Our favorite ecommerce fulfillment service is ShipBob, as it delivers a high level of accuracy and simplifies scalability. You can request a free demo and a personalized price quote now.

Two of the most popular ecommerce business options are dropshipping and ecommerce fulfillment. Although these two business models have some similarities, there are specific differences, too. With ecommerce fulfillment, you hold stock and sell items from that inventory. With dropshipping, you simply manage orders and never physically carry the products. Understanding the differences between these two options can help you pick the best one for your ecommerce business model.

The 5 Best Ecommerce Fulfillment Services

If you want to operate an ecommerce fulfillment business, multiple software packages are available to help. We broke down the five best ecommerce fulfillment services that can help you run your business more smoothly.

• ShipBob – Best ecommerce fulfillment platform
• Red Stag Fulfillment – Best for high-value and large products
• ShipMonk – Best for subscription boxes
• Dot Foods – Best for food and beverage ecommerce
• Easyship – Best for international fulfillment

1. Storing and Shipping Products

The most significant difference between ecommerce fulfillment and dropshipping is how you handle your stock of products. You must have a means of storing inventory when performing ecommerce fulfillment, and you don’t keep any inventory with dropshipping.

With ecommerce fulfillment, a customer makes an order through your online store, and you must package and ship the products from your inventory stash. 

You typically purchase (or make!) and store the products at a fulfillment center you own and operate. The fulfillment center also typically handles the packing and shipping process. A fulfillment center can be a warehouse, or if you are running a small business out of your home, your fulfillment center may be a spare bedroom or garage.

If you are running a dropshipping business, you never have to worry about storing products. Your online store simply advertises products that come from another supplier. 

When an order comes into your store, you pass that information to the supplier holding the products. That supplier manages the work of packing and shipping the products directly to the customer.

Some people prefer the dropshipping model because it seems easier. You don’t have to worry about finding a place to store products or do the physical work of packing and shipping boxes out. 

However, when you are dropshipping, you lose the ability to manage or control the way the products ship and the quality control of the shipping. Your customer service rating will suffer if a supplier poorly packs a box or ships it to the wrong address. You have more hands-on control of these processes when you use the ecommerce fulfillment model.

2. Managing and Tracking Inventory

With an ecommerce fulfillment business, you must be able to track inventory accurately. Because you have your own fulfillment center that stores your products, you need to know when your inventory is running low so that you can reorder.

You don’t want to advertise a product as in stock on your online store only to tell a disappointed customer that the product is out of stock. Having a system in place to track your inventory is vital to the smooth operation of an ecommerce fulfillment business.

If you are running a small business selling only a few products and can easily count how many boxes you have left in your basement, tracking inventory is pretty easy. If you sell hundreds of different products and store them in warehouses, you’ll need inventory tracking software to help.

With the ShipBob ecommerce fulfillment service, you get real-time inventory tracking. ShipBob can also send you alerts whenever inventory drops below a certain level for a particular product.

If you are running a dropshipping business, inventory tracking involves a different process. You do not hold the products in inventory yourself, so you cannot track items independently. 

Instead, you must rely on suppliers to send notifications when certain products are out of stock. You can then adjust the information on your online store accordingly. Unfortunately, suppliers don’t always provide this information readily.

You may be able to find apps that can help you try to keep track of inventory from suppliers, but this is also a hit-and-miss proposition. You may just have to accept that you occasionally run into inventory issues as a dropshipper, leaving customers disappointed.

You may want to consider having more than one supplier available for each product in your dropshipping online store. If one supplier is out of stock, perhaps one of your backup suppliers can fulfill your customer’s order.

3. Startup Costs and Profit Margin

When running an ecommerce fulfillment business, the startup costs typically are quite a bit higher than with a dropshipping business.

Some of the startup costs for the ecommerce fulfillment model that don’t exist with the dropshipping model include:

• Purchasing products/inventory
• Purchasing materials to make your own products
• Storage space to keep your items
• Purchasing shipping materials (i.e., boxes, padding, labels, tape, etc.)

Operating as a dropshipper, you don’t have to store inventory or ship products, eliminating many startup costs. 

While your startup costs are lower when running a dropshipping business, your profit margins are often lower than ecommerce fulfillment. 

Profit margins are lower due to having to pay the supplier’s set prices and having to pay them to store and ship the products for you, all of which eats into your profit margin.

Although you have some of the same operational costs as an ecommerce fulfillment business, you have more control over those costs. You can purchase products to place in your inventory at wholesale prices, saving you money versus paying a supplier to handle your products.

When operating as a dropshipper, the supplier essentially sets your operational costs, leaving you less control.

4. Building Your Own Brand

As an ecommerce fulfillment business, you have a greater chance to build a memorable brand for your customers. Dropshippers struggle to create a brand name that generates loyalty among customers.

With an ecommerce fulfillment model, you can improve your brand’s visibility by selling products you make yourself and having unique selling points. After all, your specific products are only available in your store, boosting your brand.

Additionally, you can control your brand’s notoriety by how you treat customers beyond typical customer service techniques. For example, because you are packing and shipping your own products in the ecommerce fulfillment model, you can take steps to make your packages memorable. You can also choose to make unique or personalized items.

