Ecommerce also generates higher profit margins (around 41.5% gross profit margins) than drop shipping (averages 10%-30% margins) because you take out the go-between. So in 2023, eCommerce is more profitable than dropshipping.
Why Do People Fail With E-Commerce?
People fail with ecommerce because they fail to invest or don't take the time to create the systems and processes to provide a customer with the best online shopping experience possible. A few key reasons why people fail with this online model include things like:
Why People Fail With E-Commerce
Ecomm is an excellent way to start a company, and the risk-reward ratio is great. (Much better than retail or hospitality). But you need to be patient. Don't try to go toe to toe with the big brands right out of the gate. Instead, learn the fundamentals of the model. Courses like Austin Rabin's Ecom Remastered will help you start and scale your online business strategically by focusing on the basics of e-commerce and the skills needed to succeed. Once you understand the foundations, you can be profitable.
But first, you need a proven concept, and this includes the product and the channels you choose to spend your ad dollars. Product is everything in e-commerce. And you won't scale if you don't have a product people want to buy. Consider that almost 26% of the world's population shops online, so you can make money with the business model in 2023. But the key is to provide the best customer experience possible with things like:
Tips To Improve Customer Experience
Your goal is to build a loyal customer base and develop trust with your audience. Then, craft a more compelling offer. And adopt the skills you need to drive online traffic to your store. If you can build your brand, you can make money and succeed with ecommerce in 2023.
What Are The Similarities & Differences Between Dropshipping & E-Commerce?
E-Commerce
Dropshipping
Profit Margins:
Ecommerce margins are typically high: much higher than dropshipping, but you also have more upfront capital and time invested, because you're creating a product and brand, and need to invest in inventory & warehouse.
Dropshipping procures much lower profit margins than ecommerce: but you have much less upfront capital & work because you're outsourcing most of it to the supplier who ships the product directly to your customer.
Niche Selection:
Find niches you already have a passion for. Find products you feel you can create a unique value for.
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.
Product Selection:
Buy samples from competitors, study negative reviews, and come up with ways of improving the product.
Find suppliers on Alibaba (use ecommerce marketplaces) with the product ready to ship.
Branding:
Ecommerce business owners need to create a logo, their brand's unique voice, values, vision, visuals. A brand needs to speak to your target audience, but this is an opportunity to create long-term value.
There is no option for branding with the drop shipping business model.
Shipping:
The commerce business model offers fast shipping since you will have products in a warehouse in the states. You're responsible for your supply chain.
Shipping times for dropship items are 4-8 weeks since products are being shipped from overseas. This will lead to customer complaints & chargebacks (one of the biggest downfalls of drop shipping).
Paid Advertising:
Multiple channels. Organic SEO, Paid Ads, Influencer Paid Promotions / Partnerships. You have more options because you have more margins.
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.
Scalability:
Scaling your e-commerce business is more difficult than drop shipping because you need to hire more staff, invest in more space, and maintain efficiency.
Easy to scale with the business model. Simply increase your dropshipping ad spend.
SUMMARY: IS IT HARD TO START DROPSHIPPING & ECOMMERCE?
No, it's not hard to start dropshipping and eCommerce, but it is hard to be successful with either business model. E-commerce requires a lot more risk and resources to get started. Dropshipping is much faster and has fewer risks. (So it's more suited for a beginner). But ecommerce has many more long-term advantages. At least if you succeed because you're building your own brand.
For example, with dropshipping, you only have to master one skill. (Which is paid ads). But with ecommerce, you have to master multiple skills. You need to be able to innovate products, create memorable brands, learn various marketing channels, and be responsible for more mundane aspects of the business. (Like order fulfillment).
Case Study: Baddie In Business
Entrepreneur and e-commerce sensation Isabella started as a dropshipper with marginal success but didn't view the business model as a long-term venture. Instead, she wanted to hold inventory and have more control of her business, and stop relying on ecommerce marketplace platforms. So she switched from drop shipping to e-commerce at the beginning of the pandemic and blew up the TikTok algorithms.
