Every year, many people plan to open an online store to embark on their entrepreneurial journey. Dropshipping and wholesale are two common business models. However, many people are wondering about the difference between wholesale and dropshipping and which one is suitable for them. Today’s blog is perfect for addressing these questions.
What are dropshipping and wholesale businesses?
In the dropshipping business model, the retailer receives an order and forwards the order information to the cooperative supplier, who then ships the product directly to the individual customer. Retailers are responsible for sales, customer service, and marketing, without the pressure of inventory or logistics management. Here is a simple infographic about how dropshipping works.
For instance, if you’re planning to open a store on Amazon and have found products and suppliers on AliExpress. Under the dropshipping business model, when a consumer places an order in your store, the order information is synchronized with your supplier. They assist you in picking, packing, and sending packages to your end consumer. See, it’s that simple—you sell one item, and your supplier sends you one item.
In contrast, wholesale is a more traditional business model where retailers purchase goods in bulk from suppliers and store them in their own warehouses for resale. Many Amazon sellers, for example, prefer to wholesale cheap products from China and use Amazon FBA (Fulfilment By Amazon) or other third-party logistics (3PL) services to store products and fulfill customer orders by picking, packing, and sending packages.
Is a DropShipper a wholesaler?
A dropshipper can be a wholesaler, but not necessarily. For example, there are many dropshipping suppliers on AliExpress. And many of them support small wholesale, as shown below picture. In this case, the dropshipper is also a wholesaler.
Who usually opts for the dropshipping business model?
Dropshipping has several notable advantages.
1. Low initial investment
There’s no need for a significant amount of capital to stock inventory, allowing for a low-cost start with zero inventory backlog risk.
2. Simple and easy operation
Suppliers provide ready-made product images and detailed descriptions, eliminating the need for you to take your own photos. Additionally, suppliers handle shipping, making the process straightforward.
3. Low trial and error costs
You can promptly and flexibly update product types and styles based on market feedback, with minimal costs to test the products and markets.
For e-commerce beginners, there's no need to hesitate—go for dropshipping.
Dropshipping is the lowest-cost, lowest-risk, and most convenient business model for beginners, especially for those without much experience or technical skills, or even those who have never done e-commerce before.
The initial investment is very small, with startup capital of just a few tens of dollars. AliExpress is a preferred option for dropshipping beginners.
AliExpress products are cheap, and there is a wide variety of categories and quantities available. Whatever you can think of, whether from TikTok, Facebook, Amazon, etc., can be found on AliExpress. Moreover, most suppliers support dropshipping. AliExpress also offers good after-sales, with real-time customer agent support.
If unsure what products to sell, I recommend avoiding highly competitive categories and instead selecting niche products with market demand. Once you have product ideas, I highly recommend browsing on AliExpress. Prioritize products in the “Choice” section, launched by AliExpress in March 2023 to provide more affordable items and quicker shipping, around 10-day delivery. Long delivery times will lead to a bad shopping experience, and affect sales.
Example
Suppose you’re planning to sell small pet products like chicken helmets. It’s very easy to find a variety of chicken helmets at cheap prices and suppliers for dropshipping, as shown in Pic 1.
For customers in nearly 20 countries such as Germany and Switzerland, AliExpress Choice offers delivery guarantees, typically within 10 days. For instance, if the chicken helmet needs to be shipped to the UK, it only takes 8 days, as shown in Pic 2. Furthermore, customers in over 15 countries, including Spain, France, and the UK, enjoy free return services. These services can enhance consumer satisfaction.
Click to enlarge
In short, dropshipping is the most suitable way to start an e-commerce business with minimal cost and quickly test products with minimal risk. However, because you can purchase and fulfill orders one by one, the profit is limited. Additionally, under dropshipping, product quality and supply stability are uncertain and entirely dependent on the supplier. I recommend buying a few items to assess factors such as price, quality, and style, and selecting reputable suppliers.
What is more profitable than dropshipping?
Several business models can be more profitable than dropshipping, such as
Wholesale – purchasing products in bulk at discounted prices, and enjoying higher profit margins compared to dropshipping products at retail prices or slightly discounted rates.
Private labeling – private label products are customized while dropshipping products already exist. Typically, custom products are at higher prices.
Which business is wholesale most suitable for?
Wholesale is suitable for businesses with some budgets to purchase goods in bulk. Many startups and small sellers I’ve encountered often begin with dropshipping, accumulating some funds and experience before transitioning to small wholesale. They typically spend a few hundred dollars to purchase several products with tens or dozens of pieces per style. Then gradually move towards larger wholesale orders.
As business grows, you must wholesale from suppliers that can produce in bulk.
