Updated: Oct 8
What is the difference between Dropshipping fulfillment and a third-party fulfillment company?
As an eCommerce company or vendor have you ever heard the term dropshipping and 3PL? You most likely utilize one or the other but have always assumed they were the same thing. While there are some similarities to the services they couldn’t be more different. Today let's go through what each service can offer you and you be the judge as to which one would be best for you to grow your business.
What is Dropshipping?
First, let's talk about drop shipping fulfillment as an option for your new eCommerce business. This option revolves around an eCommerce store purchasing from the manufacturer directly when they receive an order. This means that the seller does not actually own their inventory but places orders only when an item is sold. The store owner does not actually own their own inventory and therefore the supplier will charge a higher wholesale price. The reason for the high wholesale price is that the supplier is ultimately owning the product inventory and logistics for your store. The seller will handle marketing and customer service for their store where they can also offer a wider variety of products since they don’t have to worry about inventory costs.
This option is perfect for those who do not have the capital to purchase inventory, logistics and storage space. Be aware a manufacturer will send the product directly to your client, this means customizing the packaging or getting more in depth about shipping is not an option as this is not part of the service you pay for.
What is a Third party fulfillment company?
A third-party fulfillment company or 3PL is for those stores looking to own their own inventory. Unlike dropshipping, the eCommerce company would purchase their inventory in bulk and then send it to the 3PL. Basically the 3PL will handle warehouse space and logistics, such as packing and shipping your store product. A third party fulfillment company will also offer much more in depth services for your business, such as returns and customer service which is not part of a drop shipping partnership. In the case of an eCommerce company that has partnered with a 3PL, they will generally have more specific product categories and they only sell what they own in their inventory, usually at a better profit margin. Shipping costs and times are also faster than a drop ship fulfillment.
This option is perfect for those who have more capital and wish to own and control inventory more directly. They also benefit from the 3PL handling returns, some customer service, and even personalized packing and shipping if it is offered by the 3PL.
Which fulfillment service is right for you?
That question really depends on the maturity of the store and how established and reliable the customer base is. Generally, drop shipping fulfillment is great for brand new stores where the creator does not know how well they will perform. This is a lower risk option where they don’t need to worry about having inventory that can’t turn over and are not paying for space on products that don't sell. Lower profit margin is also generally associated with a drop shipping fulfillment service but you aren’t risking as much capital either.
A 3PL would be a great choice for those stores with more maturity. Someone who knows their customer base and understands how and when their inventory moves. Generally there is a greater profit margin since the inventory is owned by the store owner and a 3PL will offer more services for your clients allowing the store owner to focus solely on building the brand through marketing.
These services are sometimes used in conjunction with each other, based on the inventory and situation of each individual. It's always best to reach out to a provider of each service and discuss the costs and logistical aspects. Crunch your numbers and then decide how you want to proceed.