Drop shipping Vs. 3PL?: What to Know and How To Decide Which Is Best For You
If you are an e-commerce business, there is every chance you are using either a drop shipping service or a 3PL to fulfill your orders. Starting a business can be tricky; for the most part, it just makes sense to reduce your operational cost as much as possible.
What is a 3 PL?
3PL (Third-Party Logistics) is when a company uses a third-party logistics service provider to fulfil the company's order. Unlike drop shipping, you must secure a large product stock and store it in the 3 PL's warehouse. Upon receiving an order, the 3 PL service ensures the order is dispatched to the buyer within the shortest time possible.
As order fulfilment is a vital part of any e-commerce business, many business owners find that in-house order fulfilment or drop shipping eats deep into their profit margin and cause delivery delays, leading to cancellations.
What is Drop Shipping?
Drop Shipping is an order fulfilment model where a retailer fulfils an order by buying directly from a third-party supplier, and the supplier completes the order delivery. In this case, the retailer only deals with how to make sales, while the third-party supplier handles manufacturing, packaging, and order fulfillment.
The drop shipping model is popular among business owners whose goal is to start, gain some business validation, and operate without having to acquire space and machinery.
Similarities Between 3 PL Fulfilment and Drop Shipping
- Fulfilled by Third Party
Both order fulfilment models are done by third-party partners and give you the room to focus more on the growth of your business. In both cases, the retailer does not hold the stock and does not handle the picking, packing, and dispatch process as well.
- Warehousing or Space Cost Avoided
Starting and running a successful business can be tricky, and cash will always be King. For most retailers, outsourcing fulfilment means using the available cash to invest in marketing, branding, and improving their workforce.
Four Advantages of Drop Shipping
If you think drop shipping is the best model for you now, here are a few things in your favour.
- Little Capital to Start
When starting a business built on drop shipping, you do not need to cough out huge cash to buy your stock, pay for the freight, and keep it in a warehouse. You depend on your supplier to solve that part of your business puzzle while focusing on marketing and running the business.
- Start Anywhere
You can run your business from home and never worry about paying for space or buying office furniture. You can set up your online presence, find a great product, promote the product online, make sales, and pocket your profit. As simple as that.
- Run Product/Sales Test Better
With drop shipping, you can literally put many products on your online store and see which becomes your winning product without buying the products upfront. Using this strategy helps you quickly find your way to thriving, as most businesses spend a lot of money and time at this stage.
Four Advantages of 3PL Services
- Rely on Experts
When you choose this option, it means you are relying on a team of experts with possibly years of experience in logistics. Choosing a reliable 3PL partner gives you many advantages, especially if you want to expand into new markets.
- Save on Operational Costs and Increase Profit Margin
When you decide to buy in bulk from your supplier, you will get better pricing than someone doing drop shipping for the same product from the same supplier. You can decide to ship your product directly to your 3PL partner, and any time you have an order, your 3PL partner ensures smooth and fast delivery.
- Scale with Available Resource
For many businesses, scaling can be very promising and exciting, but it comes with increased demand for funding. To solve this problem, you must raise more capital by applying for a loan or releasing some equity in your business. If scaling means investing in logistics, choosing a 3PL partner would be a great option to explore.
- Improve Customer Satisfaction
Failed or delayed delivery is the quickest way to disappoint a customer, get bombarded with refund requests, and lose repeat customers. Outsourcing this part of your business means relying on your 3PL partner's quick delivery network and avoiding failed or delayed delivery troubles.
Conclusion
Using the dropshipping or 3PL model is totally up to you and what you think is best for your business. If you are considering a dropshipping model, be sure your supplier is reliable and has a consistent system of prompt order delivery.
If you decide to go ahead with the 3PL model, think more about what is suitable for your customers and your business now. If you are still confused about what to do, think about the model that improves customer satisfaction and keeps your business profitable.
At Shipstar, our full-service third-party logistics solution means your business can flourish. Whether working to a container load or a single pallet, our storage and shipping solutions create an easy way to manage your inventory.
For more information on how Shipstar can help you, get in touch at 01223 843011 or email us at [email protected]. Alternatively, fill out our online contact form, and we will be in touch to discuss how we can help you.