Ecommerce is one of the fastest-growing industries right now. According to Statista, online sales worldwide are estimated to grow to 3.45 trillion in 2019, which makes this the perfect moment to jump on the bandwagon.
Online sales worldwide are estimated to grow to 3.45 trillion in 2019.
There's just one thing: you need products to sell, and you need an order fulfillment strategy.
Back in the Middle Ages, people sold things they created. Today it's all much more complicated, but also more convenient for the seller.
Think about it: you can design products, then outsource manufacturing. Or you can create products yourself, then outsource fulfillment such as packaging and shipping.
With all the manufacturing possibilities and fulfillment strategies available today, it's understandable if you feel lost and don't know what it is that you actually need. This article is the answer to your questions.
We'll be explaining the differences between all of these manufacturing and fulfillment strategies:
- Private label
- Fulfillment & warehousing
Let's get started!
What is Homemade?
Homemade products are (unsurprisingly!) made at home, usually by the seller themselves. In most cases, homemade products are handmade.
Here are the pros of homemade products:
You're 100% in control. Since you produce and package the products yourself, things like quality control and branding are 100% in your hands. You can personally make sure that each product that gets shipped to the customer meets your quality standards.
Handmade products are perceived as higher quality.
Good reputation. Handmade products are perceived as higher quality, as each product is made individually. That means they're also made with greater attention to detail than items produced in bulk. That allows you to justify higher pricing, too.
Higher profit. When producing and shipping products yourself, you don't have to share your profit with anyone.
Here are the cons of homemade products:
Fast scaling is impossible. To scale your business you must hire people, buy inventory and rent premises for manufacturing, all of which take time and serious financial investments. For that reason it's rather impossible to quickly react and handle overnight popularity and an increase in orders.
Sometimes industrially-manufactured products are of more consistent quality than handmade ones.
Inconsistent product look. While handmade products are seen as better quality, it is also true that making products individually they may not all look the same. Sometimes industrially-manufactured products are of more consistent quality than handmade ones, as machines make fewer mistakes.
No time to rest. If you are creating products and fulfilling orders yourself, you cannot afford to take a day off, or your business will literally stop.
Choose homemade if:
- You already create something that people (outside of your family and closest friends) have expressed their interest in buying.
- You will have the motivation to create things by order.
What is dropshipping?
- Dropshipping is a fulfillment method where the seller doesn't keep and own their inventory. When a customer orders a product from an online shop, that order is fulfilled by a third-party manufacturer or wholesaler.
Here are the pros of dropshipping:
Low investment & low risk. Traditionally, to sell products online you had to create stock, which meant investing money and buying lots of items upfront. Dropshipping doesn't require such investments.
"When using dropshipping services, you pay item by item, and only when the product is already sold to a customer,'' explains Raitis Purins, the CMO of the print-on-demand dropshipping company Printful.
When using dropshipping services, the third party takes care of product fulfillment — from filling up the stock to delivering products to your customers.
Easy to scale. If you were to manufacture and ship products yourself, scaling your business would include purchasing more inventory, hiring new people and renting bigger premises. When using dropshipping services, the third party takes care of product fulfillment — from filling up the stock to delivering products to your customers.
Lots of products to sell. You can choose from a variety of products — from iPhone cases to drones and toasters. You can add new products to your store every week, and if they don't sell you can take them off just as easily.
Here are the main cons of dropshipping:
Lower profit margins. Dropshippers take their cut for the fulfillment services, which will leave you with lower profit than if, buying stock and shipping out orders yourself.
You want to be very picky about choosing your dropshipper.
Questionable reputation. If handmade products are perceived as superior quality, then dropshipped products have been recently associated with average quality. For that reason, you want to be very picky about choosing your dropshipper, and make sure they pay attention to such thing as quality control.
High competition. Even though there are thousands of products available for dropshipping, most sellers choose to sell more or less the same products — the ones that are trendy and in-demand, In 2017, those were fidget spinners, and in 2018 it's drones. When everyone sells the same thing, you have to fight hard for attention.
Choose dropshipping if:
- This is your first business and you have no experience in ecommerce. It's a low-risk way to learn high-value lessons.
