Dropshipping vs. 3PL for your Shopify Store

Introduction

In this story, you may have noticed that our business was still Drop Shipping during a month when we were making over $ 200K in revenue, and even in December, we were close to hitting $ 300K and still Drop Shipping. Despite this success, we were considering making the switch to a 3PL (Third-Party Logistics) provider. This article aims to discuss the considerations for making the switch from Drop Shipping to a 3PL by analyzing the biggest pros and cons of each method.

Inventory Risk

One of the main reasons people start with Drop Shipping is due to the minimized inventory risk. Without needing to hold inventory, the business can operate more flexibly and with lower upfront costs. This makes Drop Shipping a chilled approach for many startups.

Cost Considerations

The cost differences between Drop Shipping and using a 3PL are actually quite similar. While you pay more for a 3PL because of fulfillment and storage fees, you can offset those costs by buying in bulk and taking advantage of bulk discounts from suppliers, particularly from China. With the right strategy, 3PL can become even cheaper than Drop Shipping and can improve your unit economics.

Shipping Time and Scaling Flexibility

3PL really shines when compared to Drop Shipping in terms of shipping time and scaling flexibility. With 3PL, shipping times are generally faster as products are stored closer to your customer base, often within the United States if that is your primary market. Additionally, 3PL allows for more seamless scaling of your operations. This makes it a beneficial switch for businesses that have grown large enough to require these efficiencies.

Conclusion

If your business has grown significantly and you are struggling with slow shipping times and the need to scale efficiently, switching to a 3PL can be highly beneficial. As demonstrated in the story above, our switch to a 3PL has yielded very positive results.

Keywords

Drop Shipping
3PL
Third-Party Logistics
Inventory Risk
Cost Considerations
Bulk Discounts
Shipping Time
Scaling Flexibility
Shopify Store

FAQs

Q: What is Drop Shipping?

A: Drop Shipping is a retail fulfillment method where a store doesn't keep the products it sells in stock. Instead, when you sell a product, you purchase the item from a third party and have it shipped directly to the customer.

Q: What is a 3PL provider?

A: A 3PL (Third-Party Logistics) provider is a service that allows you to outsource operational logistics from warehousing through to delivery, enabling you to focus on other aspects of your business.

Q: What are the main advantages of Drop Shipping?

A: The main advantages include minimized inventory risk and lower upfront costs.

Q: What are the main advantages of using a 3PL?

A: The main advantages are faster shipping times and better scaling flexibility, as well as potential cost savings from bulk purchasing.

Q: How can 3PL be cheaper than Drop Shipping?

A: By purchasing in bulk and earning bulk discounts, you can offset the higher costs associated with fulfillment and storage in a 3PL, potentially making it cheaper than Drop Shipping.

Q: When should I consider switching from Drop Shipping to a 3PL?

A: You should consider switching if your business is experiencing significant growth, facing slow shipping times, and needs better efficiency to scale operations.