Dropshipping is a business model where online sellers use third-party partners to minimize overhead costs and streamline operations. These third-party services handle inventory management, packaging, and order fulfillment on their behalf. Meanwhile, eCommerce is a business model for online sellers who are more directly involved in the day-to-day operations of their brand. This includes manufacturing, inventory storage, direct selling, and other traditional methods.
According to Grand View Research, the global market value of dropshipping is expected to reach over $591 billion by 2027. Meanwhile, experts anticipate global eCommerce sales to reach $6.4 trillion in 2024.
However, online data also suggests that dropshipping and eCommerce both have a failure rate of 80% to 90%. As such, those entering the industry need to acquire necessary knowledge, skills, and experience to succeed. For example, 7-figure dropshipper and Collins Ecom course creator Jacob Collins says online entrepreneurs need to learn about "utilizing psychological purchase triggers" and "maximizing profits using frameworks."
In this article, we look at the differences and similarities between drop shipping and eCommerce. We uncover why people fail with both models, plus we share tips on how to succeed. Towards the end, we also discuss about lead generation - a business model that has a higher success rate, less competition, and better profit margins.
Dropshipping vs eCommerce: Pros & Cons
The Pros Of Dropshipping
The dropshipping business model requires minimal investment and overhead costs.
As a drop shipping business owner, you have access to an extensive product inventory you don't need to own or store.
Scaling is easier since dropshipping store owners can add products without worrying about managing inventory, shipping products, etc.
Dropshippers can automate the entire process and scale quicker.
Since a dropshipping business is ran online, you can do it from any location - as long as you have internet connection.
The Cons Of Dropshipping
A main disadvantage of dropshipping is that it typically yields lower profit margins. Sellers have no control over product quality. This can cause negative customer feedback if they receive defective or poor quality items.
Dropshipping is competitive because of its low barrier to entry . You're competing against smaller dropshippers and big industry players ( such as Amazon and Wayfair).
Sellers have no control over product quality. This can cause negative customer feedback if they receive defective or poor quality items.
Your business heavily relies on your third party supplier. Your operations can be affected if they run out of stocks or they suddenly cease operations.
Customer returns can also be a challenge, since your dropshipping partner will handle the entire process.
The Pros Of eCommerce
A major advantage of eCommerce is that it has higher profit margin.
ECommerce entrepreneurs personally manage inventory, logistics, order fulfillment, and buyer returns. This often leads to better customer experience overall.
E commerce store owners also have better control on quality. They can inspect each product and even personalize it for their buyers.
As an eCommerce business owner, you have greater control over your products' costs.
You can offer unique, custom items since you're not reliant on third party providers.
The Cons Of Ecommerce
Handling the entire order fulfillment process can likewise be a disadvantage because it requires greater investment of time, money, and resources.
You also need more capital with a traditional e-commerce model because you will cover inventory and storage expenses.
Competition can be intense since numerous ecommerce platforms for vying for the attention of potential customers.
There's a risk you might get stuck with products that do not sell.
According to Baymard Institute, ecommerce business sites often have an average 69.8% rate of cart abandonment.
What Are The Similarities & Differences Between Dropshipping & eCommerce?
Dropshipping
eCommerce
Profit Margins:
Dropshipping often has lower profit margins than eCommerce. While it requires less upfront capital, you're outsourcing much of the work to a supplier which can then cut into your profit.
ECommerce profit margins are typically much higher than dropshipping. However, the business model also requires higher upfront capital because you're creating a product and brand. You also need to invest in inventory & warehouse storage.
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 Selection:
Find suppliers on Alibaba and other ecommerce marketplaces to get ready-to-ship products.
Buy samples from competitors, study negative reviews, and come up with ways of improving the product.
Branding:
There is no option for branding with the drop shipping business model.
Ecommerce business owners need to create a logo, their brand's unique voice, values, vision, and visuals. A brand needs to speak to your target audience, which is an opportunity to create long-term value.
Shipping:
Shipping times for dropship items are 4-8 weeks since products are typically shipped from overseas. This may lead to customer complaints & chargebacks.
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.
Paid Advertising:
Dropshipping mostly uses paid social media advertising. Since margins are slim, you have to be on top of your game on paid ads to make the most of your investment.
