What is the difference between reselling and DropShipping?
If you’re looking for a way to start a business, either as your main job or as a lucrative side hustle, you’ll have undoubtedly read about DropShipping and reselling businesses. Although people outside the eCommerce industry might assume they are the same thing, since they both involve selling products you don’t make yourself, there are a number of differences between businesses that are reselling and those that are DropShipping. In this post, we’ll be taking a look at how these different business models compare.
What are resellers and DropShippers?
A reseller is someone that buys stock in order to sell to customers at a profit. They hold the stock in their storage facility until customers buy the product, and then ship the order themselves.
A DropShipper is someone that sells products from suppliers that they don’t own. When a customer buys a product from them, they buy the product from a supplier, and pass the order details on. That supplier then picks, packs and dispatches the order to the end customer.
What are the differences between reselling and DropShipping?
Stock processes are different
One of the biggest differences between reselling and DropShipping is the way that stock is held. Reseller businesses need to buy stock that they store before they can start listing items and making sales, and they then process orders and ship the orders to the customers. In contrast, DropShipping businesses sell stock on behalf of suppliers without buying that stock up front, simply passing orders to the supplier when they make a sale for them to fulfil.
The amount of cash required to get started is different
When creating a DropShipping business, you don’t need a huge amount of capital. You’ll just have essential costs from your sales channels, any marketing expenses, and if you need to pay for a DropShipping platform – although the best DropShipping platforms have scalable pricing, allowing you to start sourcing without any upfront costs.
Resellers need capital available to be able to purchase their stock, and in order to have somewhere to store the items, on top of marketing and sales channel costs.
The potential benefits are different
Let’s get straight to the point – the potential financial returns are higher with reseller businesses, even when a reseller and a DropShipping business sell the same product, at the same price. That’s because resellers buy stock in bulk, and so the price charged by the supplier will be smaller per unit, meaning that the profit margin will be larger. DropShipping businesses are buying single items from suppliers, which suppliers charge more for.
This means that if you have the time, and the financial resources available to invest in your business, then a reseller business is likely to be more profitable for you. However, there are other issues to consider that mean the decision as to which business you decide to create isn’t a purely financial one.
Risk levels are different
Starting any kind of business doesn’t come without risk – and both reselling and DropShipping are no different. Reselling businesses present a greater risk in monetary terms, since stock needs to be bought, and a warehouse paid for, whether it is bought or rented. DropShipping businesses are lower in risk in upfront capital, since you don’t need to invest in stock, or pay for storage costs.
However, both types of business present risk in terms of time and marketing costs. If you’ve done your research, but the items that you’re selling don’t appeal to customers, then you won’t recoup those costs – leaving you out of pocket.
Customer service is different
When you’re running a DropShipping business, you need to be more prepared for customer service issues. When customers encounter issues with their items – even if that is simply changing their mind – you are responsible with facilitating that return or getting a new item, which means you’ll need to liaise with the supplier on their behalf.
In addition to providing excellent customer service where returns and refunds are required, resellers have the added task of picking, packing, and dispatching orders. That also includes dealing with shipping companies and buying the right type of packaging.
Is reselling or DropShipping better?
Better is such a subjective term – it depends on how you want to operate your business, and what you want to achieve. If you are starting a business from scratch and you don’t have any cash to invest, then DropShipping will be a better way for you to start a business, but if you have cash available to you (as well the other resources required) then reselling may be better.
It also depends on your skill set – if marketing and selling are your strengths, then DropShipping is likely to suit you better. If you’re more practical, and have already experienced the process of running a warehouse and dispatching orders, then reselling with the help of a marketing assistant might be better for you.
How do I start a reseller business?
Firstly, you’ll need to plan carefully – and means ensuring that you have the right tools in place. You’ll need a great warehouse management system, and a way to manage your inventory too. That might be the same system, since many of these incorporate different features – an example is Linnworks, which offers management tools for inventory, order, and shipping, as well as multichannel listing and reporting. (PS. If you decide to use Linnworks and to then extend your business with DropShipping, you’ll be able to do so easily with Avasam – since we’ve created an integration for Linnworks!) Now also is the time to get your social media set up, and your website – so that you can start marketing your business, and start making sales as soon as you have got your stock ready to go.