- You don't plan to sell products that you've designed from A to Z. That is, if you want to sell custom designed handbags, dropshipping won't be for you.
- This is your side business. Your dropshipper will take care of the painstaking part of the business, while you can spend the limited time you have on marketing and growth hacking.
What is print-on-demand?
Print-on-demand (POD) means that your products are printed as orders come in and in the quantity ordered. So, if you order one t-shirt with your custom design, one t-shirt is printed and delivered. If you order 100, then 100 items are printed and delivered.
As the name suggests, print-on-demand applies to print products. You can print your custom designs on pre-manufactured products, including t-shirts, mugs, hats and more.
Here are the pros of print-on-demand:
Low investment & risk. Print-on-demand allows you to order customized products in small quantities, so you don't have to risk with your money and buy a stock of products that might not sell.
If something doesn't sell, you can remove the design off in seconds and suffer no financial losses at all.
Room for experiments. Since there are no minimum order quantities, you can add as many designs to your shop as you like. If something doesn't sell, you can remove the design off in seconds and suffer no financial losses at all.
A variety of products to choose from. You can sell the same design on different print products, from postcards to hoodies. So even if you have a single design, your customers will still have a variety of products to choose from.
Here are the cons of print-on-demand:
Longer order fulfillment times. Since every product is printed when the order comes in, fulfillment takes longer than if you already had your products in stock. Customers who are used to the same or next day delivery may see this as an inconvenience.
When using print-on-demand services, be ready to give away a certain proportion of your potential profit.
Smaller profit. The chance to order small quantities of customized products has its price, too. When using print-on-demand services, be ready to give away a certain proportion of your potential profit (in some cases, that can be up to 70%).
You can't control the quality. You can order samples to check product quality, but you can't be 100% that every product that gets shipped is perfect. Your sample may be flawless, but some of your customers can receive products with defects, and there's nothing you can do about it.
Raitis Purins notes, ''At Printful, we have a dedicated team of quality controllers. These people check every single product before it gets packaged and shipped to the end customer. If the product doesn't meet our quality standards, it doesn't leave the fulfillment center.''
Choose print-on-demand if:
- You have designs that you want to sell on print products, such as t-shirts, posters, mugs, etc.
- You want to test particular designs and see if they sell before you order a stock.
- This is your first ecommerce business. It's a risk-free way to experiment and learn.
What is reselling?
Reselling usually refers to buying branded or white-label products from a manufacturer (or wholesaler), then selling them further for bigger money.
Brand label products are products with the manufacturer's branding. For example, you can resell Nike sneakers — buy them from a wholesaler, then sell on your shoe shop for a higher price.
White-label products are generic products with no branding that you can buy from the manufacturer, then put your branding on and sell as if you made them. For example, you can buy no-name jeans, put your label on them and sell them as your own.
Here are the pros of reselling:
Good profit margins. When you buy in bulk, you can negotiate good discounts. Depending on the product, resellers can easily make at least a 50% profit from products they've bought from wholesalers, and a 100% profit if they buy directly from the manufacturer.
Resellers can easily make at least a 50% profit from products they've bought from wholesalers, and a 100% profit if they buy directly from the manufacturer.
Branding is possible if you opt-in for white-label products. Since the products come with no branding, you can customize them with your logo and brand name. That way you can build your brand and boost its recognition.
Sell products people already recognize and trust if you opt-in for branded-label products. Nike's brand name requires no comments; consumers already know what quality products they can expect. Building trust in your products is probably the most time-consuming and challenging part of ecommerce business, which you don't have to worry about when reselling branded products.
Here are the cons of reselling:
High competition. Can you imagine how many online and offline shops sell the same model of Nike sneakers or the same scooters with just different branding? Thousands. So you have to think of ways to stand out and convince people to buy from you instead of your competitors.
You have to think of ways to stand out and convince people to buy from you instead of your competitors.
Big financial commitment & risk. The larger the quantity of the product you buy, the better price you'll get and bigger profit you'll be able to make afterwards. Some wholesalers and manufacturers even have minimum order quantities that you must meet. That comes with a big financial investment when you have to buy hundreds of products upfront and no guarantee they will sell.
