Many people, entrepreneurs today think about starting sales online and building their own business based on e-commerce. They wonder which business model would be the best choice for them, dropshipping, or perhaps full dropshipping, as a new approach to business offered by our company ECAT eCommerce. In today’s article, we will learn about the basic differences between these two ways of operating in the e-commerce market. Which is better, dropshipping or Full dropshipping? We hope that in this and subsequent articles you will find the answer for yourself.
For those who prefer watching over reading, I will include a live session from November 28, 2023, in which Grzegorz Ciupek, CEO of ECAT eCommerce, and Michał Knap, Sales Director, discuss the key elements of both systems. Each form, whether it be dropshipping or Full dropshipping, has its advantages and disadvantages.
An important thing is the fact that both systems work in reality and allow entrepreneurs who use one of these business models to earn. The choice is always dependent on the preferences and operability of the entrepreneur.
For readers under the video, there is a summary of the information contained in the Liv’e. So, I invite you to read. About Full Dropshipping by ECAT eCommerce, as the optimal Path to Success in Online Business, I wrote on November 16, 2023. Perhaps it will complement this material for you.
The genesis of the sales model called dropshipping.
The beginnings of dropshipping date back to the 50s and 60s of the 20th century.
The origins of this form of sales were already noticeable in the 50s and 60s of the 20th century. In the 70s in the USA, it was already a very popular method of sale. You may remember, or have seen in movies or series, situations in which people received catalogs from Department Stores to their homes. Department stores began to send catalogs to customers to promote their products, which included a wide selection of products such as TVs, radios, jewelry, and many other things from which customers could choose.
Catalog sales became a fashionable form of sale.
To place an order, the customer had to fill out a form found in the catalog. The completed form and money were put into an envelope. Then, the letter with the form and cash was sent to the Department Store, which passed it on to the manufacturer. The manufacturer fulfilled the order and sent the product directly to the customer. The same function could be performed by the Department Store, which ordered the goods from the manufacturer and sent the package to the customer themselves. As you can see, the Department Store sold something it did not have in stock. This is one of the first examples of the dropshipping model.
The term dropshipping appears in the 90s of the 20th century.
The name dropshipping dates back to the 90s of the 20th century when one company, let’s call it X, began to offer its business partners the opportunity to sell products on the basis of dropshipping. In this model, business partners did not need to have their own warehouse or handle order processing. It was enough that they created a website with the offer of products from company X and accepted orders from customers. Orders were then passed on to company X, which handled their fulfillment and shipping of the ordered products to the end customer.
Nowadays, sending catalogs with forms is relatively rare. This method is most often used by network marketing companies for their partners. Today, the catalog sales model has been replaced by the online dropshipping model. However, this first model can be considered one of the first examples of this form of sale, which at the time was an effective form of sale.
What does selling in the dropshipping system involve?
Transferring marketing and sales to the sellers.
The basic premise of this sales model is to transfer sales and marketing to the sellers. A so-called division of roles was created. Describing, in a nutshell, what dropshipping is, it can be said that it involves not buying goods as a seller. We do not need to have large warehouses or a lot of money to start.
In dropshipping, it is necessary to sign a cooperation agreement.
To be able to offer products we do not have in stock, it is necessary to sign an agreement with a wholesaler or manufacturer that we will be able to offer, promote, propose, and sell his products in various places, such as through our own online store or any Marketplace, or elsewhere.
Example of the sales process in dropshipping
Let’s assume for the sake of our example that you have a friend who has his own wholesaler and offers pencils for sale. You approach your friend and propose that you want to sell his pencils. He says why not, – after all, he is interested in increasing sales. You sign an agreement between yourselves and specify the terms of sale. You agree, for example, that for each pencil you sell, you will buy it from him for 50 cents.
You set your price, for example, 1 dollar per pencil, then you list the product in your online store or on any Marketplace, providing descriptions and pictures, because he had them prepared in his catalog and shared them with you. And you wait. What are you waiting for? For someone to buy the pencil you are offering. In the meantime, you advertise to reach as many interested customers as possible with your offer of the pencil. That’s a different topic, we won’t touch on it today.
The first order from a customer comes in. How much did he buy it for? For as much as you listed it, that is for 1 dollar. The difference comes out to 50 cents, as that’s how much you will pay for the pencil to your friend. You pay your friend the 50 cents and tell him, sending him the shipping label, to send the pencil to your customer. One could say that’s that.
However, two days pass, and an impatient customer calls you asking when the package with the ordered pencil will be sent out. You don’t know, so you call the wholesaler to find out. It turns out there are some obstacles. Here we enter into problems related to delivery and more. Perhaps another time.
