Why Are There So Many E-Commerce Models?!
Your e-commerce business is going well and you’ve got some extra money. Now you’ve decided to diversify models via which you sell. You’ve started looking into the different ways you can sell things online and you have realized that there is more than just FBA and FBM on Amazon’s marketplace. You’ve started hearing words like private labeling, or white labeling, or dropshipping and wholesaling, but you feel lost because there are so many options and it’s a touch overwhelming. Well no worries, I’ve got a breakdown for what all this means. We’ll look at what all these different things are and what the advantages and disadvantages to each are, so let’s dive in.
Dropshipping is where you take a supplier’s products and sell them through your own channels. You never see the product, you never touch the product, you act as the intermediary between the supplier and the customer.
With dropshipping there are obvious advantages that come from never having to deal with the product directly. It’s cheaper and you don’t have to worry about storage. You will never end up with dead product that you can’t move since your role is entirely intermediary. You also don’t have to come up with your own SKU with dropshipping, because you are selling an existing product.
The disadvantages are, in this case, largely the same as the advantages. You never touch the product so you cannot ensure quality or put your own branding on it. Since you can’t put branding on it you cannot build customer loyalty because their loyalty will be to the supplier who does have the branding on their products. There is also significant competition in dropshipping because you are just one of potentially many sellers for the supplier’s products. Despite the disadvantages dropshipping is still an intriguing possibility because the risks are incredibly low, but it is important to keep them in mind when considering dropshipping.
Private labeling is where you take a product created by a supplier, to your specifications, and then you provide your own branding, your own packaging, basically your own presentation of the product that has been created.
The advantages for private labeling mostly boil down to having control. You control the product, the branding, the packaging, and the price. You also get exclusivity because you are the seller of your product and the owner of your brand. You build your own brand, build a loyal customer base, and just generally have control over pretty much every aspect of your product.
Obviously, private labeling isn’t without it’s disadvantages. The risk is much higher because you must reach an MOQ (minimum order quantity) which leaves you the possibility of dead product that you can’t move. Private labeling also costs significantly more than dropshipping. With private labeling the risk is high, but the reward is also high.
White labeling exists as a sort of middle ground between private labeling and dropshipping. You are taking an already existing product, like with dropshipping, but you are attaching your own logo and packaging to it. It is cheaper than private labeling and has many of the same advantages and disadvantages that dropshipping does, but you have that extra bit of control due to being able to brand the product and you control more of the presentation with the packaging.
Wholesale is when you buy in bulk at a discounted bulk price in order to sell the product individually. It is, in essence, the standard inventory model of brick and mortar stores.
The advantages to wholesale are that you don’t have to spend money on advertising or building a brand because those already exist for the product, much like they potentially will with dropshipping. You have a much smaller lead time than with other selling methods. You can continually scale after your initial success in a way you cannot match with any of the other methods we’ve discussed here.
The disadvantages are that you have to have a wholesale license. You also need to maintain relations with the brand so they will continue selling their product to you. You need to make large purchases to have product to sell and you have significant competition selling the same product that you are trying to sell.
The ability to scale is the most compelling reason to wholesale products, but it also carries with it the risk of having dead product that you have trouble moving due to competition on the product you are selling.
Hopefully, I have been able to clear up some of the confusion surrounding the different models for selling product in an e-commerce space. I obviously can’t tell you what the best method is for you. You have to consider your situation, the amount of energy you are willing to devote to your e-commerce business, whether you have an idea for a product that you want to create and sell, and whether you have space for something like wholesaling. These are all important factors that will tip the scales towards one model or the other. Now that you have the basics you can either further your knowledge or you can get going on diversifying your portfolio. Best of luck out there!