Better for Business? Drop Shipping or Wholesale?
Ever wondered which supplier type is best for you and your business? If you are tossing up between a drop shipper and a wholesaler, let this quick guide to the in’s and out’s of drop shippers and wholesalers put your mind at ease!
Wholesalers
What is a wholesaler? Wholesalers are suppliers who connect retailers with products. They buy in bulk from manufacturers and redistribute them.
The best thing about wholesalers: Their wholesale prices mean you earn big profits
When you deal with a wholesaler, you can expect to get some great prices on wholesale bulk lots. Also, the more you buy from them, the better the discounts.
Other benefits:
- A great range of the latest products
- Wholesale suppliers love keeping up with trends just as much as retailers do. That means you can be first to get some of the latest items from the top manufacturers. Good wholesalers regularly attend trade shows and talk with manufacturers in order to keep on top of the latest consumer trends.
- They are reliable
- Once you build a strong relationship with a wholesaler, they can provide you with a long term and reliable supply of items.
- They are happy to work with smaller businesses
- Many wholesalers understand eBay businesses. They understand that you might not have a big budget to start with, and are willing to help you work with you in your early days so that you can grow to become one of their larger clients in time.
- Watch out for: Minimum order quantities
Also known as MOQ’s. MOQs represent the minimum order that individual wholesalers set to determine how much a retailer must buy from them in one single order.
Some minimum orders are set on a per unit basis, i.e., the wholesaler requires that you buy 100 units for example. Other wholesalers might ask you to spend a certain amount of money per order.
MOQs are necessary for wholesalers as they rely on a high volume of sales in order for their business to be profitable. For example, a wholesaler who is distributing paint brushes might only make $0.90c on each sale. Therefore to make it worth their while, they need to sell say, 200 units per order to cover their time spent setting up a new account with you and packaging your order, while still making a profit!
Drop Shippers
What is a drop shipper? A drop shipper is a supplier who works with retailers by stocking, packing and shipping the items directly to the customers on behalf of the retailer.
The best thing about drop shippers: Their unique approach to product distribution virtually eliminates the #1 hurdle faced by retailers: having enough start-up capital. Also, by allowing you to pay for only the items you sell, their distribution model also helps to remove the issue of cash flow which can cripple many retailers.
Other benefits:
- Less packing, more selling
- When you drop ship items, they go directly from your supplier to your buyer. Your supplier takes care of the packaging for you, freeing up more of your time to focus on making more sales.
- You can offer buyers a wider product range
- Because you are not having to invest in inventory, you can create a one-stop shop for your niche market. For example, if you are selling tableware, you can expand into vases and coasters without costing you a thing.
- Risk free risk-taking
- If you have a unique idea for a product that could well be the next hot seller on eBay, but you’re not quite sure if you should go investing in a large wholesale lot, drop shipping is a fantastic solution; you can list the items for sale and do some real-time market research, risk free!
- Watch out for: Tighter profit margins
- The major down side of using a drop shipper is that they add around US$2-$5 to the cost of each item you sell. This is to cover the cost of the time it takes for them to liaise with you, process your payment, and package and ship the item to your buyer.
- This means that your profit margins will be a little tighter than if you were using a wholesaler. To overcome this problem, try selling deep niche items, rather than hot sellers which are very competitive.
Watch out for: Back orders
Ah, back orders. The bain of any drop shipper’s existence.
A back order occurs when you list an item for sale on eBay or wherever you are selling, but your supplier has sold out of the item. This can cause long delays in your buyers getting their item, and sometimes it means you will end up with negative feedback being placed on your account.
Talk to your supplier about what measures they have in place to help prevent back orders occurring.
Quick Recap:
Use a wholesaler if you:
• Have money to invest
• Are ready to build a solid and long term relationship with a supplier
• Don’t mind storing, packing and shipping your own items
Use a drop shipper if you:
• Want to test out new markets or expand your product range
• Have a niche item in mind; You are unlikely to succeed in selling competitive items due to the drop shipping surcharges you will incur
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