ECommerce generally uses multiple channels, including organic SEO, paid ads, influencer paid promotions/partnerships, and more.
Scalability:
Easy to scale with the business model by adding more products and increase your ad spend.
Scaling your e-commerce business takes more time and money You will need to hire more staff, invest in more space, and spend more on inventory.
IS IT HARD TO START DROPSHIPPING & ECOMMERCE?
No, it's not hard to start dropshipping and eCommerce but achieving success can be difficult. In comparison, eCommerce requires more risks and resources to start while dropshipping is easier to start and has fewer risks. Dropshipping is more suited for beginners, although eCommerce has more long-term advantages overall.
With dropshipping, you focus more on running ads since your supplier handles the fulfillment process. With ecommerce, you need to be able to innovate products, create memorable brands, learn various marketing channels, and handle day-to-day tasks (including inventory management and order fulfillment).
How Do You Start A Dropshipping Business?
You can start a dropshipping business with minimal cash. You don't need to own or house inventory. Instead, you want to find a winning product and then offer it for sale online. Your supplier then handles all the order fulfillment and heavy lifting at the back end. You then make a profit from each sale.
The Dropshipping Business Model Process:
Dropshipping is a low-cost business model. You need at least $500-$3000 to start dropshipping. You will invest the said money to cover expenses, such as:
- Domain name & Shopify store
- Product testing & paid ads
- Third-party tools & automation software
In general, the industry can be competitive and many new dropshippers are entering the market all the time. To succeed, you need to work with a reliable dropshipping supplier that guarantees fast shipping and high-quality products. You also have to deliver excellent customer service to gain loyalty from buyers.
Dropshippers pay nothing upfront and money only comes into play when a customer orders an item online. The dropshipping store then forwards the payment to the supplier, then the supplier handles all shipping and logistics.
In this business, dropshippers need to be prepared to test and fail several times before they can find winning products that can generate profit. Picking a profitable niche or a bestselling trending product requires research and market monitoring. Generally, the best dropshipping products are items that:
- Solve a problem
- Make a person's life easier
- Fill a gap in the market
- Are difficult to find
The dropshipping market is lucrative and is expected to reach a market value of $557.9 billion before 2025. Today, about 2.14 billion shoppers buy items online. The real challenge, however, is to get your product in front of as many potential customers as possible through targeted marketing.
Why Do Most Dropshippers Fail?
Most dropshippers fail because they are targeting the wrong niche, have ineffective ads, and are working with unreliable suppliers. In a Forbes article, Andy Chou points out that focusing on a niche "can make or break your business." According to him, dropshippers should stay away from low profit margin products, restricted products, and copyrighted products.
Additionally, some dropshippers fail to create effective ads that convert. Poor marketing means you are not reaching target customers, which will lead to lesser sales and profits. Working with the wrong suppliers may also lead to customer disappointment and negative reviews, especially if you fail to meet their expectations. Low quality products and late shipping, for example, are some common reasons why dropshipping customers may stop supporting your brand.
Another industry challenge 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 attempts
That said, it's important to conduct research and test constantly. For example, they need to try different products and ad strategies. They also need to stay updated with industry trends and observe close competitors.
How To Be Successful With Dropshipping:
What Is eCommerce?
Ecommerce is the buying and selling of products or services on the web. Statistics tell us that nearly 2.14 billion people shop online. In 2023, global ecommerce sales reached $6.3 trillion. The business model is considered by some as one of the best ways to make money online, especially since it generates higher profit margins (around 41.5% gross profit margins) than drop shipping (averages 10%-30% margins).
In eCommerce, it's important to find the right place to build your ecommerce store and which products sell the most. The business model is about identifying opportunities in the marketplace where you can innovate on a product that solves people's problems better.
You can then build your own brand and establish an online store in an ecommerce platform, such as Shopify or Wix. Running paid ads can help play drive traffic to your new online store. You can also attract buyers with a great offer, a good price, and fast shipping options.
Unlike dropshipping, you're responsible for the entire business. This includes coming up with a great product, manufacturing it, investing in inventory, 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
"Consumers are looking for differentiated experiences and brands they can connect to." Morgan Brown VP Growth Marketing, Shopify
ECommerce is based on attraction marketing and building trust with your target audience. So you need to establish a positive online reputation. You will also spend capital to manufacture and purchase inventory. You can't just switch niches or find a new trending product when something isn't working, like you can with the dropshipping model.
