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Inventory vs. Dropshipping – What’s Right for Your E-Commerce Business?

June 29, 2021 | distribution, dropship, E-commerce, fulfillment, inventory, startup, warehouse | No Comments

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E-commerce has rapidly emerged as the dominant way we do business, both as consumers and entrepreneurs. And with e-commerce growth continuing to soar, smaller businesses are required to determine their best path to success in a highly competitive marketplace.  Fortunately, with growth comes innovation, and there are multiple options available for entrepreneurs to help them get started running their online business in a way that’s right for them. 

This article is going to focus on one very important aspect of your e-commerce journey as an entrepreneur.  How to manage the products you are selling to your customers.  After deciding what you will offer your customers on your way to world domination (which is often one of your toughest decisions in getting started), you need to figure out how to get access to said products, and ensure they can be shipped to your customers as expected.

The two common options you have at your disposal are the Inventory Model (also known as stocking), and the Dropshipping Model.  Let’s take a look at the key pros and cons of each model, to help you make the best decision for you and your e-commerce store.

Inventory Model

If you decide on the Inventory Model, it’s very name suggests that you will be responsible for managing inventory (which is correct).  You take sole responsibility to source your products, receive them, stock them, ship them, wash, rinse and repeat.  

Here are the Pros:

1. You’re in the Driver’s Seat

One of the biggest factors when deciding to use the Inventory Model and stock your own products, is how much control you need or want over your business operations and brand identity.  By leveraging the Inventory Model, you are in the driver’s seat. It’s your own team that handles everything from knowing when to replenish new inventory, to receiving said inventory into your own warehouse, picking, packing and shipping.  Because you control your team, you have ultimate control to ensure everything is done right (or wrong), and ensure that products are shipped to your customers on time.

If distinguishing your brand in the marketplace is also important to you, sourcing and stocking your own inventory (and possibly manufacturing your own product) will likely be the best (and potentially only) option for you.

2. Positive Customer Experience

Because you’re in control of your operations with the Inventory Model, you have direct control over your customers’ experience.  This is not just about managing a team of pleasant speaking customer support reps.  It’s about guaranteeing success of what is referred to as the “last mile”, the phase of your customers’ journey from the time they place the order until what they’ve ordered has been delivered.  After investing all you have into maximizing conversions and sales from your website, having control over logistics with the Inventory Model allows you to ensure products ordered are both in stock, and delivered to your customers on time.`

3. Greater Profit Margins

When you stock your own inventory, you are able to take advantage of bulk discounts by buying larger quantities from your suppliers.  As you hand select the items you are selling, or manufacture your own designs, you distinguish yourself competitively and are not competing as much on price, thus allowing you to potentially set your own price.  Higher price with bulk discounts leads to greater margins.

And now the Cons:

1. The Need for Space

When you opt to stock your own inventory, you will obviously need a place to store these items.  No, your front lawn will not suffice for many reasons, although in some cases where you have just a couple of SKUs (aka items) and they are small, entrepreneurs have been known to start by warehousing in their garage or basement.  That said, neither option is scalable as your e-commerce store grows, and you will eventually need to plan for warehouse costs, as well as certain equipment and people to work in the warehouse.

2. More Working Capital Needed

To get inventory, you have to pay for inventory, typically before you have sales against that inventory (and the space along with those people previously mentioned).  This requires, you guessed it, money.  As a new e-commerce business, you may not have said working capital at your disposal.  And from a business standpoint, even if you do have the cash, you will want to ask yourself where this investment can serve your business better.  Should you tie it up in inventory, or invest into growing more sales.

3. Distraction from Growth

To manage your inventory is a considerable amount of work.  You have to monitor inventory levels, ensure you do not run out of stock (which includes forecasting and planning), order new inventory in time to ship and keep customers happy, as well as outbound warehouse operations such as picking, packing and shipping.  While this is certainly achievable, you need to ask yourself when (and if) is the best time to embark upon this initiative.  Remember, there is only one of you and your time is precious.  Every minute not focused on the growth of your e-commerce store could be considered a minute wasted.

After reviewing the above, if you are concerned about making investments into the Inventory Model but you still have aspirations of being a successful e-commerce-preneur, there is another options referred to as Dropshipping.

