Avalara > Blog > Ecommerce > Order Fulfillment vs. Drop-Shipping for Ecommerce

Order Fulfillment vs. Drop-Shipping for Ecommerce

  • Jun 13, 2016 | Jessica Sillers

Ecommerce sellers may never meet their customers face-to-face. A smooth shipping process can be their main way to leave a good impression. Drop shipping and order fulfillment, two common ways to get goods into customers’ hands, can be confusing for new ecommerce sellers. Here’s how both processes work and how to pick the right fit for your business.

What’s the Difference?

Broadly speaking, order fulfillment can describe any process that gets the goods from the merchant or manufacturer to the customer. Lots of ecommerce businesses handle this directly, while others outsource it. Drop shipping describes a business relationship where a third party ships goods on behalf of a business. Often, this means that the drop shipping supplier offers the same catalog of goods to all their clients, who distinguish themselves via price or service, rather than product selection.

As you can see, there’s plenty of room for overlap between these services, but there are also key differences. Here’s how order fulfillment versus drop shipping might look in practice.

Say you design stationery and calendars. You pay a letterpress studio to print and stock some of the finished goods, which they ship to customers when you receive an order. You’ve invested in the inventory (the completed cards), and you control it (the studio can’t sell your goods to anyone else, just ship them for you). The studio is holding inventory and shipping orders, so in that sense they’re acting as a drop shipper, but this is primarily an order fulfillment relationship.

On the other hand, let’s imagine you’ve contracted with the imaginary company Cards ‘N’ Things to sell desk calendars. When customers place an order with you, you notify the company, and they package and ship the calendars. Cards ‘N’ Things might sell their goods to other businesses as well; you face more potential competition and rely on reports to know if inventory is running low. On the other hand, paying on a per-order basis means you don’t risk investing in a product that will flop. This is a drop shipping relationship.

Which Is Best for My Business?

Choosing between order fulfillment and drop shipping is a matter of reviewing your financial resources, the kinds of products you want to sell, and your priorities as far as control and convenience.

There are several benefits of order fulfillment:

  • Better profit margin: It can be easier to get wholesale prices on inventory when you’re investing in a larger amount.
  • More control over inventory: You won’t get caught out of stock unawares.
  • Distinctive products: You can offer items no one else sells, including those you design yourself.

If you go with drop shipping, there are other pros:

  • Reduced capital: It’s easy to get started with drop shipping since you don’t have many up-front costs.
  • No clutter: No need to store inventory in your home or office, or rent a warehouse.

In either case, outsourcing shipping to a third party means relinquishing control over how items are packed and when exactly orders go out. Before signing a contract, ask the supplier what their experience is with shipping directly to consumers. If the supplier primarily ships large orders to other businesses, they might not have systems in place to handle the hundreds (or thousands) of individual item orders that need to go out to customers. If your products are fragile or a certain style of packaging is important for your brand, make sure to work with a supplier who is able to meet the standards you set.

How Do I Get Started?

Ecommerce sellers who already use a major selling platform like Amazon, Etsy, or WooCommerce can start by using their platform’s own fulfillment service or recommended providers. Services like ShipWire also offer order fulfillment.

Small business owners interested in getting into drop shipping should start by deciding what products they want to offer. Then they have several options to find wholesale suppliers, including contacting manufacturers directly or subscribing to a drop shipping supplier database.

Whether you decide that order fulfillment or drop shipping is best for your business, Avalara can help you stay on top of sales taxes so you can get back to work.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Jessica Sillers
Avalara Author Jessica Sillers