Dropshipping Vs Private Label: Pros & Cons To Choose Better

Updated on November 1, 2022 in Dropshipping by Nishant Shrimali

Dropshipping Vs Private label feud comes from one of the most overlapping eCommerce business models.

Both outsource the manufacturing and both are helping people start selling products online. But here are a few questions regarding dropshipping vs private label.

• What’s the difference?
• What are their pros and cons?
• Which one is best for you?

And the questions are just the starting point. In this guide, we are going to deep dive into everything that you’d like to learn about dropshipping vs private label eCommerce business models.

What is Dropshipping?

Dropshipping is an eCommerce business model where the retailer doesn’t have to hold the inventory, but rather ships products directly to the customer from a third-party seller when an order is placed.

Fundamentally, it is a business model that allows you to start selling products online, without the need to buy them first, store them, and then ship them to your customer.

When an order is placed, you contact your third-party seller, fill in the customer’s address, and that seller ships the product, directly to the customer.

You make a profit on the difference in the price that you sell the product at and the amount you pay to the seller (plus shipping charges).

Now before we learn more about drop shipping vs private label, here are the pros and cons of dropshipping

Pros

• Minimum Investment: Since you don’t have to hold or pre-order your products, you need a minimum investment to start a dropshipping business.
• Easy To Get Started: No inventory management, packing, shipping, and tracking are required from your side. All this is managed by your seller who is shipping to the customers.
• Global Accessibility: Dropshipping allows you to have a global reach. Want to sell in France while you are in the USA? Contact a dropshipping seller in France, advertise your products through social media, ads, and your eCommerce, and get sales. You’ll receive the money, pay the seller in and keep your cut. No need for international shipping as the product didn’t cross borders.
• No Inventory Required: We have been discussing this and this is also the reason why many starts dropshipping in the first place. No inventory means lower initial cost, hence more flexibility.
• Highly Trackable: Your only job is to learn about the customer and sell products to them. Unlike the actual seller, you can track every data point about your customer’s likes, dislikes, pricing bracket, and more. Selling products online allows you to track and learn about your customer which further helps you and your brand grow.

Cons

• Low Margins: Sine you will always be competing, you can’t set pricing too high. That is why the profit margin is lower in Dropshipping.
• Shipping Complexities: Shipping is not under your control or supervision. But for customers, you are in charge so you bear the responsibility of timely and safe shipping.
• Supplier Issues: Finding the right supplier is always an issue. A supplier with high-quality products, the right pricing, and shipping security is really necessary.
• Limited Brand Building: The products that you sell are not exclusive to you in any way. Anyone can start a dropshipping business, and sell the same products. Customers won’t see a difference.

What is a Private Label?

A Private Label is an eCommerce business model where rather than manufacturing the product from scratch, you customize and sell it under your brand name.

Mostly, the selling point of the private label is the brand itself. And since the product is manufactured and customized on an order basis, you have major control over the quality, design, packaging, and shipping of the product.

From a customer point of view, it’s your brand that is selling this product, so it’s you who manufactured it.

Also, in case of the manufacturing quality declines, you can hire another manufacturer and keep the brand growing.

You must also note that every product is manufactured as per your order, which means you’ll have to buy it all before you start selling it to your customers.

Now, finally discussing dropshipping vs private label, let’s have a look at the pros and cons of private label.

Pros

• Easy Adaptability: Because you are just branding the product, you can easily switch the supply chain into new designs and trends that are popular. If not the same supplier, then the new.
• Control of quality: Every product is manufactured on order. That means you have a lot of control over quality and everything is negotiated and decided prior to manufacturing starts.
• Pricing control: Your products are exclusive. That means a monopoly of the product (not the market). You have total control over the pricing.
• Easy to branch ahead: In private labels, it’s the brand that holds the value. So, if you’d like to branch into different category products you can easily do that.

Cons

• Difficulty building loyalty: Competing with already established brands and building a loyal customer base can be difficult.

Dropshipping Vs Private Label: How to pick the best for you?

By now, I am sure you have a clear understanding of what dropshipping vs private label is. Both are among the many – low barriers to entry points in the world of eCommerce helping brands and individuals grow.

But here’s the question we want an answer to. Which is better? Dropshipping vs private label.

Here’s something that might help you.

• If you have very low capital to invest in the beginning, you can get started with a dropshipping business.
• If you have an already established brand (or group of an audience), you can get started with a private label with less investment.

Getting started with Dropshipping and Private label

If you are an enthusiast that wants to start selling online, here is an exclusive business plan for you to avoid the war of dropshipping vs private label and use the best of both worlds.

Get started with the research part for your dropshipping. Learn about the product that you can easily source, sell, and make a profit.

Remember, to keep the business afloat, making a profit is really important so make sure you calculate the cost of selling in a way that covers all your expenses and makes you a little profit in the end.

You must note that, yes at the start you are dropshipping and making a profit, but the goal is to establish your presence tell people about your brand and collect data.

What data? Everything that can help you start a private label in the future.

• The average cart value
• Best pricing for your products
• Best offers for your product
• Benefits that make people buy your product
• Demographic of your audience

And much more insight that you’ll only get once you start selling.

Now that you are ready and have an understanding of your potential customers, it’s time to start introducing some private label products on your eCommerce.

Rather than completely shifting the business model, gradually test and keep updating your store. This will help you get over the dropshipping vs private label competition in the first place itself.

Dropshipping shall also help you gain resources to invest in private labels. That is why you won’t have to invest your own capital. Rather you can use your company resources and the profit that you earned to grow your eCommerce ahead.

Remember, staying lean and flexible will allow you to adapt to the market. Keep an eye on your sales and customer insight as they are one of the most valuable resources to keep your eCommerce growing.

Bonus Read

Dropshipping vs Private label is a competition that everyone is trying to escape. But that’s the thing. You don’t have to choose one. They both can help you scale your eCommerce journey, so all you need to do is use dropshipping vs private label as your tool.

With that being said, this is a conclusion of the dropshipping vs private label feud that we discussed at the start with you.

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