Dropshipping Model

Dropshipping is a great option for newbie e-commerce-preneurs, and for many has proven to be a good long-term solution. Here’s how it works: Business owners list products for sale on their site that are sourced from a third party dropship partner (basically someone who sources and stocks inventory so you don’t have to worry about this).  Inventory is held by the third party in their warehouse, and then the third-party ships directly to customers on your behalf when orders are placed on your e-commerce store.  Keep in mind though that inventory held is not exclusive to you.  It is shared between you and any other e-commerce venture who is interested, on a first come first served basis. 

If you’re new to dropshipping and not sure where to begin, not to worry.  A quick online search will find plenty of guides to help you become familiar with how to begin, including this blog from Shopify titled How to Start a Dropshipping Business: A Complete Playbook for 2021

Seems simple enough, right?  And in many ways it is.  

So let’s take a look at the Pros:

1. Easy to Manage

Because someone else is bearing the burden of the entire warehousing process (e.g. facility, people, inventory, and related costs), you don’t have to worry about any of this.  You need to manage your partner(s) to make sure they are performing as expected, but by and large you are empowered to focus most of your time on the growth of your e-commerce store.  Invest into an affordable tool that gives you clear visibility and alerts to know that your dropship partner is shipping on time or if there are issues.

2. Minimal Risks Allow You to Test and Try New Items

Leave the heavy lifting (no pun intended) to the warehousing experts.  In theory, if you have done your job to properly vet out the right dropship partner for you and your e-commerce store, you will be “plugging into” a well-oiled logistics process.  Another benefit here is that you do not need to invest into inventory itself.  Unlike the Inventory Model, with Dropshipping you invest less, and often are not obligated to pay for inventory until it sells.  This opens up a great opportunity for new e-commerce store owners to be open minded to test and try selling different products and learning what interests your target customers best.

3.   Operate from Anywhere

Want to run your business from the beaches of St. Lucia?  Well with Dropshipping you can (as long as they have internet).  You are not tied down to a physical structure, as your drop shipping partner is bearing this burden.  Just take your laptop with you anywhere you need to be, and you can work without pause, from anywhere around the globe (and convince people the mojito is necessary to help with marketing creativity).

And the Cons are…

1. Lack of Quality Control

When dealing with dropshipping, because the ownership of operations lies with your dropship partner, you have little to no control.  If you’re not on top of things (and sometimes even if you are), you may experience issues such as disappointing your customers due to no inventory available of an item they purchased, a breakdown in your dropship partner’s logistics cycle that causes shipments to be late to customers, or mistakes leading to incorrect items being shipped.  It’s important to be prepared with great customer service, apologize for the issues, and rectify them promptly (that is if you want customers coming back for reorders).

2. A Lot of Competition

Because it’s easy to get started with dropshipping, and the e-commerce industry continues growing at a rapid rate, you face increased competition from fellow entrepreneurs.  With more of your peers selling from the same pool of available inventory, it’s more challenging to distinguish yourself from the pack when compared to selling your own brand.

3. Lower Profit Margin

In the world of dropshipping, products cost you more, period.  Your dropship partner bakes in additional costs per item to cover their operational overhead (e.g. warehouse, people, process).  Combining this with potentially lower selling prices in order to compete, Dropshipping typically leads to less profits in exchange for the convenience of having another party run this aspect of the business for you.

Thank you for the info, but now what?

Ok so now that we have laid down the key pros and cons of each model, and likely made the decision process more confusing, let’s break it down with a few tips to help you think this evaluation through and come up with the best option for you.

Do you have enough capital to invest and where should it be deployed?  As previously mentioned, to embark upon the Inventory Model requires a fair amount of capital.  If you have it, great!  But also make sure to ask yourself whether that capital is best invested into controlling your own inventory, or investing into growing your topline sales (e.g. marketing, optimization, etc).

Are you prepared to invest the time necessary into running the Inventory Model?  Think about it this way.  You only have so many hours per day (yes of course as entrepreneurs we know how to extend our days to 47 hours per day), and you need to decide where best to allocate your time for the best interest of your e-commerce business.  Adding responsibility of owning the warehousing process is a sizable commitment.  Is now the right time to take this on, or is it best to defer until your e-commerce store is stabilized or grown to a certain degree of success?

