Dropshipping or 3PL

You open up an e-commerce store, sell t-shirts, ship them from China and make a million dollars. It's easy, right? But, unfortunately, the harsh realities of e-commerce are that there isn’t an instant way to become a millionaire. Otherwise, we’d all be rich, right?

Yet, with some strategy and throughout understanding of your options, you can create a successful store and get it up and running quickly with dropshipping. This is how it has been until now, at least. With the new EU VAT changes though, there are many new things to consider.

The dropshipping model is popular first and foremost because it is seemingly so easy. You’ll be able to create an e-commerce store without having to invest in your own stock and warehouse. There is no stock to sort out or much hassle dealing with the shipping. Instead, when orders come in, your supplier ships them directly to the customer. You or your staff do not touch the products.

But, the price for this hands-off approach is the surcharges added to your purchase. Therefore, you need to price your retail products appropriately to ensure you gain from each sale.

Because of the new EU VAT regulations, the dropshipping game looks a bit different today than it was even a year ago. Effective July 2021, new rules are in place to strengthen the internal EU market and to reduce the unfair competitive advantage from overseas markets and sellers. For business-to-consumer (B2C) e-commerce owners, it may create a significant impact.

Let’s take a look at an example. Prior to the EU VAT reform, non-EU dropshipping businesses selling low-value goods had a competitive advantage. Products below the value of 22€ could be sold without VAT. This is no longer the case. All goods sold to EU customers are now subject to VAT, regardless of their value. E-commerce businesses will also now need to charge VAT at the point of sale. Because of these changes, sellers may need to raise their prices further to compensate and retain their profit margins.

In addition, the VAT rules may add more paperwork for you as the store owner. You need to be aware of the new regulations and might need to register for IOSS and OSS schemes. It is a good idea to consult with a VAT Compliance specialist to ensure your business is following the regulations correctly. OGOship has partnered up with Simply VAT to help with these questions. As an OGOship customer, you can connect with your e-commerce expert at OGOship to get a discount for their services.

What kind of dropshipper are you

So, with all these changes causing extra work and potentially additional costs, is dropshipping still a reliable and profitable business model from now on?

It certainly can remain a lucrative option for you. A critical factor when creating a dropshipping business is choosing what kind of business you are trying to build.

Seize the Moment This business is built on making a buck quickly. You lean towards selling hot items, items that are trending right now. When the trend changes, you move on to the next shiny thing. For example, think about the hot market of kids' face masks. While the demand skyrocketed suddenly and is still in high demand currently, it could shift again at any moment. No one knows how long the need will last. So, when the trend changes, your product offerings change too.
Build a Profitable Business Less spontaneous; this business model uses dropshipping as part of the business strategy to build a long-term, profitable business. Again, in a marketplace for kids' items, kids need backpacks for school. Of course, there are peaks based for example, on the back-to-school season, but kids will always need to carry their books to school and demand likely returns each year.

Minimizing Risks

Suppose your e-commerce business model is following the second option, building a profitable business. In that case, 3PL – outsourcing your order fulfillment: picking, packing, warehousing, and shipping to a professional service provider – may give you more control over your profit margins, customer experience and make things smoother to building your reputation as a reliable store.

With 3PL, you have much more control than relying on a dropshipping supplier. Instead, you control the shipping times, costs, packaging, and managing order customizations. Also, because you know how much each piece of every order costs, from the product down to the shipping material and label, it allows you to adjust your profit margins accordingly. Plus, you create a relationship with your 3PL partner and assure they operate within your agreed service level agreements (SLAs). As a result, choosing the right 3PL partner minimizes your risks and keeps costs and shipping difficulties down.

Choosing between dropshipping or 3PL is about your risk comfort level. The dropshipping model may suit you if you like taking risks and want a quick profit with high-demand, trending products. But, if you are in it for the long run, to build a profitable business, regular dropshipping options may be too competitive and not give you the business you want. If you're aiming to create an excellent customer experience while maintaining control over shipping times, product quality, packaging, and customization, 3PL may be a better alternative.