Private Label Vs Dropshipping For Shopify – Which Is Best For You?
Mark my words, it is easier to start on online business than ever before. I am fascinated by the fact that today, anyone can put together a GREAT looking website from the ground up at any experience level. What’s more, you can now get it done in days, not months. And no longer do you have to pay thousands of dollars to hire a developer to do it for you. With recent evolutions in web design/development technologies, came many products and services that make our lives easier. In addition, the tools necessary to create a website are super affordable even if you’re on a shoestring budget.
You can operate a Shopify store for as little as $29 bucks a month.
So what are we talking about? Today I’m going to walk you through two different paths you can take on your journey to becoming an entrepreneur. We’re going to share and describe each of the two Shopify business models and weigh out their pros and cons so you can make a decision based on which strategy suits you best.
You can apply any of the following two business models to make money with your Shopify store. Ready?
A relatively simple, low-risk online business model. Especially if you’re just starting out, dropshipping may be a great first choice for you. Dropshipping will be your safest bet with online business when you don’t want to take the risk of investing money up-front towards product you’re not entirely sure you’ll sell. On the other hand, maybe you are in fact experienced in online business and just want a more passive approach. Nonetheless, dropshipping may be the perfect online business model for anybody.
In essence, here is how it works: dropshipping is reselling products on your own Shopify store or other e-commerce platform. Yet, instead of packing and shipping each customer order on your own, a third-party supplier agrees to handle all logistics for you. When dropshipping, you’re basically the middle man whose job is connecting consumers with products and convincing them to purchase from your site. While the average profit margins may be lower than private labeling, you can still generate high revenue as long as you’re capable of driving traffic and closing sales.
Dropshipping is mostly passive, which is why it’s become such a popularity among most entrepreneurs. Since an outside source is responsible for handling all of the product inventory and order fulfillment for your customer, you can focus on what matters most. Which is creating great content and promoting. Once sales start rolling in, all you need to do is put in the order with your supplier and collect profits.
An example of a dropshipping business:
Let’s say you want to launch an online t-shirt store on Shopify. Awesome! Unfortunately, you don’t have much experience or investment capital. No worries! How would you like to launch your own clothing line for no money down? All you need to do is find a reliable supplier who would be willing to drop ship orders directly to your customers and set up a Shopify store as a platform to sell your t-shirts online.
You can type “drop ship suppliers for t-shirts” into Google and see what comes up. For this example I’m going to highlight a company that I’d personally recommend for something like this called Printful. They are in business to provide a legitimate drop shipping solution for small businesses by offering on-demand customization for various print on demand products. Plus they integrate seamlessly with Shopify.
Print on demand is a form of dropshipping that allows you to put custom designs and rebrands on various products such as t-shirts, hats, pillows, etc. to sell as your own. This service is perfect for something like t-shirts. Once you put in your drop ship order with Printful, they will print the design onto the shirt, pack it up, and send it right to your customer. One cool thing about Printful is they even go the extra mile by allowing you put your own logo and invoice on the packaging to appear as if the product came directly from your brand.
Great, now we found a supplier to make the custom t-shirts and even fulfill orders for you without a single product ever touching your hands. How cool is that? All you have to do is mark up the price you sell it for and you’ll make a profit on each sale. If your t-shirts sell, those profits can really start to add up!
The t-shirt niche is just one example. You can apply a similar method to virtually any market, so get creative and find a niche you’re passionate about. There are many drop shipping sources out there that can easily be found by searching on Google.
To sum it up, drop shipping is a business model I would strongly recommend. That’s especially true if you’re new to the game due to it’s low-risk nature. Worst thing that can happen if you fail at dropshipping? You lose some time and effort it took to build your Shopify store, add products, and promote. I’d argue that beats sitting on $5,000 or more worth of inventory that’s collecting dust in your basement. Besides, you’ve then learned a valuable lesson and have gained some experience that can be applied to your next online business venture. Remember, your road to entrepreneurship does not end when you fail, it only ends when you fail to get back up and try again.
