Transitioning from Dropshipping to Branded eCommerce

If you’re currently dropshipping products and are interested in creating your own branded products for eCommerce, this article is for you.

Before we get into the gritty details, it’s important that you are aware of the advantages and disadvantages of each business model. Let’s discuss some of the pros and cons of dropshipping versus branded eCommerce.

dropshipping Warehouse

Dropshipping

For new entrepreneurs and small business owners (or anyone who does not want to deal with physical inventory) dropshipping is a great way to venture into the exciting world of eCommerce.

Pros

Dropshipping is an amazing (and inexpensive) way to create a low-risk business. As a new business owner, dropshipping allows you to keep startup costs low while avoiding obstacles such as picking, packing, and shipping your own inventory.

  • Low risk: There is no need to purchase or stock your own products, which means you’ll never have stale inventory concerns. This also allows you to pivot your business with ease and change your product lineup as desired.
  • Low startup costs: Without a need for your own inventory, you are able to skirt one of the most prominent barriers to entry for young entrepreneurs.
  • Streamlined processes: Beyond marketing and selling your products, the fulfillment process for orders is virtually seamless for you. Your dropshipping supplier takes care of picking, packing, and shipping, which means you can manage your business remotely. Some dropshipping partners offer automated back-end integration, so orders on your website are automatically shipped from the supplier (instead of requiring you to manually import orders as they come in). If you are a one-person team, this allows you to wear fewer hats in your business, so you can focus on your personal zone of genius.
  • Selling known and established products: Dropshipping products from brands that are already known and established will help to position your own brand. This can also reduce the amount of nurturing a consumer requires prior to making a purchase.

Cons

While there are inviting benefits to this business model, dropshipping also poses significant challenges such as low margins, massive competition, and unreliable inventory flow.

  • Lower margins: In general, dropshipped products have very low margins. While you have fewer costs, you’ll be hard-pressed to create significant profits on individual items. This means you’ll need to create a high volume of recurring sales to see lucrative profits in your dropshipping business.
  • Massive competition: Low barriers to entry means more players in the field. With so many resources available for new entrepreneurs, dropshipping has become a favorite way to start a business quickly and inexpensively. You are competing with a huge crowd of like-minded entrepreneurs selling the same or similar items, which means that you must rely on exceptional marketing strategies to differentiate your business from the competition.
  • Inventory flow: Since you’re not in control of inventory, your advertised products can become out-of-stock or backordered with little to no advanced notice. If your website is not synced with actual inventory levels, your website may accept orders for unavailable items. Although this situation is out of your control, you can imagine how this ordeal can reflect poorly on your business and create headaches for your customer service team.

Branded eCommerce

For business owners that want to have more control over their brand and create a product that is unlike current market offerings, branded eCommerce products are key to building a truly differentiated company.

Pros

Branded ecommerce products allow businesses to have far more control over their brand, product pricing, quality control, and profit margins.

  • Brand control: The sky is truly the limit when you create your own branded products. Your brand is completely within your control.
  • Price control: Without the limitations of MSRP (manufacturer’s suggested retail price) and MAP (minimum advertised price), manufacturing your own products allows you to control the price of your products.
  • Bigger margins: With complete control over pricing, and lower costs per unit, you can create much higher profit margins on your products.
  • Quality control: Whether or not you outsource the manufacturing of your products, you will retain more control over the quality of the products you create and sell.

Cons

The process of creating and branding your own products translates into high startup costs, less agility, a longer time from concept to product creation, and the potential for fraud.

    • High startup costs: In order to secure a low cost per unit, you will likely have large MOQs (minimum order quantities). If the products you are creating have a high manufacturing cost, your initial inventory orders could set you back tens of thousands of dollars.
  • Less agility: Stocking up on branded inventory does make it more difficult to quickly pivot your business. If you decide you no longer want to sell a product in your inventory, or if customers simply aren’t buying your product, you may be stuck with a high volume of product that is difficult to get rid of. This means it is crucial to validate your product and market research prior to committing to large inventory purchases.
  • Longer time from concept to creation: Manufacturing your own branded products can be a long time in the making. First come the prototypes, then it’s time to test manufactured samples, then you’ll need to refine the product before finally producing a product that is ready for market. If using an overseas manufacturer, you may experience further delays and obstacles such as language barriers, transit delays due to distance, and nuances in cultural practices. For example, many factories in China take weeks-long holidays for Chinese New Year celebrations, which can completely halt inventory production and delay product restocking.
  • Potential for fraud: There are plenty of stories about business owners being scammed by foreign manufacturers. For example, manufacturers may cut corners to lower their own costs. Other possibilities include overseas manufacturers producing more inventory than you ordered and then fraudulently selling your products for a lower price (under your brand name or by white labeling for other sellers). While these stories should not deter you from manufacturing your own products, it is important to be aware of potential scams and other obstacles to look out for.

