Since the start of the 2020s, either dropshipping or traditional eCommerce models have dominated online shopping. The retail eCommerce industry will cross the 6 trillion dollar mark in 2024, and dropshipping is set to account for over 300 billion dollars of the market value.
These statistics are attractive enough for business owners worldwide to want to enter the market. But before starting your own online business venture, you should know the difference between eCommerce and dropshipping.
This article will review what eCommerce and dropshipping are, how they differ, and which business model suits you. We will also go over how you can excel in both business models with a straightforward solution.
eCommerce: The Future Of Shopping
Electronic commerce or eCommerce is the buying and selling of products from the internet. It can be on a website like Amazon or through shopping apps. As long as the transaction occurs online, it is called eCommerce. It is the same thing as basic retail commerce on the internet. Customers order products from your store, and then you give them the product for payment.
As more and more people have access to smartphones and the internet, the gap in shopping is becoming smaller. Customers don’t have to visit physical stores since their smartphones provide the experience right from the comfort of their beds. That is why eCommerce is fast becoming the future of all shopping. Customers don’t get to touch or see the product they are buying physically. However, eCommerce stores allow customers to compare prices and get the best deals from multiple stores without visiting the stores in person.
How The eCommerce Shopping Experience Looks Like
A customer views the product catalog on an eCommerce website and adds the product to the cart. Then, they head to the checkout page to pay for the products. That is when the eCommerce store receives the order for the product. They search for the product from their warehouse inventory, package it, and prepare it for shipping.
Some stores use their delivery system, especially large eCommerce stores like Amazon and Walmart. Others opt for 3PL or third-party logistic solutions for shipping. Regardless, the product gets shipped to the customers who receive it. Some stores offer returns and refunds from eCommerce shopping in case of a product defect. That is how eCommerce shopping works.
A Global Sensation: How eCommerce Grew In Popularity
eCommerce shopping has been available for a long time. However, only large brands could offer an eCommerce shopping experience for their customers. In 2020, that changed because the Covid pandemic kept people at home. Unable to go outside, more and more businesses have turned to eCommerce to bridge the gap between their customers or risk losing customers.
Around the same time, eCommerce sales skyrocketed between 2020 and 2023. Retail eCommerce sales went from 4 trillion to over 5.7 trillion dollars, the most significant increase over three years. The projected figure of 4 trillion dollars in 2020 is anticipated to double by 2027, reaching 8 trillion dollars.
So, you can imagine how many people want to enter and grow the eCommerce business. Today, there are millions of stores all over the world. While most are local, named brands are providing international shipping to different regions of the world. The global gap is non-existent thanks to the popularity of eCommerce.
Dropshipping: Selling Without Holding Inventory
Around the same time, eCommerce was changing the perception of shopping, and another business model was reinventing the fulfillment of orders in eCommerce. As you can see, traditional eCommerce sees customers order and pay for products, and the shop owners take care of the rest.
But what if shop owners didn’t have to worry about getting the product into the hands of customers? Enter one of the main reasons eCommerce took off in the 2020s: dropshipping!
How Dropshipping Works
You can think of dropshipping as an eCommerce strategy for order fulfillment. Traditional eCommerce handles all the inventory and shipping of the product to the customers. However, dropshipping takes care of that, and the eCommerce store does not have to worry about keeping or shipping the inventory.
Here is how dropshipping works:
- A customer views the products on your eCommerce website
- They add the products to the cart and then pay for the items they want to buy
- You receive the order, but you transfer the order to a wholesaler, supplier, or distributor
- The wholesaler’s job is to take the product from their warehouse and ship it directly to the customer.
So essentially, your eCommerce store only acts as the medium between the customer and the wholesaler, supplier, manufacturer, distributor, etc. Here, the wholesaler is known as a dropshipper. They take care of product fulfillment and shipment. You receive money from the customers, pay the dropshipper, and enjoy the profits.
Starting a dropshipping business is relatively easy. Dropshipping has risen in popularity since there is no need to handle inventory or even a physical store. The barrier to entry is shallow, meaning startups in eCommerce are looking for a dropshipping business model to jumpstart their entrepreneurial journey.
The most accessible dropshipping item to sell is apparel. The products are easily reproducible and produced for cheap, giving businesses a higher profit margin. Branding on clothing is much easier than other products, making it suitable for a first-time business owner to start an apparel dropshipping business.
The great thing about dropshipping is that customers won’t quickly know two companies are behind the product. If you are in the dropshipping business, you have the branding and credit for the industry. At the same time, the manufacturer or wholesaler that is dropshipping the product receives payment for their services. The customer only has contact with you; you don’t have to manage any physical inventory and reap profits from the sales.
