Dropshipping Vs Private Labelling
Do you have plans of starting a new e-commerce business, but you don't exactly know what business model to use for it? You may have even heard about Private labelling, Dropshipping, and even Private label dropship - But have no idea what they mean, or how they differ!
But don’t panic. There’s a way out!
The solution is to calm down and dive into research. Luckily, that’s just what this post is for. In this article, we are going to show you what dropshipping and private labelling means. We will define these two terms and tell you about the pros and cons of each.
After reading this article, you will be able to decide what would benefit you and your business. Let's get to it!
Dropshipping Vs Private labelling
What Is Private Labelling?
Private or white labelling is a business model wherein an entrepreneur manufactures their product under their "private label". Simply put, it is a situation where an entrepreneur produces their products under their brand name as opposed to selling products for a different entrepreneur.
Private labelling emphasizes sole proprietorship. This means that you are the only owner of your business. You are not working for anyone to get a percentage.
Private label manufacturing can range from food items to cosmetics and beauty supplies and even to medicine! Whatever you are 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. Most times, the retailer is the business owner.
Now, let us check out the advantages and disadvantages of this e-commerce business model.
Advantages Of Private Labelling
From the high-profit margins to the fulfillment that comes with owning a business, and more, the pros of owning your own business and brand can not be overstated. Let us break it down for you.
- Brand Image And Recognition
In private labelling, you get to control the way your product looks and works. The product is manufactured and sold under the retailer's brand. This gives the retailer an image in the product market, and they are able to expand their businesses from there. Think of all the great prospects you can achieve when you establish an image in the market.
- You Control The Prices
As the CEO of your brand, you get to make all the important decisions, and pricing is one of those decisions. You can fix the price of a product at a point that would guarantee that you earn juicy profits. The good news is that you get to keep all the profits!
- Less Competition
Since your brand is the only one of its kind, you have less competition. The dropshipping model of business is easier, so more people would be focused more on that. This model gives you more profit and less competition. So why not?
- Higher Profit Margins
The profit margin for private labelling is higher when compared to dropshipping, where you are making sales for somebody else. In dropshipping, you have to remit an 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. You are working for yourself.
Disadvantages Of Private Labelling.
Of course, everything that has an advantage also has a disadvantage. So let's check out the disadvantages.
- 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 effects risk, you have to find a private label manufacturing company willing to support your new business by lowering the number of their minimum order requirements.
What Is Dropshipping?
Dropshipping is another e-commerce business model. This business model allows you to sell another entrepreneur's products. This is a good way to keep yourself busy and make an income without doing too much.
The entrepreneur manufactures the product, and when an order is made via your e-commerce platform, you quickly forward the order to the supplier. It is the supplier that would be 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 actually selling them. In this business model, you are more like a pseudo-branch for the supplier.
Now, let us look at the Pros and Cons Of Dropshipping.
Advantages of Dropshipping
- You don't need a lot of money to invest.
The only thing you need for this business model is an e-commerce platform where you can advertise the supplier's goods. You don't need any other form of financial commitment as the supplier handles all the costs.
- The risks of this business model are not high.
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 could not sell, you can easily send them back to the suppliers.
- You can have a variety of products that you sell.
You can sell products for different suppliers at a time by advertising them on your e-commerce platforms. This way, you can earn more income from several channels.
Disadvantages of Dropshipping
This business model seems very easy to handle, but there are a few disadvantages to it. Let's check out the cons of this business model.
- Lower Profit Margins
Since you are helping the suppliers make sales, there really isn’t a lot for you to take home as your profit.
- This Business model has more competition.
More entrepreneurs are using the dropshipping model that sells the same products at varying prices. So, the chances are that unless yours is the cheapest, you won't be making a lot of sales.
Now that we have discussed both business models, you can decide on the one you prefer to use. But we recommend the private label business model since it holds the potential to give you more profit.
In fact, you can be the supplier to the dropshippers! We will talk about how you can do that in our next post!