Dropshipping vs Ecommerce: What Makes Them Different?

Imagine starting your own online store without ever worrying about stocking products, managing inventory, or dealing with packaging and shipping the products. Now, picture having full control over every product you sell, but with the added responsibility of stocking products, managing inventory, and shipping them. These two approaches represent the key difference between ecommerce and a dropshipping business. 

Both ecommerce and dropshipping models have their own advantages and challenges. But which is the right business model for your online business? Choosing the right model depends on your budget, resources, desired control level, and willingness to manage inventory.

In this blog, we’ll help you understand the difference between ecommerce and dropshipping business models, breaking down the pros and cons of each to help you make an informed decision. Whether you’re looking for a low-risk way to enter the market or seeking full control over your online store, understanding these distinctions will set the foundation for the success of your business.
   

Introduction to dropshipping and ecommerce

Dropshipping and ecommerce have revolutionised the retail industry, offering flexibility, low overhead costs, and the ability to reach global customers. 

Dropshipping is a fulfilment method in the ecommerce space where a store does not keep the products it sells in stock. Instead, it purchases the products from a third party supplier, who then ships directly to the customer. This model eliminates the need to purchase the inventory upfront, making it ideal for entrepreneurs with limited capital. Some examples of dropshipping companies include Dropshipzone, CJdropshipping, AliExpress, and Printify.

Ecommerce refers to the broader practice of buying and selling goods and services online. It encompasses a wide range of business models, from traditional retail where the retailer manages inventory and shipping, to subscription services and marketplaces like Amazon or eBay. With ecommerce, businesses can create online stores, offer products, and accept payments through various platforms. It’s a rapidly growing space, driven by advancements in technology, increasing internet accessibility, and consumer preference for convenience. Some examples of ecommerce businesses include Asos, Amazon, Boohoo, and eBay. 

Both dropshipping and ecommerce models offer distinct advantages. Dropshipping reduces risk and allows for a wide range of product product offerings, as retailers can source from multiple suppliers without committing to stock. The ecommerce model offers more control over the customer experience, branding, and pricing strategies. Entrepreneurs can scale their businesses quickly, without the traditional constraints of brick-and-mortar stores.

Whether you choose a dropshipping model, a traditional ecommerce model, or a combination of both, a business can tap into the growing demand for online shopping and build a sustainable, profitable experience.

Overview of how each model works 

In the dropshipping model, the process begins when a customer places an order through an online store. The retailer then forwards the order to a supplier, who ships the products directly to the customer. This removes the need for retailers to hold inventory or handle fulfilment. The profit margin comes from the difference between the retail price the customer pays and the wholesale price the retailer pays the supplier. While dropshipping business minimises the risk associated with unsold products, it can also come with longer shipping times and less control over product quality and delivery process. 

On the other hand, traditional ecommerce involves stocking products, inventory management, and shipping products directly to the customers. In this ecommerce model,  a retailer buys products in bulk, stores them in their storage facility, and fulfils the orders as they come in. This allows businesses to have more control over their brand, packaging, and customer experience. However, it requires a larger upfront investment, and there’s always the risk of overstocking or holding unsold inventory.  

Both business models come with advantages and challenges. Dropshipping is ideal for entrepreneurs looking for low-risk, low-cost entry into the ecommerce space, while ecommerce businesses offer greater control over operations and customer satisfaction. Many businesses choose a hybrid approach, combining elements of both models to optimise flexibility and profitability.

Key differences between dropshipping and ecommerce

Are you planning to start an online store? The success of your business depends on how efficiently you deliver products to your customers. It's crucial to understand the difference between ecommerce and dropshipping business models, so you can identify which business type suits you the best.

Inventory management

Inventory management is the key difference between the dropshipping business model and ecommerce. When operating a traditional ecommerce business, retailers buy goods from suppliers in large quantities, which are then stored in a distribution centre, and manage the delivery of products on their own. This traditional fulfilment method requires initial investment to buy inventory and storage space. However, it gives retailers complete control over the products and fulfilment process. 