10 Differences Between eCommerce And Dropshipping
Anyone can easily see the difference between eCommerce and dropshipping. But to truly understand both business models, you must know exactly how they differ. Here are the different criteria eCommerce and dropshipping differ from each other:
Difference#1 Inventory Management
For any eCommerce business, inventory management is very important. This is where the primary difference lies between dropshipping and eCommerce. Where a traditional eCommerce business has to buy in bulk and then store the products, dropshipping does not have to worry about that. An eCommerce business must worry about handling procurement and storing the products to later ship to customers.
A dropshipping business only has to manage the orders. Once they take in an order, they transfer it to the supplier, who takes care of the inventory for the dropshipping business. In eCommerce, an inventory management system must be in place to manage the products as efficiently as possible. A messy inventory would delay product shipping, leading to longer shipping times and unsatisfied customers. The supplier handles this burden for the dropshipping business.
Difference#2 Need For A Physical Premise
When a business buys in bulk for resale, like in traditional eCommerce, warehouses are needed to keep a stock of all inventory. The more extensive the inventory, the larger the storage solution is required. This might mean a more giant warehouse or multiple warehouses to store all the goods. This all adds to the business’s overhead costs. Some eCommerce stores may also have a physical store where customers can enter. However, this is not necessary for the industry to operate.
This is the complete opposite of dropshipping. The suppliers take care of the inventory storage. Dropshippers also do not need physical stores at all. Dropshippers can operate from home and handle all business without seeing the products they sell. This significantly reduces the cost of storage and other expenses, such as inventory management software and rent.
Difference#3 Initial Investments
The initial investments are much higher in eCommerce than in dropshipping. eCommerce businesses have to buy their products and have a place to keep the inventory. Not to mention the need for funding to set up the website to showcase the product catalog. eCommerce stores with physical stores would require more initial investments to set up the store. These aren’t small costs either. These are significant investments because they are bought in bulk. So, the need to sell the product compounds the initial investment risk. If an eCommerce business is unsuccessful, there is little chance of survival.
This is the complete opposite for dropshippers. The initial investment is to set up the website and order product samples to test the products. Little investment is needed to run the business after the business because customers also pay for the products. Dropshippers only act as the middleman in the transaction. This is why dropshipping is a low-cost business idea in which many newer entrepreneurs succeed.
Difference#4 Profit Margins And Profitability
Profit margin is where eCommerce is flexible when compared to drop shipping. How the product is procured is entirely on the business itself. They can manufacture the product themselves, buy the best products in bulk, and sell them on their website from wholesalers. This means that an eCommerce business controls the product’s price, giving it more control over the profit margin. The company can set the price however they want and sell the product as they like, providing a more extensive scope of profitability.
Meanwhile, dropshippers have much less control. Since they act as a middleman, they only get a cut of the sale, like a commission on sales. Most of the revenue ends up in the hands of the suppliers. It makes sense since they do most of the hard work of handling inventory management and shipping to customers. This slashes the profit for dropshippers to a thin margin. They also have less control over profitability because they are paying the prices set up by the suppliers. They can take advantage of discounts, but profitability is far smaller for dropshippers than in eCommerce.
Difference#5 Control Over Product Quality
Just like profit margins, eCommerce is more in control of product quality than dropshippers. eCommerce business owners are in direct contact with the product, so they know if they have defects or not. They can easily ask the suppliers for replacements or refunds. This hands-on approach ensures that the products customers get are in the best condition possible. If the eCommerce business produces its products, it ultimately controls the quality.
In dropshipping, most business owners might not even see the product. They can initially ask for samples to ensure product quality. However, not all suppliers send free samples at all times. Since the products get shipped to customers straight from the supplier, there is little to no control over the product quality. An unhappy customer wants refunds or replacements, so you must handle that with the suppliers.
Difference#6 Managing Orders And Shipping Fulfillment
In eCommerce, the business fulfills all orders and shipping. Even when the company hires a 3rd party to handle the shipping, they must ensure the product is given to the logistics partner. This makes eCommerce liable for any damages to the product unless specified in their shipping policy. However, it also means they have complete control over shipping time and orders. The business can also provide real-time order tracking to update customers on their shipments.
Suppliers handle all orders and dropshippers’ shipping. But this is a double-edged sword because the business has no control over the shipment. It is entirely up to the suppliers. So if there are any delays, the burden falls on the dropshippers because the customers expect them to send the orders. The dropshippers rely utterly on the suppliers for timely delivery to keep the customers happy. If there are shipment problems, dropshippers must relay the information between the customers and the supplier. This complexity adds to how important it is for drop shippers to find suitable suppliers for their business.
