Should I Use Dropshippers or Carry My Own Inventory?

I’ve been asked this question a lot lately, so I figured it was about time I write about it! It’s a very important question that almost every online store owner will face. The choice you make will greatly impact the way your ecommerce store functions. It will also play a large part in how you grow your business. This post explains what I consider to be the pros and cons for each method. But first, let’s quickly get you acquainted with both concepts.

What Is a Dropshipper?

A dropshipper is a company that warehouses inventory for you and ships products to your customers on your behalf. Your name appears on the package and your customer is unaware of the dropshipper.

You place orders with your dropshipper by email, phone or through their website. You purchase products only after receiving an order from your customers.

What If I Don’t Want to Use Dropshippers?

If you choose not to work with dropshippers, you will need to invest in inventory. This means you will be warehousing the products yourself and will be responsible for shipping out orders.

You can store your inventory in your home, rent warehousing space, or utilize professional fulfillment companies.

Pro Con Comparison

Time and Effort

Using dropshippers lessons the amount of time you spend daily on orders. You are not required to manage inventory and ship products out. The amount of time this allows you is invaluable. You can focus your attention on marketing and growing your business rather than simply managing it.

If you decide to carry your own inventory, you will be responsible for shipping out your orders or hiring someone to do the job for you. If your store becomes popular, but you don’t quite make enough to invest in employees, you could easily find yourself overwhelmed (and annoyed) with this responsibility. You are also in charge of managing your stock, which means being timely with restocking inventory.

Investment

Probably the biggest difference between utilizing a dropshipper and carrying your own inventory is the investment required. When working with dropshippers, you DON’T pay for a product until you receive an order for it. You receive payment from your customers before ever opening your own wallet.

When carrying your own inventory, you are required to invest in that inventory. This can be quite expensive depending on the amount of product you need and the type of products you plan to sell. This type of ecommerce method requires a lot of experience and research with your customer base. You will need to learn exactly what your customers want because if you invest in something they don’t want, you’re stuck with it.

Also, you may need to invest in insurance to protect yourself from inventory loss (fires or burglaries). This is yet another cost and responsibility.

Cost of Goods Sold

When working with a dropshipper, you pay not only for product and shipping, but for the service your dropshipper provides (the act of warehousing and shipping your products). Your cost for dropship products will be higher than wholesale. This means you have less control over your Cost of Goods Sold. If you want to remain competitively priced, you may have to eat into your profit a little by marking your products up conservatively.

When carrying your own inventory, you have a little more control over the Cost of Goods Sold as you purchased your inventory in bulk. Buying in bulk usually provides you with a deep discount. This enables you to mark up your products enough to make a great profit, while remaining competitive.

Remember, the higher price of dropship products works in your favor as you are not responsible for shipping your orders. This provides you with more time to work on other areas of your business! Consider the cost you pay to be the cost of employing help.

Returns

Dropshippers often charge a “Restocking Fee.” This can be as high as 25% of the product price. So, if your customers want to return items, you can forget about getting your entire investment back.

Carrying your own inventory eliminates any type of Restocking Fee.

If a customer wants to return a small amount of product and you use dropshippers, avoid the restocking fees by asking your customer to return the items directly to you. This way you can resell your products and avoid a loss. If a customer wants to return hundreds of dollars worth of product, you may want to eat the loss and return it to your dropshipper.

Damages

This is one of my favorite aspects of working with a dropshipper. Good dropshippers will replace damaged items at no cost! You’re not out a dime.

When carrying your own inventory, damaged items result in a loss for your store as you have to replace your customer’s product with one from your inventory. You also have to pay for shipping the replacement.

Product Selection

Since you aren’t required to invest in inventory when using dropshippers, you have the freedom to try out new product lines, work with new dropshippers and forget about dead inventory (products that won’t sell).

If you’re investing in inventory, you are limited by your funds. If you throw thousands of dollars at Product A, you may not have enough left to try out Product B.

Dead Inventory Loss

Since you only purchase a product from a dropshipper after you’ve received payment for it, you never end up with inventory that won’t sell. You are free to find and try out new product lines whenever you want since it doesn’t cost you a dime to change.

If you carry your own products, dead inventory will result in a loss for your store as you discount it in an attempt to get rid of it. You may end up with a lot of dead inventory if you are unsure of what your customers really want or fail to do adequate market research.