In dropshipping, retailers don’t need to manage inventory and ship products to customers. When a retailer receives customer orders through their online store, they forward the customer orders to third-party suppliers, who ship products directly to the customers. This means retailers have minimal start-up costs, as there’s no inventory to purchase, but limited control over the product quality and shipping times.

Startup costs

Starting an ecommerce business requires more upfront investment compared to a dropshipping store. 

When you run a traditional ecommerce business, you need to buy products in advance, which ties up your money. Depending on your products and volume, you might also need to rent a storage space and cover other expenses such as packaging and shipping. 

In contrast, operating a dropshipping store requires minimal initial investment. The retailer doesn’t own inventory. Instead, the supplier owns the inventory. This cuts down the initial expenses of running an online business. Since retailers don’t purchase and stock products in advance, they won’t have to rent a storage facility or cover other related expenses, such as packaging. A dropshipping supplier ships the products directly to customers, which reduces shipping costs.

Profit margins

If you operate a traditional ecommerce store, profit margins are typically higher than dropshipping, as you can buy products wholesale and have the flexibility to set retail prices. This direct purchase and sale of products allows for clear-cut margin calculations. Additionally, there’s potential for bulk discounts from suppliers, adding to the profitability of each sale. However, traditional ecommerce businesses also require higher upfront costs because you’re creating an entire ecosystem. You’ll also need to invest in purchasing and stocking inventory and warehouse storage. 

In contrast, dropshipping generally has thinner profit margins. When dropshipping, you’re outsourcing much of the work to a supplier. Because suppliers do a lot of heavy lifting, such as product sourcing, packaging and shipping, they take a substantial cut of the profits. This leaves less room for markup. However, the barrier to entry for starting a dropshipping business is low, meaning new entrepreneurs require less capital upfront. 

Risk and profitability

There are higher risks involved in ecommerce, as retailers need to purchase inventory in advance that might not sell. This may result in significant losses or risk associated with dealing with damaged products and backorders. However, traditional ecommerce can bring in higher profits, even though it can be trickier to achieve. You can set your own prices and markup, but you have to cover inventory costs and storage fees. 

In contrast, dropshipping is low risk, as you don’t have to worry about unsold inventory or overstocking. You entirely rely on your supplier to deliver products to your customers. However, you need higher sales volume to keep your business profitable. Additionally, the supply chain may also cost you more, as you’ll need to order fulfilment services from your dropshipping supplier.

Pros and cons of dropshipping

Now that you know the differences between dropshipping and ecommerce models, let’s look at their pros and cons so you can choose the business type that suits you. 

Pros

Let’s look at some of the benefits of operating a dropshipping store.

Low startup costs

Starting a dropshipping business doesn’t require a hefty investment. There’s no need to invest in inventory, warehousing, packaging, and logistics. All you need is reliable suppliers and dropshipping platforms to run an online business efficiently. Dropshipping allows you to run an online store without having to worry about the inventory or warehouse. 

Scalability

Dropshipping makes it easier to scale your online business. You can add new product categories to your online store without having to worry about renting larger spaces, storing and managing excess stock, hiring more pick packing labour, or shipping. When dropshipping, everything is taken care of by your suppliers. You only have to put in marketing efforts to bring in more customers for your business. 

Low risk

When dropshipping, retailers don’t have to pre-purchase inventory. Since you don’t have to purchase products upfront, the risk of getting stuck with unsold inventory is significantly reduced. This makes it a safer option for beginners to do business. Although you have no risk associated with inventory management, there will be some legal risks if the dropshipper doesn’t comply with regulations.

Flexible location

Dropshipping businesses don’t hold stock, meaning retailers don’t need a storage facility. They also don’t send the stock out, so they don’t even need to process deliveries. Entrepreneurs can operate a dropshipping store from anywhere as everything is handled online. This makes it ideal for digital nomads.