Difference#7 Branding And Customization
Like product quality, eCommerce businesses have complete control over the branding and the customization of the product. This gives eCommerce an advantage because they can ensure their product reflects the business’s branding. If customers want the products to be made a certain way or want the product to be personalized, the company can handle it for the customers. This ensures customer satisfaction and gives a higher chance for the business to retain a loyal customer.
Dropshippers have little branding and customization that they can offer to their customers. The primary goal of dropshipping products is to give the customers the product without handling them. That is why the suppliers have complete responsibility for branding. A dropshipper can partner with the supplier to get their branding on the product, but it will cost more for the dropshipper to do this. It is the same with customization. Suppliers cannot handle individual customization because it won’t make much business sense for them to incur extra costs. So, dropshippers cannot offer much customization unless it is a service the suppliers provide to the drop shippers.
Difference#8 Customer Service And Product Returns
Ecommerce customer services have direct contact between the business and the customer. The business can offer personalized assistance to the customers and handle their requests. This is especially good when the company needs to handle product returns. They can quickly handle such a request to keep the customer happy. However, this means the business has to handle the extra cost of handling customer requests and services.
For dropshippers, there is a limited amount of customer service they can provide. Most of the questions and answers will be vague in comparison because the drop shippers have to talk to the suppliers and then answer the customer. This delay in communication can lead to dissatisfied customers and potentially mean the business loses customers. But there is no need for a dedicated customer service option.
Difference#9 Scope Of Expanding Operations
In eCommerce, there is also scope for expanding the business. New items can be added, including the introduction of new product types. New services can be added as well. For example, if you sell electronics on your site, you could offer refurbishment services. However, all expansion will require additional investments such as new warehouses, equipment, hires, etc. So, expanding in eCommerce requires caution and careful planning to align with your business goals.
In dropshipping, there is more room to scale up the business quickly. New products, product types, and services can all be added relatively soon because the supplier carries the burden of delivering the latest goods. However, this might also mean that the business has to find new suppliers to maintain the quality of goods. So, while it is more accessible, it poses new challenges in smoothly integrating the latest products so customers remain happy with them.
Difference#10 Competition In The Market
Competition is high in eCommerce, but there is room to be unique. Most competitor stores will sell similar products, so eCommerce businesses use branding to help differentiate themselves from the competition. It could be highlighting unique selling points through marketing strategies or tackling niche product problems that competitors don’t. This requires constant research and development, but it is well worth the effort for a business to stand out.
Dropshipping has the exact opposite problem. The low barrier to entry allows new competitors to come in masses. The limited brand-ability of drop shippers and little product differentiation does not help this extra competition. That is why marketing is even more critical for dropshippers: encouraging new buyers. However, the market saturation is very high, which poses the biggest challenge for dropshippers.
Dropshipping Vs Ecommerce: Which One Should You Choose?
We have now seen the difference between eCommerce and dropshipping. If you are a new entrepreneur trying to enter the eCommerce market, you might be considering the dropshipping vs eCommerce debate. So, which one is the best for your business? Before you decide, here are some questions that you need to answer:
- Do you want control over your products and how you sell them?
- Are you experienced enough to create a unique brand through marketing, or would you prefer someone else to handle it?
- What is the size of your budget for the business? Are you willing to take risks, play it safe, and test the waters first?
- Are you looking for high-profit margins, or will you be satisfied with low margins without much effort?
- How big will your team be?
- Are you able to handle inventory and shipping products to customers?
- Are you looking to establish yourself in the market, or do you want to earn money for other business adventures?
These questions are essential because they help you determine which business model suits you. To help you answer these questions, here are some pros and cons of dropshipping and eCommerce:
Dropshipping Pros And Cons
Pros:
- Little To No Startup Cost: A dropshipping business requires little to no initial investments. The only costs associated are building the website and connecting with suppliers who do the rest.
- Wide Product Selection: You can virtually sell anything if it matches your brand image.
- No Inventory Management Needed: No need to stock goods for your business, the suppliers take care of it for you.
Cons:
- Low-Profit Margins: The suppliers set the price, so the business has a low profit margin.
- Dependency: Your business depends on suppliers and leaves all fulfillment up to them.
- Highly Competitive: A low barrier to entry combined with a wide product range makes dropshipping a very competitive market.
- Limited Customization: The suppliers handle your product customization, and it is hard to manage customized products, meaning you stand out far less in the market.
- Quality Control Issues: Verifying product quality is challenging since you leave everything up to the suppliers.