The biggest challenge with the ecommerce business model is to create a brand from scratch and generate enough buzz to get enough sales and to eventually scale. As such, 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
Why Do People Fail With E-Commerce?
People fail with ecommerce because they fail to invest or don't take the time to create systems and processes that provide customers 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
ECommerce is an excellent way to start a company, and the risk-reward ratio is great but you need to be patient. Do not try competing 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 learning the skills needed to succeed. Once you understand the foundations, you can boost your brand's profits.
Also, having a winning product is everything in e-commerce. Scaling will be impossible if you don't have a product people want to buy. With almost 26% of the world's population shopping online, you can definitely make money with the business model as you provide the best customer experience possible.
Tips To Improve Customer Experience
Your goal is to develop trust with your audience and build a loyal customer base. As you craft a compelling offer and adapt skills you need to drive online traffic to your store, you can build a successful brand and make money with eCommerce.
ECommerce and Dropshipping Case Study: Baddie In Business
Entrepreneur and eCommerce sensation Isabella Kotsias started as a dropshipper with minimal success. She didn't view the business model as a long-term venture. Instead, she wanted to hold inventory, have more control over her business, and stop relying on using dropshippping providers. So she switched from dropshipping to eCommerce at the beginning of the pandemic and blew up the TikTok algorithms.
By becoming a content creator, Isabella was able to fine-tune her selling strategy. 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, which eventually went viral. She later started her own eCommerce shop and became an online retailer where she sold:
- Lashes & accessories
- Holiday make-up bundles
- Merchandise 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. It turned out to be the perfect niche for her as her target audience responded positively.
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' TikTok 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 that you need to create videos online if you want to have an ecommerce business? Not necessarily.
Josh Snow is the owner of Snow Teeth Whitening, a $100-million eCommerce brand. His main strategy is influencer marketing, leveraging celebrities' clout and fan base to boost his brand's image and reach.
SUMMARY
Isabella shows us that you don't need to have everything figured out to be successful. Different ideas will come to you as you stay persistent in the business. What separates Isabella from most people is that she is willing to take action and figure things out along the way, by failing, learning from mistakes, and replicating effective strategies. 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. Meanwhile, Josh Snow shows us that collaborating with influencers and celebrities can help with brand building and positioning.
Conclusion: Which is the Clear Winner Between Dropshipping vs eCommerce?
There is no clear winner between dropshipping vs eCommerce. Instead, the right choice depends on your long-term goals, investment capital, and your preferred involvement in the day-to-day business operations.
Dropshipping guarantees fewer risks but also gives you minimal control. It's 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. You will need at least $500-$3000 to get started with dropshipping.
Meanwhile, eCommerce requires higher risk but offers greater control. Your range of offerings will depend on your budget. and you will likely need to invest $10,000 to $20,000 to get your product off the ground. E-commerce is also much more of a slower, long-term play. You can eventually scale as you find winning products and run effective ads. Just be ready to handle shipping, logistics, and inventory tasks in your business.
Also, Shopify dropshipping is more like a side hustle because you ultimately own nothing. In contrast, ecommerce is building an entire business and brand with assets that you own. You can use the drop ship method to test products and find proof of concept. You can later take the traditional eCommerce route to take your business to the next level. While both models are easy to start, you need to be prepared to put in the hard work to be among the 10% to 20% of people who succeed, .
Personally, I had success selling onesies using the dropshipping business model years ago. The problem is I had no passion for the product plus I could never sustain the interest to spend all that time and money to turn it into a real eCom brand. Today, local lead generation is my number one recommendation. Not only does it boast a higher success rate, I was able to quit my 9-5 grind and make a passive income of up to $52,000 per month.
With lead gen, you build and rank generic business websites to the top of Google search results. This will produce organic leads that you can then sell to small business owners for profit. You can build as many lead gen sites as you want with minimal investment costs. With the right strategies, your sites will only need 6 weeks to 6 months to get to the top of the SERPs. Once they're there, you own prime digital real estate. Your sites will only require little or no maintenance work to hold your ranking. You can build an empire by creating multiple lead gen sites for rent. With enough lead gen properties, you can secure a passive income stream, and in 2024, 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.
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