Offer wide range of products 

One of the advantages of operating dropshipping is that retailers have no contact with stock. This allows them to offer a broad selection of products from different suppliers  and keep their inventory diverse.

Cons

Let’s look at some of the disadvantages of dropshipping.

Lower profit margins

Lower profit margins are one of the biggest drawbacks of dropshipping. Since suppliers handle fulfillment, your profit per item is often lower compared to buying in bulk through an ecommerce model. This makes it difficult to stand out from other online stores that don’t dropship. 

Less control

Dropshipping retailers usually have limited control over product quality, as they don’t handle the stock themselves. You rely heavily on suppliers for shipping speed, product quality, and availability, limiting your control over the customer experience.

Shipping complexities

Retailers may sell products from different suppliers. When customers order products from multiple suppliers, it can complicate shipping costs and delivery times, often leading to higher fees. This can impact customer satisfaction. 

Intense competition

Because of its low barrier to entry, dropshipping has become intensely competitive.. When dropshipping, you’re competing against smaller retailers and even big retailers such as Amazon. Furthermore, several retailers may sell products that are the same or similar to yours, which can make it harder to differentiate and stand out from the competition.

Supplier problems

When dropshipping, retailers rely on dropshipping suppliers. If a supplier runs out of stock or makes an error, it affects your business reputation, even though it’s beyond your control.

Pros and cons of traditional ecommerce model

Ecommerce is not just about glory; it also comes with its own share of flaws. Let’s understand the pros and cons of running an ecommerce business, so you can choose the right business type for your online business.

Pros

Let’s look at some of the benefits of running an ecommerce business.

Higher profit margins

In this traditional online business model, retailers often buy products in bulk at discounted or wholesale rates, which allows them to mark up prices and enjoy higher profits compared to dropshipping.

Control over products

As retailers hold inventory, they have direct control over the products they sell and shipping. This enables them to offer customers with a better experience that aligns with their brand values.

Better customer experience

Retailers have direct control over the products and shipping, which allows them to ship products faster, offer more personalised services, and handle returns directly, which enhances overall customer satisfaction.

Branding opportunities 

Operating an ecommerce store gives retailers the freedom to build a recognisable brand, including custom packaging and branded customer experiences that aligns with their brand. 

Custom products

The traditional model allows the retailers to design and manufacture unique products. This can help differentiate and stand out from the competition and create a more memorable brand.

Cons

Let’s look at some of the disadvantages of the ecommerce model.

Higher startup costs

The traditional business model requires you to stock inventory and set up logistics, which require significant upfront investment. You’ll also need to invest in warehousing, and possibly hire staff, making the ecommerce model more costly initially.

Inventory risk

The ecommerce model requires you to pre-purchase the inventory. There’s always the risk of purchasing too much inventory, leading to unsold stock or overstock that ties up capital.

More logistics management

Traditional ecommerce requires you to store products and process and ship customer orders. They may also need to manage customer return and refund requests quite often. This may add complexity and cost to daily operations.

Scalability challenges

As your business grows, you’ll need more warehouse space, staff, and fulfillment resources, making scaling more resource-intensive.

Location dependency

You may need a physical location to store and ship products, which limits your flexibility and requires additional operational costs.

Which model is right for your business?

Dropshipping is best for businesses with limited capital, a preference for flexibility, and less interest in inventory management. It works well for entrepreneurs who want to test different products or niches on their store. Contrarily, ecommerce is suited for those with higher startup budgets, strong branding goals, and a desire for greater control over the customer experience. This model offers higher profit potential in the long run but requires more commitment.

Factors to consider

Choosing between ecommerce and dropshipping depends on various factors unique to your business, budget, resources, and goals. Here's what to consider when choosing a model for your business.

Budget

Dropshipping is ideal if you have limited capital. When dropshipping, you don’t need upfront investments for inventory or storage, which makes it a low-cost entry point. On the other hand, ecommerce requires more capital investment for purchasing inventory, warehousing, and packaging products. However, higher profit margins could make up for these costs. If you have a limited budget, dropshipping is your ideal choice.