Small variety of products. Since the reselling business model starts with buying products in bulk, as a new store owner you may not be able to afford a large variety of products. You can buy 1000 red sneakers and 1000 black sneakers, and that's about it. You're out of money and will be selling those sneakers for a long time.
Choose reselling if:
- You already have a profitable online shop, and now you're looking for ways to increase your profit.
What is private label?
Private label (or custom-produced) means that the product is manufactured by a third-party manufacturer according to your specifications. In other words, you design a product, then outsource manufacturing to a third party who physically makes it and sends the finished product to your store or warehouse.
Here are the pros of private label products:
Your idea, your design, your branding. You are in charge of how your product looks and functions. Since products are made to order, you can modify them however you want to meet your customer needs.
Since products are made to order, you can modify them however you want to meet your customer needs.
Good profit margins. Manufacturing products in large quantities allows you to keep your production costs low and turn a good profit.
Easy to scale. Since the product manufacturing is outsourced, you don't have to deal with the hassle and challenges that come with scaling your business. If the demand is increasing, you can simply order larger quantities of the product.
Here are the cons of private label products:
Minimum order quantities. Most manufacturers will require you to order at least 500-1000 units, usually the same color and size. For example, if you plan to sell private label t-shirts, the manufacturer will probably require you to order at least 500 from each color and size. That means large financial investments and a narrow range of products.
High risk. You can't be sure if your product will sell, thus you risk getting stuck with hundreds or thousands of products that no one needs.
Finding the ideal manufacturer, handing over instructions and developing product samples can take a lot of time.
Time-consuming process. Finding the ideal manufacturer, handing over instructions and developing product samples can take a lot of time — from a couple of weeks to several months, depending on the complexity of your product. To speed up the process, create the first sample yourself or at least locally, then send it to the manufacturer for copying.
Choose private label if:
- Your product has already proven itself and is recognized, and now you're looking for ways to scale your business, optimize manufacturing and increase your profit margins.
What is warehousing and fulfillment?
Warehousing and fulfillment is a method where the seller owns the inventory (contrary to dropshipping) but does not stock it. The seller first sends inventory to the W&F center, and when a customer orders a product that order is packaged and shipped by the service provider.
Here are the pros of warehousing and fulfillment:
Less hassle for the seller. When outsourcing order fulfillment, you can save hours of your time, and spend that time on growing your business.
Fulfillment companies usually have better shipping rates than small ecommerce stores, and you can offer those friendly shipping rates to your customers.
Better shipping rates. Fulfillment companies usually have better shipping rates than small ecommerce stores, and you can offer those friendly shipping rates to your customers. Stats show that 44% of online shoppers abandon their carts due to high shipping costs, so using warehousing and fulfillment services may help you increase your conversion rates.
Orders go out even when you take time off. You can go on holidays without regrets, as your orders will continue to ship out even when you're lying on the beach on the other side of the world.
Here are the cons of warehousing and fulfillment:
Additional costs. When using warehousing and fulfillment, you must take into consideration all the extra costs: product shipping to the fulfillment center, storage fees, order processing and handling fees, etc. For that reason, warehousing and fulfillment services might not be financially convenient for shops just starting out and selling a few items a week/month.
Warehousing and fulfillment services might not be financially convenient for shops just starting out and selling a few items a week/month.
You can't control the packaging. You can send your product to the fulfillment center in your packaging, but when an order comes in, it gets packed again. Such double packaging is not environmentally-friendly, but there's nothing you can do about it. It's also not great from a branding perspective when your branded packaging is hidden inside a generic carton box with no personality.
Orders can be mixed up. Mistakes happen, and it is possible that your customer receives a product from another seller.
Choose warehousing and fulfillment if:
- You run a medium-size or large online store and are looking for a way to optimize your order processing.
- You believe that lower shipping rates would help you improve your store's conversion rates.
Now that you know the pros and cons of each manufacturing and fulfillment strategy, you can choose the one that suits your business idea.
To put it simply: If you're a beginner, consider selling homemade products or try print-on-demand and drop shipping model.
If you've been in the business for a while, check out reselling and private label options, as well as warehousing and fulfillment services to optimize your already running business.
Have any questions about these manufacturing methods? Ask them in the comments!