How Big of an Opportunity is Dropshipping?

“It’s not like it’s growing 10% or 15% a year, we’re talking about doubling, tripling, sometimes quadrupling year-over-year growth, which is a tremendous amount of business. All of our orders go out really smoothly, because of the really high service levels, turn around time, and quality control.”  

Josh Auerbach Chief Operating Officer of Aura Frames

If you look at the numbers, ecommerce sales have been increasing at a rapid rate. It’s estimated that consumers spent $861.12 billion online with US sellers in 2020. This is a staggering 44% increase since the year prior. Forrester tracked a 30% growth rate of ecommerce sales in 2020, the fastest growth since 2002 (that’s two years after PayPal and Zappos launched, but before Amazon Prime or Shopify were around). 

“We estimate that more than 75% of all ecommerce sales will go through a drop-shipment or marketplace. If we continue to see ecommerce grow this rapidly, we predict the same number of ecommerce sales from last year will be done through dropshipping in a couple of years. It’s going to be a massive amount.”  

Jorrit Steinz CEO of Channel Engine

There are two big trends in ecommerce where sellers are seeing huge opportunities for growth: dropshipping and marketplace selling. At a basic level, both are models for distribution, but each have distinctions that are right for some products and not for others. Because they are relatively new within the ecommerce industry, many sellers are struggling to determine if dropshipping or marketplace selling are right for their brand… or perhaps both.

What’s the Difference Between Dropshipping and Marketplace Selling?

As relatively new distribution models, dropshipping is when a retailer purchases products from a seller but does not keep the inventory in stock. Instead goods are moved directly from the manufacturer or fulfillment center to the retailer after orders have been placed. One of the biggest reasons sellers are gravitating toward dropshipping is the speed they can take a product to market. Dropshipping makes it incredibly easy for sellers to launch ecommerce stores because it relieves them from many hassles of a traditional distribution model.  

On the flip side, marketplace sellers own their inventory and list their products on ecommerce marketplaces, like Target.com and Walmart.com. In exchange for allowing sellers to list and promote their products within their marketplace, they take a percent of the sales transaction.

Dropshipping can sometimes be confused with marketplace selling because the two overlap under traditional retailers. Many big box stores have turned their online shops into marketplaces as well. On top of that they are most often asking their suppliers to dropship. Some of the larger platforms which used to buy multiple types of products now are just buying the top ten products and then let the rest dropship.