A few pros and cons of dropshipping…
1. Gain access to countless types of products and niches.
2. Little to no initial investment or risk required up-front.
3. The ability to outsource the tasks of fulfilling and shipping customer orders.
4. Being able to fully focus on producing content and promoting rather than product sourcing and shipping.
5. Great, scalable growth and profit potential that can snowball quick.
1. Usually lower profit margins.
2. Often highly competitive and sometimes saturated markets.
3. You could potentially run into problems if your supplier lacks quality control and assurance.
4. Less control over your customer’s experience as opposed to a product coming directly from your brand, in it’s rightful packaging.
Dropshipping can become a very lucrative online business opportunity for you. As of right now, dropshipping is the #1 most popular path taken by Shopify store owners who start their online businesses in 2018. It’s easy to see why when considering the low-risk, high-reward.
I’ve witnessed many, many thriving dropshipping Shopify stores generating thousand or even millions in revenue. Who says you can’t have a slice of the pie?
2. Private Labeling
In summary, I would describe private labeling as sourcing a product directly from it’s manufacturer. This is most commonly achieved via Alibaba, which is an online network of product suppliers and manufacturers. The majority of suppliers on Alibaba are based in China and are happy to work with you in creating your own custom branded product.
This is a very exciting, yet risky route to take.
It’s exciting because the final product will be your own. It’s unique and sets itself apart in the marketplace. Private labeled products also resell for some of the healthiest profit margins in the e-commerce industry. That’s because you get a huge price cut for buying in bulk directly from the manufacturer and cutting out the middle man. You can then afford to apply a higher mark up to the actual selling price of your product. However, private labeling can also be a risky model due to the fact you’re required to pay a hefty price up-front for product and delivery. If you don’t succeed in selling the products successfully, you may end up sitting on inventory that costs upwards of hundreds or thousands of dollars.
On the upside, a successful private label brand can potentially win big and generate massive profits! That all depends on your business plan. You’ll have to play your cards well.
Here’s a simplified example of one way you could approach starting a private label business of your own:
For the sake of this example, let’s say you want to launch your own custom branded cell phone case for the iPhone. One place to start could be on Alibaba. Visit their site and search for “iPhone cases”. This will yield product results pages you can browse till you find one that really POPS!
Click the listing and read more details. Everything look legit? Try to imagine: what if you could have your brand name and logo on that iPhone case and it’s packaging? Do you feel confident you can create a Shopify store and sell them online? You sure can.
Your next step is to contact the supplier that’s listed. Simply start by private messaging them and introduce yourself as an entrepreneur who wants to start a new business, compliment them on their product, and ask if they would be willing to provide a private label service for you and your brand.
Note: Most suppliers on Alibaba are often very flexible to negotiate lower prices and minimum order quantities.
Once you come to an agreement with the supplier, pay the final invoice to complete your order and wait for it arrive. The package will typically be shipped express from overseas. But be sure to clarify shipping methods and ETA with your supplier before placing the order. When the products arrive, you can begin selling and shipping them from your place of business.
When business picks up and you’re able to move units, be sure to place an order to replenish inventory in a timely manner so you don’t run out of stock.
Let’s mention a few pros and cons of going the private label route.
1. Ability to create your own product that’s exclusive to your brand.
2. Typically higher profit margins when compared to dropshipping.
3. Less competitors racing to the bottom competing on price for the same product.
4. Having more control over quality assurance, customer experience, and order fulfillment.
5. Having real and tangible product which is of actual value, thus raising the net-worth of your business overall. This is worth mentioning if you someday sell your business.
1. Private labeling presents more risk and can potentially lose money if products are not sold.
2. If your product is a big success, handling shipping and logistics will sure keep you busy. At that point, you may even need to hire help.
3. You have to invest money up front and build your brand completely from scratch. It will be entirely up to you and your team to raise awareness for your product.
In my honest opinion, I’ll say that private labeling is a good fit if you have the means to invest some money and can afford to take a potential loss in the worst case scenario. Also, if you want to take a more hands-on approach with your business. Selling a physical product that brings real-life value to people can be very rewarding for you and your business.
Just make sure you weigh out the pros and cons before jumping in!
Keep in mind, you guys… These are just a few of the many online business models out there. You may find yourself on a completely different route, which is perfectly fine. We wish you the best of luck no matter what.
Thanks for reading our guide to the two most common online business models. We hope you gained some value from it. Which one of the two business models best suits you?
Comment down below to let us know. And don’t forget to share!