How important is control of your brand identity and business?  When relying on your dropship partner for warehousing and related services, you put your destiny in their hands.  Your customers’ ultimate happiness to properly receive what they order on time is out of your control.  You can better control your overall brand identity in a positive way when you own this process.  When delivering accurately to customers on time, as well as brand product distinction are a critical core value, you may want to opt for the Inventory Model.

Regardless of which model you choose, these are clearly exciting times for e-commerce opportunities.  There is no one-size fits all solution either.  You will review your plans, your available capital, your core values, and your goals, and considering the pros and cons outlined in this article, you are well on your way.

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By We Integrate, LLC

Drive the Winning Road to E-Commerce Success

April 19, 2021 | automation, cart abandonment, conversions, E-commerce, efficiency, fulfillment, integration, inventory, operations, tips | No Comments

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Whether you’re a brick and mortar retail veteran, or an aspiring entrepreneur looking to make your mark, it’s hard to ignore e-commerce as a sales channel for capitalizing on new market opportunities.  According to a Statista study, “revenue from e-commerce in the United States amounted to 431.6 billion U.S dollars in 2020,” and “estimates that by 2025, revenue will increase to 563.4 billion dollars,” representing a 31% growth trajectory. 

Very exciting indeed, but if the world of online selling interests you, how do you get started?  What should you do first?  This article guides you to reviewing 4 of the most important steps in driving to a successful e-commerce business.

1. Choose the Right Product

It all starts with answering the question “what are you going to sell?”  It sounds simple enough, but figuring out what you are going to sell, and whom you are going to sell to, can very well be the hardest part of getting your e-commerce business off the ground.  Entrepreneurs often focus on their passion, and it certainly is important to be excited and believe in what you sell online.  That said, make sure to validate the market for your potential products before investing your time and money, otherwise you might be disappointed in the results.  Common ways of validating include surveys, competitive reviews, and social research.  

You will also want to determine the best means of obtaining, stocking, and fulfilling your products.  What business model will you use?  Will you distribute products from another brand, or manufacture your own?  Will you stock inventory or dropship direct to your customers?  How many options and variants will you offer?  The recommendation on the latter is to keep options minimal as you get started.  This helps keep your costs down and simplifies the decision making process for your customers, which in turn reduces friction en route to a sale.

Additional articles to help guide you into making the correct product decisions for your business include:

12 Trending Products to Sell in 2021(and Ideas for How to Market Them)

Find a Product to Sell: 12 Strategies for Finding Your First Profitable Product

From Dropshipping to DTC, Here are the Most Popular Business Models for Ecommerce

2. Locate Your Customers and Determine How Best to Market to Them

Now that you know what you want to sell and have validated the opportunity, it’s time to think about how you will market your products to your new customers.  It’s often good to start by defining a customer persona which helps you understand who your customers are, including age, sex, occupation, interests, demographics, and why they would buy from you.  Gather meaningful information to define your target audience, and then hone in on where your target audience hangs out, along with how best to reach them.

Once you find them, manage communication with your prospects by first segmenting them into 3 main stages of engagement: Top-of-the-funnel (ToFu), Middle-of-the-funnel (MoFu), and Bottom-of-the-funnel (BoFu).  ToFu is where prospects express interest, however they are not ready to engage you and your product just yet.  MoFu are those prospects that have engaged you, but are not yet ready to purchase.  BoFu is where prospects are ready to take the plunge, and place their first order with you.  Understanding which stage your prospects are in is critical to ensuring that you communicate with them properly and lead them from ToFu through BoFu.

The following resources can help you target your customers and increase revenue:

How to Define Your Target Market

What’s the Right Content for Each Stage of the Marketing Funnel?

4 Ways to Find Your First 50 eCommerce Customers

3. Remove Friction from the Checkout Process

You’ve been successful driving traffic to your e-commerce store, and BoFu prospects are ready to become customers.  With typical shopping cart abandonment rates between 60% and 80%, you will want to now focus your attention on eliminating as much friction as possible, so your hopefully soon-to-be-customers have a clear and easy path to checking out and placing their orders.

