Dropshipping vs White Labeling: Which is Better for you?

  • 9th Feb'22
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The Covid-19 pandemic has caused a global shift in the ways people work. An international sensation phenomenon, i.e., work from home, results from massive change forced by it. Another rapidly growing trend that has picked up significantly recently is the businesses from home. Numerous trends in industries from home have grown in demand. But the two most popular business models that have earned the most favor are dropshipping and white labeling.

Now, when it comes to dropshipping and white labeling, both are harnessed by the power of the internet. It means if you are an aspiring entrepreneur or a startup, then all you need is a laptop and stable internet connectivity to start your business from home. But with similarities and right mindset to grow your business, there is some noticeable difference between the two that has left several home-based companies in a dilemma. 

The dilemma is to either opt for drop shipping or white labeling. Hence, it’s essential that you explore the two, in here, two understand which one suits your business idea the most?
 

Dropshipping vs White Labeling

 

What is Dropshipping?

Dropshipping is essentially an order-based method where the store does not have to keep the products in stock to take orders. Also, the store is mainly dependent on third parties to meet the mandates in demand. In other words, when any customer places an order, the store connects with the relevant third party. The third party arranges the product and takes care of the shipping processes. In this way, the seller and the store do not have to handle the product directly.

 

Dropshipping business model

 

Pros and Cons of Drop Shipping

Dropshipping has quickly become one of the most in-demand business models for home-based businesses. The main reason behind its success is how comfortably one can comply with this business model. People can set up a Shopify app and immediately start selling their products or services. 

Small scale industries and business set-ups have become the primary beneficiaries of the dropshipping business model. From selling handmade products to merchandise and even some valuable tools, the customer is in abundance to support this business model. However, with several upsides, there are some downsides as well. So, let’s take a look at the pros and cons of drop shipping.

 

Pros of Dropshipping

Dropshipping has six significant benefits. They are:

  • Can run a business with less capital investment

  • Can quickly start working in the dropshipping business model

  • Independence of location

  • Can sell a wide variety of products

  • Less risky to test the business model

  • Can easily scale

 

Cons of Dropshipping

Compared to the pros of drop shipping, it has only four significant cons. They are:

  • Inventory issues

  • Can have shipping complexities

  • Get blamed for supplier error

  • Low margin due to low-quality seller websites and competition

 

White Labeling

 

What is White Labelling?

White labeling is a legal protocol where one brand’s product or service can be rebranded and sold under another company’s brand name. Essentially, the term white labeling gets used to signify the whiting process any product or service has undergone to get branded as something new. 

To understand it better, let’s consider any Walmart store. A Walmart store has many products sold inside it. However, you can often notice that some products are being clubbed together under a different name. Then they get sold at a discounted price. The foreign name the product receives here is white labeling.

 

White Labeling Business Model

 

Pros and Cons of White Labelling

The white labeling business model has gained tremendous acceptance amongst multiple industries. Most large-scale businesses like supermarkets and grocery stores have gained massive traction in their sales after practicing white labeling. Other fields that can potentially generate more sales from white labeling are SaaS and software companies. 

However, with all the success in the white labeling business model, there are arguments to be made against it. Hence, before a business or entrepreneur decides on it, it is advisable to check the pros and cons involved in white labeling.

 

Pros of White Labelling

There are three significant pros of white labeling. They are:

  • Helps in building brand credibility

  • Strengthens customer loyalty towards the company brand

  • It saves a lot of time and money in sales and marketing


Cons of White Labelling

Similar to the pros, there are equally three cons of white labeling. They are:

  • Affects brand credibility

  • Different prices for rebranded products can impact customer relationships negatively

  • The product might lose value after being rebranded

 

Which Business Model is Better for You?

Now we are at the end of this comparison between dropshipping and labeling. You must have achieved some understanding of both. Both the models, as explained above, have been great at generating sales and profit. Simultaneously, along with benefits, there are challenges to them. Hence, the best way to identify the business model out of the two is to gain awareness for the mission and vision of the business you want to do.

Research for specific markets suited for your business idea. Calculate the potential scalability of your business. Finally, decide whether you want to keep the business running with less investment, effort, and risk. If your answer is a “yes”, then the dropshipping business model will suit your business; otherwise, go for white labeling. Also, you can start with dropshipping and eventually take up the white labeling business model.
 

We at OpenGrowth, are committed to keeping you updated with the best content on the latest trendy topics from any major field. Also, both your feedback and suggestions are valuable to us. So, do share them in the comment section below.

Sources/References:

*Note: The content published above was made in collaboration with our members.

About the author:

Sunny Samanta, OpenGrowth Content Team

A lone wolf by definition, a writer by heart, and a lost star with ambitions to light up the dark both inside and around me, sometimes by immersing myself into books or video games or traveling with a backpack to an uncertain destination believing that life is all about the choices we make and we don't.


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