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What is Wholesale Dropshipping and How it Works? Full Guide

July 7, 2024

Wholesale dropshipping is a business model that combines wholesale and traditional dropshipping. To understand wholesale dropshipping better, let’s first analyze the key differences between wholesale and dropshipping models.

What is Wholesale Dropshipping?

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Wholesale Model

In the wholesale business model, you take permission and purchase products in bulk at a discounted price directly from the manufacturer, such as Addidas or Nike. You then hold product inventory and manage the shipping and fulfillment process for your customers (the retailers and consumers).

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Dropshipping Model

In this business model, you don’t hold any inventory of products. Instead, you find a good wholesaler with the products you want to sell, then list products on your store, and when a customer places an order, you forward it to the wholesale dropshipping supplier, who then packs and ships it directly to the customer. Read more about dropshipping from my dropshipping for dummies guide.

Now, it is easy to tell what wholesale dropshipping is,

Wholesale Dropshipping

In wholesale dropshipping, a manufacturer bypasses wholesalers by handling product shipping directly to retailers upon receiving customer orders from the wholesaler.

The wholesaler acts as a middleman between manufacturer and retailer but doesn’t hold physical product inventory or manage shipping. Instead, when the retailer sends order details to the wholesaler, it forwards the details to the manufacturer, who then handles the packaging and ships directly to the customer.

How does Wholesale Dropshipping Work?

Wholesale dropshipping operates as a relay race between three parties, including the manufacturer, wholesaler (you), and retailer. Here’s the breakdown of how wholesale dropshipping works:

Product Sourcing

You (the wholesaler) find a manufacturer offering dropshipping services for their wholesale quantities. They usually provide products at a discounted bulk rate but also handle fulfillment.

Wholesaler lists Products

The wholesaler (You) creates an online store or connects with retailers to market the manufacturer’s products with your markup added for profit. Manufacturers sometimes offer a Minimum Order quantity (MOQ) requirement to qualify for wholesale pricing.

Customer Places Order

Now, the actual race begins. A customer places an order on a retailer’s online store. The retailer places the order with the exact details as you (the wholesaler).

Wholesaler Forwards the Order

You receive the order from the retailer and forward it (along with customer details) to the manufacturer.

Manufacturer Fulfills Order

The manufacturer receives your order, packages the product with your name, and ships it directly to the customer.

Payment Received

The customer pays you, and you keep the difference between your selling price and the manufacturer’s wholesale cost. In easy words, you act as a bridge between the manufacturer and retailers, taking advantage of wholesale pricing without managing inventory or fulfillment.

Benefits of Wholesale Dropshipping

Higher profit margins: Lower product costs from wholesale pricing can lead to higher profits.
More control over branding: You might have more control over packaging and branding than regular dropshipping.
Faster shipping times: Products are directly shipped from domestic warehouses within the same country as your customers, which results in fast shipping.

Drawbacks of Wholesale Dropshipping:

Higher upfront investment: You might need to invest more money to buy products in bulk upfront.
Time-Consuming: This model requires gaining permission from the manufacturers to sell their products, which generally involves paperwork and processes.
Storage space: You’ll need a physical space to store your inventory.
Managing stock: You’ll need to track inventory levels and ensure enough stock to fulfill orders.

Is wholesale dropshipping right for you?

It depends on your budget, risk tolerance, and business goals. If you have the capital to invest in a big goal of opening your brand and storage space to store physical products in bulk, then it can offer higher profit margins.

Dropshipping offers a flexible and low-risk way to start an e-commerce business, making it an attractive option for new entrepreneurs and small businesses. However, it also comes with challenges, such as managing supplier relationships, handling customer service, and handling low profit margins.

Conclusion

In this guide, we have covered everything you need to know about dropshipping, from understanding the basics to learning its challenges and exploring new business models that have gained popularity since 2023.

For those ready to dive into the dropshipping business, remember that success comes from careful planning, continuous learning, and adapting to market trends.

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