Once you’ve chosen your systems, you’ll need to make sure you have sufficient space to store the stock you’re going to be reselling. Depending on how much cash you have to invest in your stock, that might be as small as a spare room, or a garage, or you might invest in warehouse space – although if you start small and you’ve planned right, then ensure you include scaling up in your plans!
After you’ve established where you’re going to keep it, then you can source your stock. Whether you work with wholesalers, liquidators, or other retailers, you’ll need to be able to buy that stock up front, at a low enough price that you can sell it at a competitive enough price that you will make a profit on each item you sell.
Then, it is time to set up your sales channels, and continue to build your social media following, creating marketing assets that resonate with your customers.
Finally, you’ll also need to ensure that you keep tight control of your finances and your accounting – since not doing so will result in a huge mess that your accountant won’t thank you for creating, and could be potentially expensive if you don’t play by HMRC’s rules.
How do I start a DropShipping business?
Just like with a reseller business, starting with a great plan is always essential, as is getting the right tools in place. So, do research about your target customers, set up accounts on the sales channels that you plan to sell on, and register your social media accounts, so that you are ready to start selling as soon as you have sourced your products.
Sourcing your products is the next step – and although it is possible to do DropShipping manually, it isn’t the ideal way to manage your business. Finding a DropShipping platform that automates product sourcing from a range of suppliers, as well as connecting with popular sales channels and has integrations for shipping means that you’ll be able to work much more efficiently. Of course, this is where we recommend what Avasam has to offer – since it does all of those things, and connects to hundreds of UK-based suppliers, which means your customers receive their orders much more quickly than if you work with overseas suppliers.
Once you’ve connected your DropShipping platform with your sales channels, the focus shifts to marketing your products, making sales, and continuing to build your social media following.
After that? Keeping on top of your finances and accounting, just as resellers do, and then it is as simple as continuing to identify other opportunities to grow and scale your business.
Can I do reselling and DropShipping together?
Absolutely, a business can do both – and indeed, they can be quite complementary strategies when you’re building your business, whether you start out reselling, or you initially start with DropShipping.
A reseller might fill their warehouse, and be successful but not quite ready to take on another warehouse just yet. To help grow their business further, they add DropShipping sales using Avasam – for which they don’t need storage, additional staff, or upfront outlay. This allows them to offer more to their customers, and helps them increase their profits, that they can then put towards scaling their business further, with the advantage that DropShipping allows them to test unknown products before investing in stock.
Someone starting a DropShipping business may aspire to having their own warehouse one day, and creating their own products, but lack the funds to get started. Since DropShipping requires little initial outlay, they can grow their business, and start to invest in stock when they have created enough cash to allow them to invest in profit. Once they add reselling to their strategy, they may continue to use DropShipping for certain products, or at specific times of the year such as Christmas time, to increase their offering without risking dead stock.
The beauty of working this way is that you can even add other elements to the business, such as working with manufacturers for your own clothing line, or using print on demand to create clothing that you have designed.
While this is a great idea, and we have seen many businesses succeed, if you’re at the start of your journey, then trying to juggle reselling, DropShipping and maybe print on demand all at the same time is likely to be a bit too much in one go. If you have ambitions to have different elements to your business, the best way is to make a great plan and business proposal, so that you can do the relevant risk analysis, and know when the right time to strap on those additional layers.
While we’re huge fans of DropShipping, there are definitely plenty of reasons to consider reselling too – and as we’ve just mentioned, if you started out with reselling, there is plenty of scope to diversify your reselling business by adding DropShipping sales to it.
Whether you’re starting your journey into retail, or you’re scaling your business up, sign up for your free Avasam account today. There are no fees until you’re making more than 10 sales per month, and you’ll be able to access thousands of high quality products from UK based suppliers and manufacturers.