Dropshipping Vs Private Labelling
Do you have plans of starting a new ecommerce business, but don’t know exactly which business model to use for it? Or maybe you are already up to speed with ecommerce and you want to add your own products to your existing store. You may have even heard about private labelling, dropshipping, and even private label dropshipping, but have no idea what they mean, or how they differ. Don’t panic. There is a way out!
The solution is to remain calm and dive into market research. Luckily, that’s what we’re here for. In this article, we are going to explain what dropshipping and private labelling means, as we define the two terms and explore the pros and cons of each. From there, you can decide on the best business model to fit you and your online business. Let’s get to it!
What Is Private Labelling?
Private label and white label are business models wherein an entrepreneur reaches out to a manufacturing company to create a product line under their own brand name.
Simply put, it is a situation where the business owner outsources products but uses their own name, as opposed to selling branded products from other brands. You’re selling your own merchandise, rather than somebody else’s.
Private labelling emphasises sole proprietorship. It means that you are the only owner of your business, and you are not working for anyone to get a percentage. You simply work alongside a private label supplier that handles the production process for you.
Private label goods can range from food items to cosmetics and beauty supplies, and even medicine! Whatever you’re looking to sell, there is a private label manufacturer that you can work with.
In this business, only one retailer is responsible for the distribution and sales of private label products. In most cases, the retailer is the business owner.
Now, let us check out the advantages and disadvantages of the ecommerce, private label business.
Advantages of Private Labelling
From the high-profit margins to the fulfilment that comes with running your own business and your own store, the pros of private labelling for your brand cannot be overstated. Let us break it down for you.
Brand Image and Recognition
When you sell private label products, you get to control the way your product looks and works, with custom branding packages that reflect your company’s values. A private labelled product is manufactured elsewhere and sold under your brand name. This method gives you an edge in the market, as you create an image for your brand.
Brand identity is key to acquiring customers in your chosen market. It introduces your name, and you can grow and expand from there. Think of all the great prospects you can achieve when you establish an image in the competitive market.
You Control Pricing
As the CEO of your brand, you get to make all the important decisions, and pricing is high on the list for any ecommerce business. You can fix the price of a product to sell online at a point that will guarantee that you earn juicy profits.
The good news is that you get to keep all the profits with private labels, with enough to cover your private labeling business expenses, and then some.
There’s Less Competition
With your brand identity secured, you become one-of-a-kind in the industry. Your private label products are custom to you, cutting down your competition with other similar brands, and eliminating the chances of selling the exact same product that your competitors sell.
While dropshipping business models are often considered easier, private labels offer you more profit and less competition. So why not?
Higher Profit Margins
The profit margin for private label products is higher when compared with dropshipping, where you are making sales for somebody else. In dropshipping, you have to remit a certain amount of money to the retailer, who then gives you meagre percentages for your hard work. But in private labelling, you don’t do that. Money earned is yours, as you are working for yourself.
Private Labelling Disadvantages
Of course, everything that has an advantage also has a disadvantage. So, here come the disadvantages of selling private label products.
Private Labelling Holds a Higher Business Risk
As in every business solely owned by one person, the chances that you bear every risk alone is very high. To reduce the risks, you must find a private label manufacturing company willing to support your new business by lowering the number of their minimum order requirements, and offering products at affordable prices.
This helps you to manage business expenses, stick to a budget, and avoid the risk of stock mounting up that you can’t shift.
What Is Dropshipping?
The dropshipping business is another business model that allows you to sell another entrepreneur’s products. It can be a great way to keep yourself busy and make an income without having to do much yourself.
The entrepreneur manufactures the product, and when an order is made via your ecommerce store, you quickly forward the order to the supplier. It is the supplier that is responsible for delivering the product to the customer.
This way, you don't even have to see the products you are selling, let alone go through the stress of physically selling them. In the dropshipping business, you are more like a pseudo-branch for the supplier.
Now, let’s look at the pros and cons of dropshipping.
Advantages of Dropshipping
Here we summarise the top reasons to use dropshipping for your ecommerce business.
You Don't Need a Lot of Money to Invest
Business expenses are a priority for any ecommerce store. With dropshipping, the only thing you need is a platform such as an online store or various other sales channels where you can advertise the supplier’s goods. You don’t need any other form of financial commitment as the dropshipping supplier handles all the costs.
However, you can grow sales by opting for paid advertising, such as influencer marketing.
Dropshipping Is Not as High-Risk
There is little to no risk involved in dropshipping. You are not going to be placing any orders that you might be stuck with. If you collect some products from the supplier that you cannot sell, you can easily send them back to the dropshipping supplier.
It eliminates waste, and ensures you don’t lose money.
You Can Have a Variety of Products That You Sell
There is quite a bit of freedom in dropshipping in terms of what you sell. You can sell products for several suppliers at the same time by advertising them on your ecommerce platforms or other sales channels. With multiple offerings, you can earn more income from several brands and channels.
Disadvantages of Dropshipping
Overall, the dropshipping option seems relatively easy to handle, but there are some disadvantages to it. Here are the cons of this business model.
Lower Profit Margins
Unlike private labelling, you can’t grow your profit margins with dropshipping. Since you are helping the suppliers make sales, there isn’t a lot for you to take home as your profit.
Dropshipping Has More Competition
More entrepreneurs are using the same business model that sells the same products to the same niche at varying prices. So, the chances are that unless yours is the cheapest on the market, you won't be making a lot of sales as your competitors sell more than you.
What Is Private Label Dropshipping?
As if establishing the differences between dropshipping vs private label wasn’t enough, there is a third term that you might come across.
Private label dropshipping is almost a combination of private labelling and dropshipping. It is the shipping of third-party private label products under your own name, but instead, they go directly to customers. With private label dropshipping, you don’t keep your own inventory.
Ultimately, a private label dropshipping business is a chance to market a private label product with your own name, without having to hold onto the goods. You don’t have to access the physical products.
It’s important to note that often the various terms are used interchangeably, despite having different meanings.
Dropshipping vs Private Label
Now that we have discussed both business models, we hope you have gathered an understanding of dropshipping vs private label. You can carefully assess the two and decide on the one that you prefer for your own online store, while optimising your ecommerce business as much as possible.
In our personal opinion, opting for the business model with private label products holds the potential to give you more profit, grow your brand, and build customer loyalty with a bespoke product, rather than selling the exact same product as several other companies.
In fact, you can even become the supplier to the dropshippers! We will talk about how you can do that in our next post.