Compare Private Labels and Dropshipping! Tips for Running an Online Business

Compare Private Labels and Dropshipping! Tips for Running an Online Business

Thinking about running an online store? If you've never run a store before, you might be wondering how you're going to get the products on your shelves, let alone sell them off the shelves. There are three main ways to sell your products: private label, consignment, and international drop-shipping, each with its own advantages and disadvantages. In this article, we'll take a closer look at the benefits, limitations, and inventory management intricacies of each of these options for aspiring online store entrepreneurs!

Private Label: Store, sell, and ship your own inventory

When you buy something to sell, you contract directly with a supplier to purchase it. You store it in your warehouse, and whenever an order comes in, you ship it directly to the customer. 

The main advantages of private label are high margins: you can reduce your purchasing costs by establishing a good relationship with the supplier, and you can set your own retail price, which increases your margins significantly. You can also increase customer satisfaction with your products through rigorous inspection and quality control, as the products are stored in your own warehouse, and you can process orders quickly and easily for returns, refunds, and exchanges. You can also design packaging that incorporates your brand's features or come up with bundles to differentiate your product offerings from competitors.

A miniature shopping cart filled with boxes of products. 

However, if you're new to online retail, private labels can be a challenging option because you'll need to invest a significant amount of money to purchase large sums of products so that you have enough stocks to meet sudden spikes in demand. Having stocks in your warehouse keeps incurring inventory costs so proactively managing it is a must for operational efficiency. You'll also need to take into account the time and labor costs of inspections, quality control, packaging, and shipping, which can lead to high return rates that can negatively impact your sales if you neglect these processes. 

If you choose to sell as a private label, you'll need to learn different inventory management strategies to optimize your inventory. Inventory optimization is the process of minimizing inventory costs by keeping a balanced inventory level to meet customer demand without overstocking. If you're struggling with inventory management, you can use a solution like BoxHero.

Drop-shipping: Your inventory is stored, sold, and shipped by a vendor

The supplier stores the inventory, and all you have to do is strategize how to operate within various e-commerce platforms. When a customer places an order, you send the order to the supplier for delivery. You can also collaborate with the supplier on inventory information they share with you to prepare for out-of-stock situations.

Boxes of merchandise coming out of a laptop.

One of the biggest advantages of drop-shipping is that you can start a business with no or little capital, so you don't have to worry about inventory costs. It's a great way to sell clothes, accessories, and other items that have a wide range of product options. It's also a great side hustle because you don't have to worry about inspections, quality control, packaging, or shipping

However, not having your own inventory is both an advantage and a disadvantage, as it's hard to respond to customer inquiries such as exchanges and refunds because you can't check the condition or quality of the product yourself. In addition, it's hard to be competitive on price and brand recognition because the same supplier sells the same product to multiple sellers on consignment. You have to lower your selling price to compete, which reduces your margins. You also have to be responsive to changes in demand to stay ahead of the curve.

If you want to keep your margins high but minimize your losses by reducing inventory risk, you can also buy products and outsource the inventory management and shipping process to a third-party logistics (3PL) company.

International dropshipping: Let an overseas supplier store, sell, and ship your inventory for you

International dropshipping is similar to drop-shipping, but the suppliers are different: whereas your drop-shipping suppliers are local, your suppliers are from overseas. The sales process is the same as dropshipping: when an order comes in through your e-commerce platform, you pass the order information to an overseas supplier and ask the so-called "dropshipping" service to fulfill the order. Some common dropshipping suppliers include China's Aliexpress and Taobao, which sell mainly low-cost products.

A miniature globe and shipping boxes on my keyboard. 

The advantages of overseas drop-shipping are that you can sell unique products that are not available in your country; you can quickly increase your brand awareness through a differentiated product lineup; you don't have the same purchasing and inventory costs as drop-shipping; you are free from inspection, quality control, packaging, and shipping; and the prices set by overseas suppliers are very low, so you can leave a much larger margin than a typical drop-shipping business.

However, the long delivery time is a major disadvantage. The typical delivery time for an overseas drop-shipping is at least 10 days, and if there is a disruption in the supply chain, the delivery time can increase dramatically. The long delivery time also makes it difficult to handle customer service issues such as returns, refunds, and exchanges. In addition, it is difficult to manage cash flow because the payment of the sales platform is usually made after the goods are shipped to the customer and the purchase is confirmed.

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