Dropshipping

What Is the Difference? (Pros & Cons)

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April 17, 2024
7 Min Read

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Curious about the difference between dropshipping and 3PL?

While they may seem similar, dropshipping and 3PL have distinct differences in practice.

The main distinction between dropshipping and 3PL is that dropshipping doesn’t require purchasing inventory upfront, whereas 3PL involves collaborating with a third-party partner and shipping inventory to them in advance.

In this article, we delve deeper into this topic, discuss the advantages and disadvantages of each, and help you determine which approach is best for you.

Overview: Dropshipping vs. 3PL

Let’s start with an overview of dropshipping and 3PL!

Here’s a brief explanation of dropshipping:

Dropshipping is an ecommerce business model where an online store acts as an intermediary between the supplier and the customer without storing inventory.

When a customer places an order, the store sends the order to the dropshipping supplier, who then ships it directly to the customer.

How does dropshipping work - Infographic

And here’s an overview of 3PL:

3PL, or third-party logistics, involves an ecommerce website relying on a third-party fulfillment company for order storage, packaging, and shipping.

3PL partners do not directly work with factories or manufacture products; instead, the seller is responsible for bulk orders and sending inventory to the 3PL partner.

Both fulfillment methods have their pros and cons, which we’ll outline below:

Pros of dropshipping	Cons of dropshipping	Pros of 3PL	Cons of 3PL
Easier for beginners	Less reliable for scaling	Can handle increased order volumes	More advanced option for beginners
Less upfront investment	Longer shipping times	Fast and consistent shipping times	More upfront costs
Lower overhead expenses	Potential quality control issues	Reliable with minimal quality control issues	More overhead expenses
Access to more products	Potential issues with customer satisfaction	Higher customer satisfaction	More limited product catalog

What is dropshipping?

Dropshipping is a business model where products are sold on an online store without holding any stock. Dropshipping involves collaborating with a dropshipping supplier who manages stock, processes orders, and ships them.

Here are the four steps of the dropshipping process:

Receive an order on your online store and place the order with your dropshipping supplier.

The supplier ships the product from their warehouse.

The customer receives the package directly from the dropshipping supplier.

Now that you understand the basics of dropshipping, let’s explore 3PL to clarify the differences further!

What is 3PL?

3PL, or third-party logistics, is a fulfillment method where the seller relies on a third-party company to handle warehousing, packaging, and shipping of products.

3PL partners can be found globally, with many located in the US, Canada, Australia, the UK, and the EU. Leading 3PL companies like ShipBob have warehouses in multiple countries.

The 3PL process involves:

Sourcing or manufacturing products, negotiating bulk orders, and sending products to the 3PL fulfillment center for storage.

When a customer places an order on your online store, the 3PL partner ships the product directly to them.

The customer receives the package from the 3PL partner.

Managing inventory to ensure the 3PL partner always has products in stock for shipping, and placing new bulk orders when stock is low.

The pros and cons of dropshipping vs. 3PL

The key difference between dropshipping and 3PL lies in how products are fulfilled.

Dropshipping requires no initial investment in inventory, while 3PL involves shipping inventory to a third-party partner for fulfillment.

For this comparison, let’s focus on the most common forms of each method:

Dropshipping: Selling products on your online store with a dropshipping supplier.

3PL: Selling products on your online store with a third-party logistics company.

Pros of dropshipping (or cons of 3PL)

Let’s explore the advantages of dropshipping, which are also the disadvantages of 3PL fulfillment.

1. Easier for beginners

The main benefit of dropshipping is its simplicity, making it easier for beginners to start compared to 3PL.

3PL involves more steps and is more advanced, making it less suitable for newcomers. Starting with dropshipping allows beginners to test the waters without significant upfront investment.

2. Less upfront investment

Dropshipping eliminates the need to invest in inventory upfront, resulting in significant cost savings.

In contrast, 3PL requires upfront investment in stock, often with minimum order quantities that need to be met before starting.

3. Lower overhead expenses

Dropshipping typically has lower overhead expenses compared to 3PL, making it a cost-effective option for many sellers.

3PL involves various fees for services like receiving, storage, shipping, and pick-and-pack, leading to higher overhead costs.

4. Access to more products

Dropshipping offers access to a wide range of products without the need to purchase inventory upfront, allowing sellers to test multiple products easily.

In contrast, 3PL limits access to products as inventory needs to be purchased for each product, making it less flexible for testing new products.

Cons of dropshipping (or pros of 3PL)

Now, let’s consider the drawbacks of dropshipping, which are advantages of 3PL fulfillment.

1. Less reliable for scaling

When scaling a business, 3PL is more reliable than dropshipping as it offers faster and more accurate shipping, essential for growth.

3PL partners have high accuracy rates and fast shipping speeds, making them a more dependable option for scaling businesses.

2. Longer shipping times and less control over them

Dropshipping may result in longer shipping times and limited control over shipping options and packaging compared to 3PL.

3PL partners can provide faster shipping times and more control over shipping processes, enhancing customer satisfaction.

3. Potential quality control issues

Dropshipping can lead to quality control issues, especially when working with less reputable suppliers, impacting customer satisfaction.

3PL partners typically have stricter quality control processes, reducing the risk of quality issues with products.

4. Potential issues with customer satisfaction

Dropshipping may result in customer satisfaction issues due to factors like long shipping times or lack of tracking information, affecting overall customer experience.

3PL partners offer faster shipping and better control over shipping processes, leading to higher customer satisfaction levels.

Which business model is right for you: dropshipping vs. 3PL?

Choosing between dropshipping and 3PL depends on your business goals and preferences. Here’s a guide to help you decide:

Dropshipping may be the right choice if:

You prefer minimal upfront investment.

You want low overhead expenses.

You aim to avoid holding inventory.

You desire access to a wide range of products.

You value more control over shipping and handling.

3PL fulfillment may be the ideal option if:

You prioritize fast shipping times, especially internationally.

Your business is already established and generating sales.

You are ready to invest in inventory for improved customer satisfaction.

You seek higher quality control standards.

Consider starting with dropshipping and transitioning to 3PL as your business grows for a smooth and cost-effective progression.

Compare other business models

If you’re still undecided between dropshipping and 3PL, explore our other comparison articles for more insights.

Summary

Here’s a quick summary to recap the key points of this article:

Dropshipping involves selling products without inventory, while 3PL relies on third-party logistics for fulfillment.

The main difference is that dropshipping requires no upfront inventory investment, whereas 3PL involves shipping inventory to a third-party partner.

Dropshipping is beginner-friendly and cost-effective, while 3PL offers faster shipping and better quality control.

Conclusion

In conclusion, start with dropshipping for a low-cost, beginner-friendly approach. As your business grows, consider transitioning to 3PL for faster shipping and enhanced customer satisfaction.

If you have any additional insights or questions, feel free to share them with us. We’re here to help!

Good luck on your ecommerce journey!