To keep fiction minimal, it is recommend you focus on:

Increasing site speed – statistics show that pages that take longer than 3 seconds will likely lead to abandonment.   Learn more about improving your e-commerce site performance and speed.

Optimize your store for mobile – With 31% of e-commerce sales occurring via mobile devices, ensure your store is optimized accordingly.  3 out of 4 online shoppers indicate they start their online purchase via a mobile device, as it saves time.

Make product selection easy – ensure products are well organized and easy to find.  Offering too many options may cause confusion and make the buying decision more complicated, ultimately leading to abandonment.

Offer payment options that align with customer preference – consumers have clear preferences on payment methods.  Limiting how customers can pay could become an obstacle for converting sales.  

Enable Guest Checkout – allowing guest checkout will lessen friction and lead to more conversions, however you will not have captured key customer information which could limit your post-sales marketing opportunities.  Nonetheless, less friction leads to increasing sales.  Encourage account registration and repeat customer loyalty via incentives, coupons, and exclusive benefits for signing up (e.g. free shipping).

To learn more about reducing checkout friction: 

5 Tips to Reduce Friction on Your E-Commerce Website

4. Automate Your Operations

Now that your e-commerce sales are rolling in, it’s game on!  The final mile of ensuring a positive customer experience is delivering your products to your customers accurately and on-time.  It’s important to put systems in place that automate synchronization between your e-commerce stores and your back office systems in order to track sales, inventory and fulfillments in a near real-time capacity.  For example, if an order is placed on your e-commerce platform (e.g. Shopify) and it’s not entered or synchronized into your back office system (e.g. QuickBooks Online) for an hour (or longer), this could cause your e-commerce inventory to become stale and put you at risk of selling items that are no longer in stock. 

Equally important is leveraging a tool that provides visibility into your fulfillments.  After all the time and investment made into getting your customers to buy, ensuring on-time delivery is essential for all business models, and particularly critical for managing dropship relationships.  All it takes is one negative fulfillment experience to drive your customers away from your store and right into the hands of your competitors.

Now is the perfect time to launch your online store and invest some time into ensuring you position your business for success!  Following the steps outlined in this article and maintaining good business sense, will help you to get across that finish line!

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By We Integrate, LLC

It’s Time to Get Your E-Commerce Operations Ready for the Holidays

October 27, 2020 | automation, E-commerce, fulfillment, holiday, integration, inventory, operations, tips | No Comments

E-commerce sales continue to report year-over-year growth.  As stated in a recent Forbes article, “This will be the year when online shopping explodes.”  The same article references Deloitte’s 2020 holiday e-commerce forecast where “Deloitte predicts e-commerce holiday retail sales to grow between 25% to 35% from November through January, reaching $182 billion to $196 billion in total.

If you’ve already launched your e-commerce store(s), then you’re fortunate to be in the right place at the right time, particularly if your product line caters to holiday gifting categories.  But to achieve e-commerce success takes much more than being in the right moment… This is only the beginning.

So ask yourself…are you ready?  Have you kicked the tires of your e-commerce operations?  What would actually happen if you scored a growth surge this holiday season?  Are you prepared to handle the additional work that comes with additional orders?   Without the proper systems, process, and organization in place, time consuming work often leads to mistakes, out of stocks, late shipments, and ultimately dissatisfied customers.

But not to worry.  Here are a few simple tips that can help you prepare for the upcoming holiday surge, ongoing customer satisfaction, and operational sustainability.

1. Confirm Your E-Commerce Supply Chain Strength

Regardless of whether you are a dropshipper, distributor of finished goods, or manufacturer, you maintain an e-commerce supply chain made up of vendors that impact your ability to deliver quality products to your customers.  Remember that when you have issues with inventory, your customers will care little as to who’s at fault.  As your #1 priority, you will want to confirm your vendors’ ability to meet your holiday targets without fail.  Pick up the phone, share your forecasts with them (consider inflating them by 20%), and ask for capacity guarantees. 

