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There are a number of steps e-tailers must take to bring a product to market. After finding an opportunity or need in the market, a savvy e-tailer finds a product that will fill that need, determines the price of the product, and creates a plan to market it successfully. Determining how to fulfill orders and ship them to customers is another critical step of this process. E-tailers must choose how their customers will receive their orders, the cost of shipping, and whether to offer free returns and exchanges.
Here’s a closer look at the two main methods that e-tailers use to fulfill and ship products.
E-commerce fulfillment refers to purchasing physical stock in wholesale amounts, marketing and selling them online, and fulfilling orders in-house. With e-commerce fulfilment, businesses must have physical inventory of what they sell. The products they sell and the volume they do will determine how much space they need to store that inventory.
Drop-shipping, on the other hand, allows businesses to sell products without having to maintain a physical inventory. While the e-tailers still build online stores and market their products, they do not fulfill and ship orders. Instead, they hire a company, or middle man, to handle that part of the process. Therefore, they don’t have to purchase inventory, which makes it less expensive to launch an online business than if they provided their e-commerce fulfillment.
There are pros and cons to each of these fulfillment methods. E-commerce fulfillment allows business owners that have manufactured their products, or sourced and branded products, handle every aspect of the fulfillment and shipping process. This gives the owner complete control over the process rather than relying on another company to fulfill the orders. One drawback of this method is that the business needs more capital to invest in inventory before the business can be launched. If the demand for your product doesn’t match what you anticipated and the amount of inventory you purchased, you may wind up taking a loss. In general, e-commerce fulfillment provides higher profit margins than drop-shipping.
E-tailers that choose drop-shipping needn’t come up with as much capital, as they don’t store their own inventory. This makes it an appealing option for new businesses. The overhead is much lower, but you must ensure that you work with a reliable vendor to supply and fulfill your orders. Even with a reliable vendor, you will have less control over how products are delivered, which may lead to customer service issues. Your profit margins are also lower if you opt for drop-shipping.
The accompanying resource by AMS Fulfillment explains more about the differences between the two.
This infographic was created by AMS Fulfillment, an eco friendly logistics company
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