Inventory management

When dropshipping, you don't have to deal with inventory. The supplier handles inventory, stores products, and ships them directly to the customers. Whereas, in the ecommerce model, you’ll have to manage your own stock, store products, and handle fulfilment. However, the control you gain can improve product quality and customer satisfaction.

Control

With dropshipping, you have limited control over product quality, packaging, and shipping speed, which could affect brand consistency. The ecommerce model provides complete control over product packaging, quality checks, and customer experience, which is essential for building a strong, differentiated brand.

Scalability

Dropshipping makes it easier to scale your business since you don’t manage shipping or warehousing. This makes it ideal for rapid growth without having to deal with logistical headaches. In ecommerce, it’s more challenging to scale your business, as increased demand requires more warehouse space, resources, and shipping capabilities, adding complexity.

Competition

Dropshipping often involves selling widely available products, which means high competition. Success of your business depends largely on effective marketing strategies and niche selection. Whereas, in ecommerce, you can manufacture unique or custom products, which helps reduce competition, strengthen your brand identity, and help grow your business online.

Time commitment

Dropshipping is less time-intensive since you don’t handle fulfillment, making it a good choice for those looking for more flexibility or running a side business. On the other hand, ecommerce requires more time for managing inventory, packing orders, and handling logistics, which can be demanding but rewarding.

Risk

Dropshipping involves less risk because you don’t invest in inventory upfront. However, supplier issues and lower margins can still affect profitability. In the ecommerce retail fulfilment method, there’s a higher risk due to investments in inventory and storage. However, if you have a clear market strategy and reliable sales, the rewards can be significant.

How to transition between models (if applicable)

Transitioning between dropshipping and ecommerce can be a strategic move based on your business goals. It requires careful planning and execution. 

When to consider switching

You might consider switching models if your business goals evolve, such as wanting more control over branding, improving margins, or expanding product offerings. Dropshipping may have been an ideal starting point due to its low-risk and low-investment nature, but as your business grows, you might find that managing your inventory and fulfilment offers better brand-building opportunities.

Conversely, if ecommerce logistics become overwhelming, shifting to dropshipping could streamline your operations and reduce costs. The key is to evaluate your business performance, market conditions, and long-term vision to decide whether a switch aligns with your objectives.

Steps to transition smoothly

Here’s how to transition smoothly between business models:

Evaluate business metrics

Assess your sales, margins, and customer feedback to determine if there’s a need for a change and how it could potentially impact your business. 

Research reliable suppliers or fulfilment partners

Whether you’re shifting to dropshipping or ecommerce, find reliable suppliers or fulfilment partners who meet your quality standards and business needs. 

Update your website and product listings

Adjust your product descriptions, prices, and shipping details to reflect the new model. Ensure a smooth customer experience during the transition. 

Notify your customers

Communicate any changes in delivery times, product availability, or return policies to your customers to manage their expectations. 

Test on a small scale

Before a full transition, test the new model with a limited range of products to identify potential challenges and fine-tune your operations. 

Adjust marketing strategies

After successfully transitioning between models, revisit your marketing plan to align with your new model, ensuring a cohesive approach to your sales and customer engagement efforts. 

Summary 

Dropshipping and ecommerce are two different order fulfilment methods. Both have their pros and cons. The goal should be to find the best model for you and your business. It depends on your specific goals, skills, and resources. Ecommerce may suit those with a store already running and who want to move their operations online. On the other hand, dropshipping best suits starters and small entrepreneurs who are looking to operate on low funds. 

Each model brings its unique set of requirements, challenges, and benefits. Choosing between dropshipping and traditional ecommerce is a significant decision, which requires careful consideration of various factors. Whichever model you choose for your business, it’s absolutely essential to ensure that your website offers the most seamless product search and browsing experience for your visitors.