Control Over Stock

When working with a dropshipper, you have little to no control over inventory. If your dropshipper runs out of stock or decides to discontinue a product, your store is affected. Though many dropshippers offer stock reports, often times you won’t know that an item is no longer available until you place an order for it. You must then refund your customer and apologize for the inconvenience.

When carrying your own inventory, you have the option of purchasing higher volumes of popular products in preparation for the holidays. You also know exactly how many items you have in inventory and can remove product listings from your store in a timely manner.

Quality Assurance

Normally, you’ll choose a dropshipper based on their website, product pictures and descriptions. You never actually see or touch the products yourself. This can spell trouble if you end up working with a company that carries crap.

Also, you are not shipping your products, which means you have little to no control over the quality of packaging.

Carrying your own inventory allows you to have complete control over the quality of your products (you actually get to see your products in real life) and shipping.

If you are unsure of the quality of a dropshipper’s products, purchase or ask for a sample.

Warehousing/Storage

This is a non-issue when using dropshippers. You are not carrying inventory, which means you are not required to rent storage space or clutter up your home with products. You pay higher product prices for dropship services, but this is much less than the cost of renting storage.

When carrying your own inventory, you will either have a full house or the added cost of warehousing. You may also need to insure your inventory.

Fulfillment Customization

When using dropshippers, you don’t have much control over how your orders are packaged and shipped. Whichever carrier your dropshipper utilizes is what you’re stuck with. Many won’t include packing slips in packages as that would only add to their responsibilities (imagine creating 100’s of different packing slips for 100’s of different ecommerce stores).

On the bright side, some large dropship companies have very good relationships with carriers, helping to reduce your shipping costs.

When carrying your own inventory, you can choose which carriers you wish to use, how the products are packaged and what the packing slip looks like. You can include coupons/catalogs in the box, personal thank you notes or order receipts.

However, as a small business just starting out, you probably won’t be able to hook up a good deal with a carrier. Shipping may end up being more expensive. Also, you are paying twice for shipping (first for shipping the products to you, second for shipping the products to your customers).

Many dropshippers will not include packing slips in packages. Make sure you notify your customers on your ecommerce store that receipts are ONLY sent by email.

Customer Service

Whether or not you use dropshippers, you are 100% responsible for customer service. However, there are some pros and cons to consider with this topic.

If you need to find out exactly what color a product is (red-orange or blue-orange), you will have to contact your dropshipper. Sometimes, it can take up to 48 hours to hear back if communication between you and your dropshipper is done through email.

When carrying your own products, you know exactly what each and every item looks like, feels like and smells like.

Product Pictures

Really good dropship companies (usually the wholesale ones) offer high quality photos of their products. But, others don’t. When using dropshippers, you are limited to using the company’s pictures.

If your manufacturers do not provide nice pictures for you and you carry your own inventory, you are responsible for taking photos. If you’re not a professional, you may find this job difficult.

The quality of your product pictures plays a HUGE role in convincing your customers to purchase from you. Try using a program like Photoshop to clean up any bad photos you have.

Favorability Chart

Below is a chart based solely on my opinion of which method takes the cake for each topic we’ve discussed.

	Dropshipper	Carry Own Inventory
Time and Effort	PRO	CON
Investment	PRO	CON
Cost of Goods Sold	CON	PRO
Returns	CON	PRO
Damages	PRO	CON
Product Selection	PRO	CON
Dead Inventory Loss	PRO	CON
Control Over Stock	CON	PRO
Quality Assurance	CON	PRO
Warehousing/Storage	PRO	CON
Fulfillment Customization	CON	PRO
Customer Service	N/A	N/A
Product Pictures	N/A	N/A

What’s My Preference?

Though there are several benefits to carrying your own inventory, I prefer to use dropshippers. It’s just so much easier. No upfront investment, no inventory management/storage, and more time for me to focus on other things!

Plus, you can find alternatives and workarounds for many of the “cons” of working with dropshippers. I plan to share more of these workarounds with you in the future!

Which Is Your Preference? Did I Miss Some Pros and Cons?

Topic Tags:

carrying inventory, dropship programs, dropshippers, ecommerce store, manufacturers, sell products online, wholesalers