As an online retailer, you have many options for fulfilling orders from customers, so it's important to figure out which business model is best for your goals.
In this article, we'll cover the difference between dropshipping and other order-fulfillment options. We'll also detail the pros and cons of each order-fulfillment method so you can decide which option is right for your business and needs.
Before we dive in, let's clarify a few definitions of the key terms you'll need to understand, starting with order fulfillment, which refers to the system of receiving, processing, and delivering orders.
And the following are types of order fulfillment:
- Merchant fulfillment refers to sellers' managing their own order-fulfillment process. That means the merchants (sellers) buy their own inventory, store their products (in a warehouse, storage facility, or even in a home), process orders, and ship products to end-customers.
- Third-party fulfillment refers to the process of outsourcing order fulfillment to a separate entity. This option still involves the sellers' buying their own inventory. However, in this case, the they store their products in a warehouse owned by a third-party fulfillment company, which manages the process of storing inventory, processing orders, and shipping products to end-customers.
- Dropshipping refers to a far more hands-off process for the seller. In this case, the seller markets products and collects orders from customers at a retail rate. Once an order is received, the seller forwards a sales order to the product manufacturer at a wholesale rate. Then, the manufacturer processes the order and ships the products to the end-customer. The sellers, in this case, charge a retail price, allowing them to keep the profits from their sale, but they outsource the rest of the process to the dropshipper (supplier). Ultimately, the sellers do not have to own inventory or ever touch the products they are selling.
You may be thinking, "Awesome, now I know which option is right for my business!" But there are more details to consider to make an informed decision.
Let's talk about the pros and cons of each order-fulfillment method.
- More immediate control of your sales and order fulfillment processes. Because you store your own products and manage your inventory, you'll see when you need to order more of a specific product.
- More control over resolving shipping mistakes. Because you have products on hand, you can quickly and easily determine how you'll rectify shipping errors and anomalies (such as sending the wrong product, items broken in transit, and returned orders).
- Ability to easily customize orders. Want to add a special gift or a handwritten thank-you note? Because you fulfill orders on-site, you have the power to do as you wish.