You may want to include a personalized note in the packaging or a small gift to ensure customers will remember you. Brand loyalty can go a long way in building the success of your online business. 

Perhaps customers will remember you because you give them fast shipping and realistic estimates of the package’s arrival date. You can ensure the products always arrive safely through careful packing.

When working with the dropshipper model, you lose control over the shipping process. Your supplier performs the packing and shipping for you. Personalizing this process to make your brand more memorable is far more difficult. And if the supplier poorly packs a product causing it to arrive broken, customers aren’t likely to remember your brand fondly.

Additionally, it’s far more difficult to differentiate your online store’s product selections when you are dropshipping. Because you are acquiring products from suppliers, it’s highly likely other dropshippers are also getting similar or the same products from those suppliers. 

You have very little chance to carry a unique product as a dropshipper. Consequently, customers are less likely to remember your brand name when shopping for the product again. They may just go with the online store with the lowest product price rather than return to your store.

5. Options for Scaling Quickly

When running an ecommerce fulfillment business, it can be tough to scale the business to accommodate sudden growth, such as that from a video that suddenly goes viral. If you need to scale fast because of an unexpected influx of new orders, you may experience problems.

To grow, you need enough inventory on hand to fulfill the new orders. If you are making your own products, this means having enough supplies and time to create additional products quickly. You cannot fill the orders if you cannot get the supplies or are the only person making the items. There are only so many hours in the day. 

You may need to hire people to help you ramp up the production of your unique products. What you don’t want to do is ramp up production so fast that the product quality suffers. If hiring others to help you make products for your ecommerce fulfillment business causes the quality of the products to drop, you’re going to disappoint customers. 

If your products require supplies from other people and companies as part of your ecommerce fulfillment business, sudden growth can be challenging there, too. Perhaps the company supplying the products to you cannot fulfill your increased orders quickly enough to allow you to grow as fast as you want or keep your delivery times to what you promise customers. 

As you are growing, you really have to stay on top of your inventory levels, so you can fill orders without alienating your customers. Slow, steady growth is easier with an ecommerce fulfillment business versus sudden growth.

With a dropshipping business, managing sudden growth is easier. Because you are selling products suppliers already have, you don’t have to worry about having enough inventory to handle the extra orders. 

Most dropshipping suppliers are huge. Growth from a single dropshipper doesn’t affect them much. These suppliers often provide products to many dropshippers simultaneously, so they can typically handle one store’s sudden growth effortlessly.

Additionally, it often requires quite a bit less time on your part to manage the growth of a dropshipping business versus an ecommerce fulfillment business. If you run either of these businesses as a side hustle while working afull-time job, the time required to manage growth is extremely important.

The Similarities Between Dropshipping and Ecommerce Fulfillment

With both dropshipping and ecommerce fulfillment business models, you will need to create an online store. Multiple great website builders are available that focus on helping you build a high-quality online store. These services walk you through the process, simplifying things versus making the store from scratch on your own.

You have to pay for hosting services for your online store. Understanding what these costs entail is important so you can appropriately calculate your potential profit margins for either ecommerce fulfillment or dropshipping business models.

With both business models, you decide what products to offer. You also choose how many products you want to list on your online store and the price of each item. You must research the products yourself regarding quality and availability. You also must determine whether certain products can generate the profit margin you want.

Another similarity between these two online business models is that you handle the marketing for your business. Your online store builder can help you with marketing, but you have to take the steps on your own. You’ll need to advertise your business, and those methods are up to you.

Customer service works similarly for both dropshipping and ecommerce fulfillment. You may have a few customers who are unhappy with the quality of a product when it arrives. You must decide how to handle complaints, maybe by shipping a new product, offering a refund, or taking another path.

Even though you never touch the product in a dropshipping business, customer service still is your responsibility. The problems customers experience may be the supplier’s fault for your dropshipping business, but dealing with the issue falls to you.

A final similarity between ecommerce fulfillment businesses and dropshipping businesses, you control the operation. Both types of business models can work as a side hustle or as a full-time job. It really depends on how much time you want to invest and the risk you want to take.

You could start either type of business as a side hustle while working another job as your primary source of income. If the online business grows, you can then decide whether to make it your full-time job. Both models have the potential for significant growth, but both also have a risk of potential failure.

Final Thoughts About Dropshipping and Ecommerce Fulfillment

If you are considering starting an online business, you have quite a few things to consider. Do you want to operate the business as a side hustle, or are you planning to make this your full-time occupation? Are you looking to provide products you source from others, products you make, or both?

Although there are some similarities between these two types of online businesses, the differences are important to understand.

Ultimately, starting a dropshipping business tends to be a bit easier than an ecommerce fulfillment business, and it tends to have smaller startup costs. If you are looking for larger profit margins and more of an opportunity to create a unique brand, though, ecommerce fulfillment may serve you better. Study both types of businesses to determine which fits your needs and goals.

Source: quicksprout

Dropshipping vs. Ecommerce Fulfillment: 5 Key Differences