I recently wrote an article about the myths of passive income and one of the things I talk about in there is eCommerce.
For the uninitiated, eCommerce is the art of selling products (both physical and digital online).
Ecommerce is no different from any other business that sells products. It’s just like having a shop like those you may have visited on the high street, apart from you don’t have physical premises -you have a website instead.
There are two main options for eCommerce businesses, and both have pros and cons.
I’ll give you the lowdown on both so you can make a decision on which is right for you.
Holding stock and Dropshipping
Holding stock is the more traditional way to do business. You buy the products, have them delivered to you, and keep them in your warehouse.
When you get an order, you ship the product directly to the customer.
Dropshipping is the opposite. You have a relationship with a distributor and add the items to your website.
Only when you get an order, do you pass that order onto the distributor and they ship the products directly to your customer.
As I mentioned, there are pros and cons to both methods.
Dropshipping
Pros:
- No upfront capital needed
- Ability to have a wide range of products (from a range of suppliers)
- No warehouse or logistics services needed
- No need to work out shipping costs (your distributor will usually do this for you)
Cons:
- Lower margins
- Someone else might sell the products before you
- Have to rely upon third party for images
- Service levels of third-party could impact on your reputation
Holding Stock
Pros:
- Higher margins
- Physical products – you can see the quality
- You can take unique products that no one else stocks
- Allows you to view and handle the stock, as well as take high-quality images for your eCommerce site
Cons:
- You’ll need upfront cash to buy stock
- You would be limited on how much you can buy
- You need to find delivery and logistic companies
- You’ll need somewhere to store the stock
- Tech products could become obsolete, and you could be stuck with old stock no one wants
- If products can go off, you could be stuck with inventory you can’t sell
There are other benefits and cons to each, but these are the important ones.
Ultimately, while it is quicker and easier to set up a drop-shipping business, many businesses that start off this way eventually move to the more traditional methods. For both types of business, finding trusted suppliers will do much to help your eCommerce business succeed, so choose who you work with very carefully.