Recently we’ve had a number of people contact us asking if we could help them source products to resell. We spoke with them about what type of business they want to run, and asked the usual questions: “How much money do you have?” and “What is your timeline?” Surprisingly, many said they were looking for wholesale suppliers because drop shipping wasn’t available in their country or region. While we’d love to help everyone we can, it’s not possible since we’re limited by our supplier & logistics network.
So here are some reasons why this might be the case for you as well.
1) Currency differences –
For most countries or regions, wholesale suppliers only accept USD (in cash), which means your funds would be tied up in conversion. Additionally, you’ll need to factor in the bank’s foreign transaction fees and potential loss upon exchange (1-2% is common).
For drop shipping suppliers, they will accept your local currency and don’t require USD as a form of payment. This makes it much easier for you to plan how many units you can purchase for each order. As an example, if you have $10,000 Canadian dollars available for purchasing inventory, then buying from a wholesale supplier would mean that amount of CAD are tied up until you sell the stock – 50% if factoring in the 1-2% loss on exchange! On the other hand, drop shipping would allow you to buy 9 orders worth of inventory which means more flexibility and less risk for your business.
2) Logistics –
Wholesale suppliers may not ship to your region or country, which means you’re stuck with importing the goods (expensive) or finding a third party logistics (3PL) provider. The 3PL would accept orders on your behalf and then re-ship them to your customer, similar to drop shipping but without the automated process – it’s very manual! Obviously there are other options like using sea freight forwarding, but this also requires more upfront capital since air shipments are faster and more reliable.
As per Peter DeCaprio drop shipping makes it easy to sell internationally because you simply never have inventory in house. You can even use free Google tools that showcase if a website visitor is located outside of your targeted region, which means you’d only show your ads to them. Using a 3PL is also not very scalable or efficient since they’ll typically hold onto stock for a few weeks before shipping out the goods – more cash tied up in working capital.
3) Customer service –
When selling wholesale, it’s difficult to offer perfect customer service with every transaction because of the long delivery times from suppliers. You can potentially convince your supplier that rush orders are great, but this results in higher prices and even slower lead time due to less inventory availability. As an example, if you wanted a rush order of 500 units, then you’d have to wait until they have sufficient inventory at their warehouse before they could ship any product! This is fine if you’re planning for the long term and building a brand that has perfect customer service, but not ideal for those who want quick sales.
Drop shipping is great since your customers receive their orders within days (or even hours) of placing an order. This is due to two reasons: your supplier ships out right away and uses express courier services; they send the package to your customer directly with no 3rd party involved!
4) Inventory –
When buying wholesale, there’s a lot of inventory upfront investment required. One popular example would be buying in bulk like at Costco where you need to spend tens of thousands of dollars before getting any discounts on items. It just doesn’t make sense from a financial standpoint to buy less than 100 units of stock unless if it’s an extremely high demand product.
On the other hand, drop shipping works best when you have a nice product assortment to offer to your customers since this maximizes your chances of selling on any one order. Sure there are less risk with buying in bulk, but the cost savings is usually limited if you don’t have enough traffic!
5) Risk –
When sourcing wholesale suppliers directly, you’re taking all the risk by paying up front. If you get screwed over by a supplier or they go out of business – tough luck! With drop shipping, your risk is minimized due to not owning inventory either way so it just doesn’t make sense that you’d expose yourself to more financial risk at the beginning.
Conclusion:
There are a few reasons why drop shipping is a much better business model than selling wholesale, but the main point here is that selling wholesale means you have to tie up money by buying inventory upfront. The only exception would be if you can find a reliable supplier on Alibaba who accepts payment terms like COD (cash on delivery), which some suppliers do offer.
Otherwise, drop shipping cuts out the middleman and allows you to easily start your own online store with nothing more than an internet connection. You’ll never need to bother with complicated logistics like sea freight forwarding or setting up your own warehouse – it just makes everything easier! See our step-by-step tutorial below about how to sell anything on Shopify (affiliate link) says Peter DeCaprio.
