One of the questions that we regularly get asked is how does drop shipping compare to holding inventory. Hopefully the below will help you understand the differences between drop shipping vs holding inventory.
To accurately answer this question you would need to go through both the positives and negatives of these logistical options.
Essentially you are reselling products that you do not physically control. As you do not control the stock that means you have not purchased it i.e. paid money in advance, or need to physically handle or warehouse it.
As you are not outlaying any money for stock, you can essentially resell anything that your supplier will dropship for you. This means you are not limited to only selling a single product instead you can offer a wide range of items to your customers.
Drop shipping levels the playing field as almost anyone can start selling goods with only a minimal capital outlay.
The more traditional way to sell items is to purchase the inventory in advance, and have the actual inventory in stock when you are selling it. This can become very costly as you need to physically pay for the inventory in advance, handle the inventory once it arrives and warehouse the inventory until it is sold. Once sold you also need to pick and pack the item and make it available for shipping directly to the customer.
If the item is in stock a business knows that they can fill any customer orders that come through for the item. The business also knows the actual cost of the item before selling it. ie – each unit has already been paid for in full so the cost price of the item is already known. Any rises on purchase price will not matter until a new order is made.
There are also a few cost saving advantages available. A company purchasing items in bulk will always be able to receive a discounted per unit price. This does make more sense if you are a larger corporation who regularly purchases inventory and has stock handling and warehousing facilities available.