Hitting the eCommerce Fulfillment Crossroads: 3PL, Self-Fulfillment or Drop-shipping?
Choosing the right eCommerce fulfillment type is critical to running a successful online store, let’s compare 3PL, self-fulfillment and drop-shipping.
You decided to start an eCommerce business selling awesome products, but you have to deliver them in a way that your customers like.
Speed, availability, and cost are three extremely important aspects of your business and specifically your shipping. They can make or break an online store.
So, let’s look at the three chief options to perform that eCommerce fulfillment and shipping to see where your business can succeed. We’ll touch on the good, bad, and potential reasons to choose drop-shipping, self-fulfillment, and 3PL partnerships.
Read on for a little help deciding which eCommerce fulfillment type might be best for you.
What’s the Deal with Drop-Shipping?
Drop-shipping is a practice where you focus almost entirely on acquiring customers and making sales.
You’re selling goods that are manufactured, stored, warehoused, and shipped by someone else. You pick from a selection of products from as many different drop-shippers as you want, add them to your website, and then when you make a sale, you pass on the order to those partners who take care of the rest.
Drop-shipping is excellent for any company starting out in the eCommerce space.
Because you’re not paying for the warehouse or shipping or almost anything else except your website, its staff, and a bit of insurance. You can easily expand your offering just by finding new partners, and there’s plenty of eCommerce fulfillment services available right now in almost any category.
There are even some platforms that will connect you directly with different suppliers, making it as simple as clicking a few buttons to add new categories and products to your page.
It’s also a smart choice for someone with a marketing background because that’s where the differentiation exists.
Drop-shipping will likely have the slimmest margins in our list because you’re working only on the sale and have little control over the costs to acquire and ship a product.
Plus, the products you sell can be sold by anyone else with a website.
The best drop-shippers work on high-volume sales, so they can keep prices and margins as low as possible while still turning a profit.
The other risk is that you have little control over what goes on in the rest of the business.
Your partners ship the products and brand the boxes and everything else, so you’re just the face. If something goes wrong with an order, you’re also the one who gets the blame. It’s difficult to find partners who are reliable and fast and affordable.
As mentioned above, drop-shipping is great if you’re new to eCommerce, a great salesperson, or if you want to see how successful certain products can be in a specific market.
If you have an established business brand but no products of your own, this can be a smart eCommerce fulfillment method to get online with minimal costs — such as adding a store or swag sales to your review website or juice blog.
Can You Fulfill It Yourself?
Self-fulfillment is the model most people think of when they think of a business.
You and your company do all the work from stocking the warehouse with products and packaging materials to paying rent for that same warehouse, taking orders, printing labels, pick and pack, and sending things out on time.
Plus, you get to do all the customer service for every aspect!
It’s tough, especially on smaller firms, but there’s plenty of rewards to be had. It’s also possible to do no matter your size, whether you’re still in basement mode, considering that first warehouse, or thinking about expanding to multiple locations.
Total control. That’s really what this is all about.
You run the whole ship, so the better you do and the more profit you generate, the more you get to keep!
You can innovate around packaging, shipments, orders, products, and everything else.
For some small companies, you might be able to save money on this while growing.
Every innovation you can make is a boon. If you figure out how to sell faster, ship faster, pack products better, or anything else, you reap the rewards of the margins. Plus, you can adjust sales tactics to your warehouse inventory much more quickly because you can always update your product counts in real-time.
You also can brand everything, from stickers and tape to boxes and more. Plus, if you change your mind on a package or decide to start selling kits (multiple products under a single SKU), you only need to update your own information and not worry about partners who need to be updated, need new packaging, or much more.
Money and time.
They’re two things businesses never seem to have enough of and tackling a warehouse or other eCommerce fulfillment yourself is going to cost both. You’ve got to rent the space, buy the shelves and packaging, keep popular inventory in stock, and negotiate with carriers to pick up products and get them out the door.
It’ll cost you and fulfillment will quickly become a full-time job as you grow.
That means hiring new people and maybe even buying some software to keep things running smoothly. Many large brands can absorb these costs, but SMBs sometimes sink under the lease alone.
