As the trend of starting businesses from home is growing rapidly, there are two business models that are mentioned all the time: drop shipping and white labeling. Both take advantage of the power of the internet and can be operated from a laptop, but is one better than the other when it comes to passive income?
Pros and cons of dropshipping
The Direct delivery or ‘Drop shipping’ it can be very simple. This is the case when you create a website and offer products from other brands. They don’t own the products on your website or buy them in batches. You become an authorized distributor of the brands that make the product you want to sell. When you make a sale, turn around and place the order with the brand / manufacturer. These in turn send the product to your customer and calculate the retail price for you. And since the customer paid you the selling price, you make a profit.
- Also Read: What Is Dropshipping And How Does It Work? Start a business with little money
- Almost zero financial risk. You can sell products without investing your own money until a customer pays you, so the financial risk is very low.
- Free hands. You don’t have to store products in a warehouse and you have costs for storage facilities and personnel. You literally never have to touch the product.
- You do not need any previous knowledge of the product. This might come as a surprise, but you don’t have to be an expert on the product you sell from day one. Of course, you need to become an expert and learn as much as you can, but you can start with very little knowledge of the niche.
- It’s competitive. Because it’s so easy to get started with without seed capital, the front door is extremely wide, which makes it a competitive space if you’re selling products in popular niches.
- You have no control over the supply chain. Because you trust manufacturers to ship the products you sell, you will run out of inventory when they run out. This can cause your sales to stop overnight and there is nothing you can do about it.
- Low margins. The margins that the reseller receives are set by the manufacturer and are often non-negotiable. Gross margins are typically around 30%, but if you’re selling heavy items that require freight shipping, that 30% can be as low as 10%. There are a few other fees for payment processing too, so it’s not uncommon to earn just 10% when you factor in all of the costs.
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Advantages and disadvantages of white labeling
The white lettering or “white lettering” it is similar in some ways. Also known as private taggingThe point is to contact a factory that produces what you want to sell and place a minimum order quantity for the product. The factory will brand it and ship it to you. Then it is up to you to sell these items through either a website, a physical store, or both.
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- Good margins. Since you are no longer a middleman and buy direct from the factory, your profit margins are much better. When selling at full retail price, i.e. without discounts or promotions, you can expect a profit of between 50% and 80%.
- You can use drop shipping to sell your product. Since you are already a brand with your own product, you are not only selling directly to the customer, but you can also use drop shipping to sell more products for you.
- First financial investment. Unlike drop shipping, you have to order a certain amount of the product and send it to a warehouse or fulfillment center. Hence, you have to pay the invoice for the order, bring it in (often from China) and pay for the storage. If you don’t have your own warehouse, you can hire a 3PL (third party logistics) company to receive your containers, store them and send them to your customers when they receive the orders. The 3PL will charge you for the storage and handling of the product.
- Knowledge of the niche. Before spending tens of thousands of dollars on a product, you need to know the product and the market very well. If you don’t, you may end up with a large amount of product that cannot be sold.
Which business model is that for you?
Both have their advantages and challenges, but how do you choose where to start?
If you are already in a particular market and know how to improve an existing product, you can Start a brand with white labeling. Of course, you need to have cash to get started. If you want to make some extra cash every month without making a huge initial investment, this is it Direct delivery it is an excellent method for you.
Both drop shipping and white labeling can be a bit passive. The white lettering It has the extra logistics to be overdone, so it’s a little more convenient, but you don’t have to see or touch the product when using a 3PL.
From my experience in E-commerceI usually recommend starting with a Direct delivery that sells a product that you know, and when you understand the market and what all brands sell, you can switch white lettering Of your own product in the same market.
By starting selling other brands’ products, you can get a good idea of what customers really want. Then you can get it, put your brand on it, and get better margins. After all, you have a business of E-commerce built with heavy traffic.
- See Also: 5 Things You Would Like To Know Before Starting A Dropshipping Business