So, are you ready to transition from dropshipping to branded eCommerce products? Let’s get to it!

How to Transition from Dropshipping to Branded eCommerce

The following project flow can be used to streamline your transition from dropshipping to branded products.

Develop an initial design of your product and conduct market research.

Market research will help you understand your target audience, which may be different than the audience you want or expect. Do a competitive analysis to understand supply, demand, and perception of similar products – and to pinpoint what makes your product different and better. If you have previously dropshipped a similar item to the one you are attempting to brand for yourself, you should already have an idea of buyer expectations within the competitive landscape.

Source potential manufacturers.

Will you be producing your product domestically or using an overseas manufacturer? Domestic manufacturers will generally have higher costs than manufacturing overseas (for example, in China, India, or Taiwan). Fortunately, large B2B (business-to-business) marketplaces, such as Alibaba and IndiaMart, allow you to connect easily with manufacturers in foreign markets. When sourcing manufacturers, do your research and cross reference your findings. Establish lines of communication so you can determine how responsive the manufacturer is. Understand the specific importation logistics and associated costs you will incur, which will vary between manufacturers and countries of origin.

Develop your business plan and budget.

The transition from dropshipper to branded eCommerce company will require higher capital outlay and far more business organization. If you need help building a business plan, the U.S. Small Business Administration has terrific resources.

Develop your products and packaging.

Strategically develop the look, feel, and user experience of your product and packaging. Always obtain multiple samples from the manufacturing process to help with quality control. While it can increase your startup costs, samples are an investment; this is a crucial step in the process of building a successful brand. Also, don’t neglect packaging! Remember that the customer experience transcends receipt of your product. You want the entire experience from delivery, to packaging, to utilization to be magical.

Determine product distribution channels and fulfillment logistics.

Will you be selling your product anywhere in addition to your website? For product discovery and ease of consumption, consider whether you want to offer your products on Amazon, Jet, Walmart, or eBay.

Decide how you will handle inventory storage, order fulfillment, and product returns. Will you be renting space, hiring warehouse staff, and setting up shipping accounts? Smaller teams, digital nomads, and businesses that want to remain more agile should consider partnering with a fulfillment company that can handle inventory, shipping, and multichannel eCommerce fulfillment.

Build your brand.

Determine your differentiators: Why would a potential customer choose your brand over a competitor?

Create your message. To supercharge your brand’s ability to gain loyal and engaged customers, convey why you are in this business. Give consumers a story to connect with. If your message isn’t easy to understand and repeat, refine your messaging further.

Develop the look and feel of your brand. How do you want consumers to perceive your brand? For example, are you striving for a high-end VIP experience or do you want your brand to be seen as an approachable grassroots organization? Do you want customers to feel special and unique when buying your products or do they aspire to feel conscientious and socially responsible by choosing your brand? Make sure the user experience of your product matches the promises of your brand.

Develop your brand language. Your brand should be conveyed throughout the messaging and visual aspects of your website and marketing materials (such as advertisements). Choose words and phrases that resonate with your target audience and evoke the feelings you want shoppers to experience when interacting with your brand.

Develop a marketing strategy to launch your new products.

Review your market research to launch your product with a strong introduction into the market. Determine how you’ll promote your brand and new products. Engage influencers in your niche and offer incentives for early adopters of your product.

Update your website and social media.

Wherever a customer discovers your brand, they should have a seamless and cohesive experience. Update your website, social media, and any additional product distribution channels. Do this frequently, because it helps demonstrate the vitality and continuous nature of your brand.

Deliver a superior customer service experience.

Talk with your customers as early and as often as possible to learn about their experience with your brand and product. Capturing and digesting customer feedback is critical to your brand’s reputation and longevity. Find ways to engage your customers and create brand evangelists out of loyal consumers.

Following these steps might not immediately lead to the next Nike, Nestle, or Rolex. But it will lead you on the path to potentially fabulous returns and exciting personal product decisions.