This is a very abbreviated model of dropshipping. It looks like this, we sell goods we do not have in stock ourselves. The goods, after payment, are sent to the customer by the wholesaler. Our role along the way is also marketing, customer contact when necessary, and contact with the wholesaler.
What steps should be taken to start activities in dropshipping?
Find a wholesaler or manufacturer who will agree to cooperate with you.
The first thing, you need to find a wholesaler, manufacturer, or company that will agree to cooperate with you. It happens rarely, but there are companies that may tell you that they do not cooperate with individuals, only with companies that have already achieved some profits, that is, they have tangible results of their actions. Therefore, you will not be able to sell cool goods, on which, for example, you are knowledgeable and like.
This is one of the disadvantages in dropshipping, that you have to sign a contract to be able to sell not your own products. Unfortunately, you have to sign contracts with various wholesalers, manufacturers, or companies with whom you would like to cooperate. So, you are forced to open your own business. And these are additional costs generated, and you haven’t sold anything yet.
Care for attractive and reliable product descriptions and prices.
Another important thing is that in this dropshipping model, you are responsible for all these elements, such as photos, descriptions, prices, to manually list in your store or on various Marketplaces. This is quite time-consuming if we have to do such tasks individually.
Of course, there are programs that you can purchase. These are things, as you see, for which you usually have to pay in the form of a subscription, these are monthly fees in various amounts, or also a percentage of turnover, that is, a percentage of the value of the sold goods, not of profit. You haven’t sold anything yet, but costs have already appeared at the start.
Care for order fulfillment.
Another important thing is that you need to continuously verify what orders appear at your place. If an order has appeared, you need to take care of it, that is, to fulfill it. Therefore, you check what has been ordered and by whom. You go to the website of the wholesaler with whom you cooperate or send them an email with detailed information about what has been ordered, where it should be sent, and when the package with the ordered goods should be sent.
You need to wait initially until the money from the place where you sell arrives in your account. Then you go to your bank account and send the money to the given company, wholesaler, or manufacturer. Later, you verify whether the shipment has been sent to your customer.
Post-sale process.
Along the way, an important thing is the post-sale process. Here a lot of variables may appear because customers always ask, what about my shipment? Will the package be delivered on time? This is about 90% of questions. But I’m canceling this shipment. I don’t want this product after all. And you’ve already ordered the goods, sent the money.
As you can see, there may be several elements that are heavily burdening. Both in terms of time and financially. In the case of typical dropshipping, most wholesalers or manufacturers do not accept returns. Because here we work on a contract based on B2B, that is, business for business.
Consumer law, which allows consumers to withdraw from distance purchases within 14 days, does not apply here. And this is one of the sore points, that unfortunately, when we run such traditional dropshipping, most returns in most cases come back to you and automatically create frozen financial resources for you.
Complaints and consumer claims.
Another issue is complaints or the issue related to claimant customers, as well as with issues of such not fair consumer approach. But I think we may cover these topics in subsequent articles.
Handling returns and complaints is one of the biggest problems that arise in e-commerce in general. Because people operating in e-commerce often come to us and say, – ‘I have experience in dropshipping because I operated, ran my business, tried my luck, but all my profit, as I calculated it, is in the warehouse.‘ At this point, operating in the Full dropshipping model today has a big advantage over dropshipping, especially in this last issue of handling returns and complaints.
rticle summary: Which is better dropshipping or Full dropshipping?
In this article, I discussed traditional dropshipping as an option for entrepreneurs wanting to start a business in e-commerce. I explained the genesis of dropshipping, dating back to the 1950s and 60s in the USA, where catalog sales were popular. In the 1990s, the term “dropshipping” began to be used for the business model in which trade partners do not require their own warehouse, selling products over the internet and passing orders for fulfillment directly by the manufacturer.
The basic idea of dropshipping is to sell goods without the need to have them in stock, where the seller takes care of marketing, customer service, and cooperation with the wholesaler or manufacturer. I described the dropshipping process, from finding a partner, through care for descriptions and prices of products, to handling orders and complaints.
I emphasized that dropshipping requires commercial agreements, generating costs at the start, and managing the post-sale process, which can be burdensome both time-wise and financially.
Full dropshipping, as an expansion of the classic model, is suggested as a better alternative, offering benefits, especially in the area of handling returns and complaints.
I invite you to part two of the article.
In the next part of the article, we will address the issue of Full dropshipping itself. We will show what it looks like with us and possibly compare some aspects to illustrate the differences between dropshipping and full dropshipping.
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