“Choice” is the key word here.
When considering self-fulfillment, you want it to be a choice and not a necessity or something that you fall into haphazardly. Many startups get into self-fulfillment because they don’t have anything in place when the orders start.
If you can make it work, that’s great!
Plan and see if there are ways you can manage costs and how much time it’ll take to manage your orders. Google is your friend in this case. Look for groups that discuss your business by industry or order size, and you’ll find plenty of tips and tricks from other entrepreneurs.
And, hey, if you sell to them too, try putting together a blog about your shipping adventures to drive a little more traffic to your store.
Does Done-For-You 3PL Service Work?
Third-party logistics (3PL) service providers are companies that run the whole warehouse side of things for you, typically from their own facilities.
You create an agreement around how your goods are packaged and the costs to deliver things and then the 3PL does the work of getting things to your customers on time.
You buy or make the products that you’re going to sell and ship them to your 3PL partner. The 3PL houses them in their warehouse and then, whenever you get an order and send it over, they prepare and ship those orders to your customers.
Most do high-volume work, so you’re not paying the whole cost of a warehouse, just for the space your goods take up.
Like drop-shipping, you’re focused on sales. Unlike drop-shipping, you can do this with your unique products and deals.
With a 3PL: time is on your side. Yes, it is.
Saving you the time of running a warehouse is by far the biggest benefit.
You can cut some costs around warehousing and shipping as well, though you’re paying costs associated with accomplishing tasks. For many companies, this will end up being less than leasing your own space and hiring workers for it.
Most 3PLs integrate with your eCommerce platforms too, making them simple and effective partners with minimal fuss. You’re making a deal and then updating things online, which gives everyone immediate feedback. Plus, this digital linkage can send the order to your 3PL automatically once the payment goes through, so orders can be picked and shipped as soon as possible.
The big con is that you’re putting your business in someone else’s hands.
This means your brand takes any reputational damage if the orders arrive late, damaged, or incorrect. Their speed also sets what you can offer to your customers. This can be offset if you find the right partner, but it requires giving up core control of some operations.
At the same time, 3PLs may become too expensive as you grow significantly in size.
Scale high, and your costs will scale too.
Make sure you have a way to easily and affordably end a contract with your 3PL if you grow too large for their efforts to be smart for your business.
This is our business, so we might be a little biased when we say it’s an excellent choice for most businesses.
If we take a step back and look at it from an overall perspective, 3PL fulfillment is beneficial when you’ve got more than you can fit in your basement, or you’re a small team and are struggling to juggle the duties of serving customers, making sales, and getting orders to people.
ECommerce Fulfillment is the easiest process for you to outsource while still having the most potential for profit. You can also find specific benefits for 3PL services, such as getting custom packaging that the 3PL can design and use, or guaranteed delivery times and locations.
If your customers are starting to grumble about getting packages late or having them damaged when they arrive, or if you’re paying too much to ship goods and think life would be better if you carriers charged you less per package (as they do for high-volume 3PLs), then it might be time to consider having someone take fulfillment off your hands.
Finalizing Your Decisions
The last decision is truly up to you and your business.
Each of these eCommerce fulfillment methods offers a variety of benefits and drawbacks. Review these and speak with your fellow entrepreneurs to see what makes the most sense, and what your budget can afford.
One thing we will note is a common trend we see in new companies:
- Start with drop-shipping to learn the eCommerce ropes and start testing new markets for product options.
- Move to self-fulfillment with your own products in a small space to best manage cost and generate enough revenue to grow to a larger operation.
- Employ a team of smart sales people and scale a bit larger, then make use of 3PL services. Save up here and work on your reputation so you can steadily grow your team even bigger.
- Reach a stage where you can easily afford your own warehouse and have enough orders to make it feasible. Shift away from a 3PL to your own space, controlling the entirety of your operations.
You might be somewhere along this path, or you could be creating your own. Seek out advice, especially with other knowledge on this blog, and start finding the best eCommerce fulfillment partners to help you solve problems now, and then grow tomorrow.