Marketplace vs Dropship: What’s the Difference?

There are a lot of different e-commerce strategies, and it’s difficult to choose the right one. Today, in our guide, we will compare Magento 2 Dropshipping integration with Marketplaces.

Brief overview

The core idea of dropshipping is to shorten the supply chain. You don't store and don’t ship goods. Instead of this, you have a list of suppliers.

A marketplace is a space for sellers where they find customers. The clearest example is Amazon.com or a b2b marketplace, where businesses sell services or goods to other companies. This strategy suits long-term growth.

Let’s consider them closely!

Dropship

Dropshipping is a great way to start your business because it doesn’t require high costs. What does it look like? Say, you want to sell farm products, but their storage requires special conditions which leads to increased costs of inventory management. So, to avoid extra expenses, you find some farmers who are ready to ship their products to customers right away from the farm. In your Magento 2 store, you create products, and set delivery conditions, and, when a customer creates a new order, you redirect it to your supplier. They take the order and deliver the goods on time. It has advantages and disadvantages, like any other business model. Below is the list of pros and cons.

Pros

Low starting cost. You don’t need to buy products and rent warehouses. You don’t pay for goods until they are sold. All that you need to start is an optimized website and good suppliers.

No storing and shipping costs. Without stock, you don’t need to be afraid of being “overstocked” or spoiled products if, say, the electricity goes out. If during delivery the goods are damaged or lost, you won’t have to pay the additional costs.

Ability to try new markets and expand your business. Dropshipping is international and has no limits. Just make new partnerships with suppliers, and add new products and languages. So you can always try something new, go global, and attract new customers.

Cons

Stock limits. As you don’t have your warehouses, it might be that your supplier has no needed items in stock. If it happens during holiday sales, you risk missing out on a huge part of the profit.

Unscrupulous suppliers. Customer service is one of your responsibilities. So if your partner has delivered low-quality goods or missed delivery deadlines, you get return requests and bad reviews that take extra costs, and time and influence customer loyalty.

Marketplace

It’s much easier to understand what a Marketplace is if we give you some famous examples: Magento Marketplace, Amazon, eBay, Aliexpress. Instead of dropshipping, this Magento 2 strategy is based on working with other sellers, not suppliers. You don't need to buy, store, ship, or service products. Your main goal is to create traffic flow and control the sellers. All other tasks rest with vendors.

Pros

Low costs. You need just handle marketing and SEO to make your marketplace recognizable. Also, vendors pay you a fee to sell on your website.

No need to make order fulfillment. Sellers take care of this big part of the job.

International markets. You can find sellers worldwide and work in international markets.

Cons

Customer Service. You need to be ready to manage disputes between clients and sellers as a trusted marketplace.

Amasty solutions

We are already developing two extensions that will help you integrate marketplace or dropshipping in your Magento 2. Let’s see what features they will have.

Dropshipping

Our coming soon dropshipping for Magento 2 will have the following key functionality:

• Redirect orders to suppliers and notify them about new requests via email automatically;
• Set limited access to the order grid for dropshippers to make work safe;
• Allow your suppliers to manage multiple warehouses and split an order between them;
• Automatically calculate shipping costs according to the nearest warehouse and the cheapest delivery way;
• Let your vendors leave comments on the orders.

Our Magento 2 Multi-Vendor Marketplace will include the following features:

• Allow vendors to register on a separate page and automatically approve all registration requests;
• Let sellers create a separate shop page with a custom URL;
• Pass on order management to sellers;
• Track sales statistics and manage vendors on separate dashboards: enable/disable profiles, accept products automatically, etc.;
• Manage commissions by setting a percentage for all sellers or a different percentage for each;
• Let vendors analyze their sales data such as income, balance, orders, and comments.

To sum up let’s compare the responsibilities of a supplier, seller, and retailer in the tables below.