Not only do wholesale products offer lower prices, potentially leading to more profits, but wholesale also signifies more stable supply chains. If you’re dropshipping, once a particular product sells well, you may inevitably encounter situations where suppliers run out of stock or discontinue the item.
Like one of our clients who started selling baby clothing online and purchased products from dropshipping suppliers on AliExpress. Recently, her business was booming and received 500 orders within 3 days. But her dropshipping supplier ran out of stock and couldn’t fulfill the orders within a week. As a result, she had to refund all these orders, losing $8,000.
After that, she approached us for help. Our sourcing agent, Olina, helped her find a real factory capable of producing at least 2,000 sets per day.
Customized product wholesaling is more profitable and sustainable in business.
Under the wholesale model, you source and customize products according to market consumer demands to better attract your target customers and establish your own brand for sustainable business development.
In contrast, the logic for making money through dropshipping is essentially “information asymmetry,” similar to real estate agency intermediaries. However, the lifespan of this “information asymmetry” dividend in the internet era is very short-lived.
For example, you spend much time and effort finding a “promising product,” selling well, and making money in the 1st month. But shortly after, a lot of sellers start selling the same product as you, and some even undercut your prices. At this point, you can only switch products, and then switch again 1-2 months later, and so on in a repetitive cycle. Another option is to consider enhancing “product differentiation competitiveness,” as our successful clients do.
So far, we’ve helped many sellers achieve product differentiation at low costs. The cheapest and simplest way is to bundle products, customize packaging, print logos, etc. A more advanced approach is to make simple adjustments to existing products, such as appearance, functionality, etc. Some medium to large sellers may make complex changes to existing products or develop new ones, which can cost tens of thousands of dollars or even more.
Examples of how we help our clients mix bundle products for differentiation.
Party balloon sets
A set of 100 regular balloons may only sell for around $6 on Amazon. However, our client is smart; she understands that customers are actually buying the party balloon themes and scenes depicted in the pictures. Additionally, different sellers offer various picture combinations and color schemes, making it difficult for consumers to compare prices, thus allowing for good profit margins.
Therefore, our client has added dozens more balloons and several accessories to the regular set and designed different party themes for her balloon sets. She approached us to help with wholesale of existing balloons at very low prices and to bundle products into packages following her combination ideas, while inspecting product quality. Her party balloon set now sells for $20 on Amazon, and sales are doing well.
Image source from Amazon but not owned by our client
Rabbi tunnel chewing toy sets
This set looks like a playground slide for kids, but it’s specifically designed for rabbits. And the rabbit-keeping community is growing, making it a promising niche market. Most sellers on Amazon offering this product have a rating of 4.5 stars or above, indicating that there are no issues with the product quality. It’s common to bundle different tunnel toy and chew toy items, customize product packaging, etc.
If you have your own design for packaging, be sure to contact us for customization at affordable costs. Upon receiving the packaging box samples, we’ll promptly test the product combinations inside to avoid excessive size, which could result in higher storage fees, especially if you’re using Amazon storage, which is expensive.
Image source from Amazon but not owned by our client
What is better dropshipping or wholesale?
If you’re just starting with a budget of less than $100, don’t overthink it—dropshipping is the way to go. The most commonly used platform to find dropshipping suppliers is AliExpress.
When you have a budget of a few hundred dollars, you can start by dropshipping to test products and styles. For products that sell well, you then move on to small wholesale. The most popular platform is DHgate, where you can purchase around ten to twenty units per style.
Even if market demand changes or products don’t sell well, clearing out inventory promptly is affordable. This investment of time and money is inevitable because running a business involves continuous product testing and experience accumulation.
Be sure to work with JingSourcing once you order worth $1,000
We are a leading sourcing company in China. Compared to searching for products and suppliers on Alibaba and similar sites yourself, we can save you trial and error costs.
For your wholesale customized products, our prices are at least 10% lower than Alibaba’s.
Our MOQ is friendly to small businesses.
For example, we had a client who wanted to purchase a new trending bubble gun, but his budget was limited, so he could only purchase 200 units/style. For Chinese factories, dealing with such a small order is troublesome and doesn’t meet their MOQ, so they rejected his order.
However, our sourcing agent has been working with a factory for many years, willing to produce the order for us. In the end, we successfully helped our client purchase 200 bubble guns at $3/unit, which were priced at $30 on Amazon. Our client made $5,000 in profit in the first month.
Control the quality of your products and ensure a stable supply chain.
We can help you find reliable suppliers,inspect finished products, and ship the products to your warehouse only after you confirm the quality. And we guarantee the quality of your products when you choose our Pro Plan and use our selected suppliers. For defective products found during the product inspection in our warehouse, we will help you replace them for free.
