We are asked about this more times than we can count. Please note that this tip is really only dealing with companies that sell online, not really traditional retailers with brick and mortar stores. This is an important discussion because it lays the foundation to how success you can be either online. We will go through some quick pros and cons of each, so you can make a little more informed decision.
Inventory: This is the most traditional method of selling items, where you purchase a large quantity of items from a manufacturer or a distributor for the items you plan on selling. Doing this allows you to manage your profit margins a little more along with a tighter inventory control system. You know that you dislike when you order something online just to find out that it is out of stock. With taking on inventory, you can deal with this in a more efficient manner. The largest issue of taking on inventory is the initial cost of doing so. If you are planning on selling a lot of different items, then your costs can be in the millions and you have to be sure that you can sell them successfully. If not, then you are responsible for all the items that you do not sell. This can pose a large problem for small businesses because most do not have the cash to put into inventory or the right insurance that will keep them safe when being stored. Another issue is shipping and storing the items. You would probably need a storage facility in order to keep them safe, but a way to ship them out fast and efficiently, not to mention the costs of such things. If you plan on only selling a few items, then a lot of times this option is great, but take the time to find the items at a great wholesale price that you can actually make a decent profit on.
DropShipping: This is a relatively new way to deal with selling online, but it is becoming widely used. There are many manufacturers as well as distributors that will do this for you, but most charge a fee, like $1.50 per shipment or more. There are some distributors that do not charge a fee, but you have to reach a certain amount of shipments per month or year. The main thing you need to take into account is if the dropship company is legitimate. There are many out there that say that they will provide you a wholesale price, but in turn do not. Most searches that you do online will not help you. Most distributors do not have their sites listed well in search engines because they do not want people just trying to sell goods. You have to have the proper licenses in order to get setup with these companies. If they charge you a setup fee, then it is probably not a good company to work with. Most reputable distributors will not charge you a setup fee, but if they do it will be minuscule. Dropshipping can save you the upfront capital needed to inventory items, but you will have some problems with inventory management because there are many other companies using the same distributor. Please check with them to see if they will provide you with up to date inventory so you can work that into your backend shopping cart with your online store. This will help reduce the out of stock emails that you have to send to customers after ordering.
If you are just starting up, you can definitely try out dropshipping because it is becoming very popular and much more efficient than it used to be. If you start out doing well, then you can most likely change over to inventory and deal with your inventory they way that you want to. Both methods are good for different businesses, but make sure you take the time to research each one and find out which will work with you and will be good for future growth.