Additionally, it’s the perfect time to set a schedule with your vendors and ask of any known obstacles they see on the horizon or that they may have already encountered.  Get to know your vendors at a personal and friendly level.  You are not the only one vying for their commitments, and sometimes those friendly relationships may help prioritize your business needs. 

And lastly, create a backup plan.  What will you do should your supply chain break?  Hopefully you won’t have any issues, but do you have a plan?  Can your plan include having a backup vendor, or perhaps splitting your current needs across multiple vendors to balance the load?  Do what you can to prevent your business from being held hostage to this key element of success.

2. Automate Your E-Commerce Operations

According to Intuit, “over 80% of product-based SMBs [small and medium sized businesses] that sell through multiple channels still reconcile inventory using pen and paper or spreadsheets.”  This is crazy!  Why haven’t more SMBs made some form of investment into back-office automation?  While it sounds intimidating and expensive, it’s not.  There are affordable options in the market that start as low as $19 per month. A few of the top problems that e-commerce businesses face related to manual data entry, and can be resolved with automated integration include:  

  1. Errors caused by manually entering e-commerce orders into your back-office system
  2. Tedious and Time consuming administrative tasks that impede the ability to focus on more valued and strategic business needs, such as how to reduce cart abandonment
  3. Timeliness of order and inventory updates to back-office and shipping systems, which in turn leads to incorrect stock levels, as well as shipments going to customers later than promised

The following are key business issues you will want to address by implementing an integration solution:

  1. Does the solution offer near real-time sync of orders from your e-commerce platform(s) to your back-office system? This will help ensure that your inventory levels are as current as your sales, keeping you on top of your customer orders as they are placed
  2. Establish an integrated shipping system process that feeds from the same automation and empowers you to get your merchandise out the door in the most timely, efficient, and accurate means possible
  3. Have control over shipping SLAs (service level agreements), and receive notifications of orders that are at risk of falling outside these guidelines, so you can take the appropriate actions to resolve

Click here to learn more about our beta opportunity

3. Organize Your E-Commerce Operations Area 

When it comes to establishing a proper e-commerce operations process, it’s all about efficiency and accuracy.  It’s about having the proper checks and balances in place that eliminate mistakes and minimize the time spent on a particular task (so you can get to the next task, and so on and so on).  

A fairly common issue with SMBs is having a disorganized and cluttered work area, which lends itself to bottlenecks in the process.  It sounds simple enough to avoid, right?  In fact, yes it is.  A few ideas that have been proven to help include:

  1. Organize your inventory bins for efficiency.  It’s common for businesses to organize inventory in such a way that keeps the same or similar products near each other.  What would be a more proper approach, is to understand which of your items sell the most – not in dollar value but in actual physical units.  The products that sell the most (referred to as ‘turns’), represent the products that you will be fulfilling the most.  The ideal means of organizing your inventory bins is to locate those products that turn the most to be closest to your fulfillment zone, and work your way back through your turns rate in descending sequence, locating products that sell the least to be the furthest away from your fulfillment zone.  Click here to learn more about lean warehousing efficiency practices known as 5S.
  2. Squeeze as many little extra actions out of the process as is possible.  Every small little action you perform or step you take adds up into a whole chunk of waste and opportunity for error.  Therefore it is recommended to take a look at your entire operations area and see that you are well prepared to reduce these efforts.  Some examples include: a) label your inventory bins clearly, using large dark font; b) implement a barcode scanning system if possible; c) obtain enough supplies to get you through the holiday season in advance, including printer ink, paper, labels, shipping cartons, packing tape and inserts
  3. Establish zones and maintain clutter free work areas.  Maintaining clean work areas make it easier to get through daily tasks, inclusive of finding objects when you need them.  Establish specific well organized zones that create a linear physical path from start to finish, such as your storage zone to your fulfillment zone to your shipping zone.  Ideally a shipping zone is best located closest to where your carrier and parcel pickups occur, and then work backwards into your work area.

By implementing a proper marketing strategy, you may be well poised to feel a positive bump in revenue this holiday season, however keeping your customers coming back for more, will greatly depend on your ability to satisfy them better than your competitors.  Eliminate waste with integration and operational efficiency, allowing your business to establish a strong foundation for growing beyond the holiday bump up, for years to come.

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By We Integrate, LLC