Drop Shipping Versus Fulfillment
If you sell products online, and you are trying to reduce your overhead, or you are trying to find a cost effective way to start your company, you will be interested in the different options that are available to you.
Drop shipping, is a method by which you do not own inventory, and you have the owner of the inventory ship out products on your behalf. Often, you can advertise the products, as your own, and sell them on your own website, or through other channels, just as if they were your own products. Drop shipping is a way to test the market, without the cost of purchasing inventory up front. Many e-retailers use drop shipping services to add additional products to their own. This is a great method for "expanding" your product line, to determine if a product is worth private branding, or having manufactured directly.
The downside to drop shipping products is that you will have to pass on a portion of the sales to cover the cost of the product owner. Also, you may have to play by the rules of the product owner, for example, only allowing shipping options that the owner agrees to. You lose a little control in the methods, quantities, and the margin you are able to make on the products.
Fulfillment is the method by which you own the inventory, and have a third party ship those products on your behalf. This is a cost effective way of offsetting expenses such as maintaining your own warehouse, staff, packaging supplies etc.
Fulfillment services are a benefit to companies that do not want the hassle of managing the entire receiving, packaging, and shipping process. Fulfillment providers typically are able to pass through a substantial shipping discount, because of the volume of packages that they ship on a daily basis.
Why would I choose fulfillment services over drop shipping?
If you do a significant portion of business on products that you are able to private brand, or have manufactured to your specifications, you can often turn a better profit. You also have complete control over the shipping options, discounts, and entire order process.
If you currently have your products privately branded, and you are having those products drop shipped by the manufacturer, you should compare the costs you are already paying to those of a fulfillment provider. Fulfillment providers focus on the shipping and order processing side of the business, so they have made the process as efficient as possible, in order to cut down on their own internal expenses. This should translate to a savings to you.
Order fulfillment centers may also be able to provide you with benefits that a drop shipper will not, for example, the ability to provide you with flat-rate shipping options. This can provide you with more expense predictability, and allow you to better project your fees into a cost model.
Is there a point at which you should ship your own products?
Maybe, there might be a point in the life of your business where it makes sense to ship your own orders, it really depends on a number of factors.
First, weigh the expense of using a fulfillment service, compared to the expense and logistics of staffing your own warehouse.
Second, realize that with a fulfillment center, you should only pay for services when orders are shipped, or storage fees. With your own warehouse and staff, you have to consider that they will be paid, regardless of the number of orders that are shipped, inventory items received, etc. Also, consider what happens if your business grows rapidly. Will you be able to find additional staff, and train them quickly?
Third, can you negotiate a discount with a shipping carrier that is comparable to the discount that a fulfillment center can provide you with?
Fourth, where will your warehouse be located in comparison to the fulfillment center? This makes a difference. Shipping rates are based on the distance that a package must travel to get to the customer. If you are located on the west coast, and ship orders to the east coast, you will pay more, than a warehouse that is located in the central US. Xpert Fulfillment is headquartered in Michigan.