By becoming a content creator, she was able to fine-tune her selling strategy, and as a result, she turned $100 into $400,000 in a year without using paid ads. Next, she created a TikTok channel for her dog that blew up. Then she started her own e-commerce channel and became an online retailer 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. So Isabella started manufacturing her own merchandise bundles, and her 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.
How To Develop A Custom ecommerce Store
To develop a custom ecommerce store, you need to become a content creator. Consider Isabella, for example. She had "no idea how to create business content" on Tik Tok but posted regularly, created marketing videos, and was able to monetize several social media platforms.
As a result, she made $71,736.21 in one day. (After getting almost 10 million views from a YouTube video). Then Isabella got brand deals and continued to manufacture new products. She also started an online store selling manufactured products for her dogs' Tik Tok followers and then funneled those viewers to her online store.
Isabella's case study shows the importance of being a great content creator on social media. But 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 is the owner of the $100 Million tooth whitening ecommerce brand. His main strategy was influencer marketing, leveraging celebrities' clout and fan base to boost the image and 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
There is no clear winner between dropshipping vs. ecommerce. Instead, your decision depends on your long-term goals, investment capital, your involvement in the day-to-day operations, and if you want to own a sustainable online business. Dropshipping gives you fewer risks but minimal control. E-commerce is higher risk but more control.
Dropshipping is all about being fast and catching trends with crafty ads that target customers at the right time to get impulsive purchases. Products ship directly from suppliers to customers, 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 and ad, you can scale instantly. So you make some short-term, fast money. But eventually, you'll tap out your audience. And then, you have to go 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. First, you need to invest some serious capital, $10-20K, to get your product off the ground. Then, you need to take care of things like product design, manufacturing, branding, your fulfillment center, inventory, logistics, and marketing. But then 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 item and be able to focus on product quality. Otherwise, you won't have the persistence you need to deal with all the challenges. However, once you succeed in ecommerce, you have huge upsides because you're building your own brand. Eventually, retailers may show interest or get offers from companies wanting to buy your brand.
Shopify dropshipping is more like a side hustle because you ultimately own nothing. In contrast, ecommerce is building an entire business and brand. But these are assets that you own. So it requires a lot more forethought, and whatever is right for you depends on what excites you—for example, making fast money and going on vacations. Or would you rather grind nonstop for the next couple of years to build an awesome brand?
You can use the drop ship method to test products and find proof of concept. Then when you have a product that sells well, you can do dropshipping on ecommerce. And turn your winning product into a proper brand and shift to the e-commerce business model.
Both models are easy to start, but if you want to be in the 10% of people who succeed, you need to be prepared to hustle and do the hard work.
I had success selling onesies as a dropshipper, but I had no passion for the product and would never have been able to sustain the interest to spend all that time and money to turn it into a real eCom brand. Plus, I could never secure the steady cash flow or profit margins I make with my new online business. That's why local lead generation is my number one recommendation. Not only does it boast a higher success rate. But it's a proven concept and how I was able to quit my 9-5 grind and make a passive income of $52K/month.
You build and rank generic websites that get to the top of Google and produce leads that you sell to small business owners for profit. You can build as many lead gen sites as you want (and at the same time) for minimal investment costs. Your sites take 6 weeks-6 months to get to the top of the SERPs. But once they're there, you own prime real estate. Plus, your sites don't need a ton of work after they rank and you've found a local contractor. So you have time freedom, or you can build an empire. With enough lead gen properties, you can secure a passive income stream, and in 2023 that's the ultimate goal.
It's difficult to say if there will be a clear winner between dropshipping and eCommerce in 2023 as both have their own advantages and disadvantages. Dropshipping allows for low startup costs and reduced risk as you don't need to hold inventory, while eCommerce offers more control over branding and customer experience.
Interesting post and that was an informative post. It was very helpful.