- Customer Service Challenges: Customer service can be a big hassle since you have to manage communication between customers and suppliers.
Ecommerce Pros And Cons
Pros:
- Higher Profit Margins: You own the inventory and can set prices according to what you want your profit margins to be.
- Brand Perception Control: Since you own the products you sell, you can fit the products to your brand image.
- Quality Control: You can verify the quality of products before shipping them to the customers.
- Shipping Flexibility: Your eCommerce business has more control over shipping and can do it in-house or hire a 3PL (3rd Party Logistics) fulfillment company.
- Bundling Options: You can sell the products how you want. This means that you get to set product bundles and offer discounts according to how you want for your promotional packages.
- Customization and Personalization: Unlike dropshipping, you have control over customization in eCommerce. You get to deliver the product with personalization requests from your customers.
Cons:
- Higher Initial Investment: Ecommerce comes with a high initial investment. This comes from product procurement and inventory management alongside building the website.
- Dead Stock Issues: Since you have to buy goods in bulk, inventory will likely go unsold. This dead stock becomes a burden for your business.
- Complex Business Operation: As an eCommerce company, you have to handle everything, leading to a complex business operation where you are liable for everything.
- Handling Large Teams: Ecommerce businesses can start small, but expanding will require more people to be added to handle operations efficiently.
Choosing Between Dropshipping Vs. Ecommerce
Ultimately, the decision lies in what you want for your business. Both have their upsides and downsides.
You should go to a traditional eCommerce business if you:
- Want to build and preserve your brand image
- Can handle buying in bulk, manage inventory, and handle shipping all at once
- Can finance the high investment costs
- Seek a long-term project that will grow over time
- Want to work with a large and diverse team
You should start a dropshipping business if you:
- Want to start a business with low capital
- Have reliable suppliers for your products
- Don’t want to handle inventory
- Want to sell a large selection of products from the beginning
- Want to work with a small team
Upgrading Your Dropshipping And Ecommerce Business With A Bulk Order App On Shopify
If you are considering starting a dropshipping or an eCommerce business, you can start it on Shopify. While Shopify’s native options are limited, you, as the owner, can access the Shopify app store to help sell your products better.
Whether you are a dropshipping store or a traditional eCommerce store, a variant product bundle app with order limits is just what you need to enhance the shopping experience for your customers. Here is an example of how it can potentially help your business:
You can see a custom variant display showing all the variants for this mix-and-match variety pack. The customers get to choose the variants they want in the pack. All the variants on the page allow the store to have one dedicated page to showcase all the products. Customers spend less time switching between product pages for each variant and spend more time in selection. This increases the time customers spend on the product page, which makes it more likely that they will finalize a purchase.
However, at the bottom, you will notice a message telling the customers, ‘The total quantity must be at least 4. Selected unit: 0’. Since the store wants to sell the bundle as a pack of 4, the customers must choose 4 variants to complete the pack. Until they do so, the ‘add to cart’ and ‘checkout’ buttons are grayed out.
This means that the customers cannot add the bundle pack without meeting the restrictions. This allows the eCommerce store to sell how they want to, improving their order packaging and reducing complications when shipping the product. It also streamlines inventory management so the store has enough to complete a bundle pack of 4 for their customers.
You will also notice the customers can see the stock of each variant from the in-stock badge right under the quantity selection field. This shows customers the availability of products so they do not have to worry about ordering a product that is out of stock.
So how does this all help your dropshipping or eCommerce store on Shopify? Here’s how:
- Since Shopify does not have a minimum restriction rule for product quantity, you can take advantage of the app’s restriction features to fit your business model better
- The mix-and-match selection personalizes the shopper’s experience, even for dropshippers where personalization is limited
- A mix-and-match pack like this also helps raise the average order value for your store
- You can bundle both fast-moving and slow-moving products simultaneously, increasing the chances of clearing unsold inventory when buying in bulk
- The custom text field helps personalize bundle packs for customers
- Greater chance for customers to confirm their purchase with all variant options available on one page.
- Ordering the bundle becomes more accessible with the rule set so customers order the correct quantity, and you also sell the right amount for the product bundle. This helps both your inventory management and keeps customers satisfied
With just one app, you reap many benefits for your Shopify dropshipping or eCommerce store
Bottom Line
The difference between eCommerce and dropshipping is simple. Ecommerce handles all traditional retail models online while dropshipping leaves inventory and fulfillment to their supplier. Besides that, many other differences between eCommerce and dropshipping set them apart. Both have pros and cons, and it is up to you to decide which suits your business goals better. Remember, one is better than the other only when it aligns with your expertise in the field.
