When starting your ecommerce store, one of your first decisions is how to source your inventory. After all, you need something on the shelf to sell.
Businesses use two main product strategies.
The first is dropshipping, where customers place an order and the supplier ships the product directly to the customer.
The alternative is wholesale, where you buy your stock in bulk (usually importing from overseas), store it somewhere and resell it with a mark-up.
Each option will work for a different business and marketing strategy. Are you a high-volume, low-margin store competing on price? Or are you marketing premium products, willing to pay more for greater control over design, packaging and fulfilment?
This guide equips ecommerce business owners with the information they need to select or update their product strategy.
Cashflow comparison
Your sourcing model determines how much working capital you require up front- before you even make a sale. This is the cash available to meet the business’s short-term operational needs.
| Dropshipping | Wholesale |
Minimal working capital is required. Once your dropshipping supplier is integrated with your store, you only pay the supplier once the customer has paid you, since you’re not purchasing stock up front. This is advantageous for business owners prioritising speed to set up and go to market. | Cash goes out to pay for stock, before it comes back in as sales revenue. You require more greater working capital up front to cover the cost per unit and the freight cost of your initial inventory. This timing issue makes ongoing cashflow management critical. |
Cost comparison
Per unit cost and mark-up potential will be important for businesses competing on slim margins.
| Dropshipping | Wholesale |
Your supplier may charge a premium for holding, packing and shipping each order, so your per-unit cost can be higher than wholesale. Dropshipping products are less likely to be differentiated or of high quality and therefore are more likely to be sold at a lower final price. | Without the fulfilment mark up, you may pay a lower cost per unit, but you must meet a minimum order quantity (MOQ) for each SKU (stock keeping unit) and pay freight up front. If you have a differentiated or premium product, this will cost more to produce, but will justify a higher mark-up for the price sold to consumers. |
Inventory management
Inventory management covers three key areas.
– Physical stock – damage, theft, storage and the cost of storing products.
– Obsolescence – stock you buy and cannot sell, which may end up discounted or written down.
– Fulfilment – how you make sure every order that comes in is picked, packed and shipped.
| Dropshipping | Wholesale |
Inventory management is outsourced, so you hold no physical stock and carry no obsolescence risk. The risk is that your suppliers fail to fulfil all customer orders correctly. Therefore, it’s ideal to have clear channels to communicate with suppliers to resolve stock issues. | You are responsible for physical stock, storage and obsolescence. Conduct regular stocktakes or perpetually track your inventory. To manage obsolescence, review your data to identify your best sellers and slow moving items and restock accordingly. To outsource storage fulfilment as your store grows, you may choose to use a third-party logistics (3PL) provider. |
Quality control
Key elements of quality control include inspecting product consistency, testing products and maintaining customer satisfaction.
| Dropshipping | Wholesale |
You never physically inspect the product before it ships to the customer, so you are placing full reliance on the dropshipping supplier. Therefore, you should vet suppliers carefully, check certifications and reviews, set clear expectations with them for product, packaging and labelling. Order samples of every product before you launch to test them. | You have more control over quality management- because you pick and pack the stock before it is sent. Communicate clearly with suppliers up front and then develop a process to inspect stock before it is shipped. As volume grows, you may need more formal quality processes and a dedicated team. |
Lead and delivery times
Lead time is how long stock takes to reach the point of sale.
Delivery time is the time between an order being placed and delivered to the customer.
| Dropshipping | Wholesale |
You have no lead time- as stock ships straight from the supplier to the customer, skipping your warehouse. Delivery time is usually slower, especially where suppliers ship internationally to domestic customers. | Lead times will be longer, because imported stock has to reach you first. Once it is in the country, domestic delivery is fast and within your control. |
Risk
Every ecommerce store carries four key risks.
- Financial risk – capital committed to stock before it sells, including stock you later must discount or write off.
- Operational risk – the chance that your day-to-day fulfilment fails- picking, packing and shipping.
- Supplier risk – your dependence on a third party to hold stock, meet quality standards and ship on time.
- Inventory risk – loss of value in stock you own, through damage, theft, obsolescence or over-ordering.
Dropshipping pushes risk onto the supplier who holds and ships your stock, while wholesale keeps it in-house.
| Dropshipping | Wholesale |
· Operational risk – fulfilment sits with a third party, so orders may arrive late, arrive with the wrong products, or not arrive at all. · Supplier risk – you depend on your supplier to hold stock, meet quality standards and ship on time. | · Financial risk – capital is tied up in stock, and you must manage lead times so inventory is sufficient to meet demand. · Inventory risk – you carry the cost of overstocking, damage, theft and obsolescence. |
Which strategy do we recommend?
Dropshipping suits business owners looking to set up and launch quickly. It allows you to instantly test products without significant amounts of working capital, or building a fulfilment process.
Wholesale is best for established stores, best for customisation and branding. This method supports stronger quality control and faster delivery once demand is stable enough to support bulk purchasing.
For new stores, start with dropshipping products in your chosen category to validate demand. After identifying strong performers, move to a wholesale strategy and refine your product line.
