Thursday, August 03, 2006

Wholesaling Versus Dropshipping: Does it matter? (Article)

Wholesaling Versus Dropshipping: Does it matter?

The internet has given us, the common person, the ability to be our own distributor. But where do you start? Wholesaling? Dropshipping? And does it matter?

Back in the stone ages (oh, about 10 years ago before the internet), going into business for yourself was never an easy task. I personally have always been interested in the distribution business. Why? First, I don’t have to make or produce the products. That requires a lot of time, money, and risk. Secondly, I really have never been very keen with dealing with the public. I once worked in a retail store and the hundreds of customers I would deal with on a daily basis drove me nuts. So I looked for an in-between: distribution. My goals were to be the middle man. Unfortunately, ten years ago becoming a distributor was not easy at all. It required finding the products and negotiating the wholesale terms as well as finding the sellers and those who were going to buy your products. I gave up and became an engineer instead.

Recently, my desires to go into business for myself have been resurrected. Why? Because it is a whole lot simpler now because of the internet! My two biggest problems are now ten-times easier to solve:

1) Finding the Products – You can still do it the old fashion way and spend hours on the phones calling and trying to find the products you wish to distribute. The internet, though, speeds up this process considerably. Search engines allow us to find things fast all over the world. Even better, there are internet companies who do not only the finding of these companies, but test them out as well. The risk is very low, your time to market is much faster and your rewards are just as great.

2) Selling the Products – Now that we have products, we need to find sellers. We can still set up a shop or distribute your products to other stores for resale. But why? The internet is currently the biggest and broadest shop in the world. It requires no storefront. It requires no employees or direct customer relations either. Promotion does come at a cost, but only a small fraction. With the emergence of companies like eBay and Amazon, setting up a store with a lot of visible is simpler than ever.

Understand that there is work involved. This is where you have further options in how you would like to manage your business: Wholesaling or Dropshipping:

Wholesaling: This is pretty straight forward. You find a product you like and you initially buy a lot of the product at a reduced, wholesale price. When you make a sale, you ship the products to the end customer yourself. For a true wholesaling business, you need to purchase a large quantity up front to obtain the lowest wholesale price.

Light Bulk Wholesaling: This is the same as wholesaling, but the minimum buys are much less. This may be more suitable for the everyday eBay or Amazon powerseller. The wholesale prices are a bit higher, but your stock and money up front is much less.

Dropshipping: This is wholesaling at its simplest. In dropshipping, you purchase no product upfront. When a person makes a purchase, you then place the order with your dropshipper (at a wholesale price) and they will ship it directly to the customer. This is by far the easiest and least risky, but the wholesale prices are the highest and there is usually a dropshipping fee as well (usually a few bucks).

Like all business, there are trade-offs. The more product you buy up front, the higher the potential rewards. As you get more conservative, the amount of financial and time commitments become less, but so do your profits. But at the end of the day, no matter which program you choose, there is money to made.

- Matthew Bredel

To learn more about dropshipping, wholesaling and reviews of the top wholesale websites online, visit