Mid-market and enterprise sellers know the growing pains that come with deciding between wholesale and D2C orders. It’s not uncommon to find companies using their stores as fulfillment centers, or using their few warehouses to handle D2C orders.
But when you do things halfway, trying to do everything, your customers end up getting a mediocre experience.
In this article, we’ll go over what D2C and wholesale selling means, why you need to separate the two supply chains, and how to get it all done.
Different ways to sell
There are a few common ways to sell in eCommerce; D2C, wholesale, and dropship.
- Direct-to-consumer (D2C): This is selling directly to your customers and end-users through a marketplace or your own website. Think of eBay sellers, or a Shopify store where you can go and place an order, enter a coupon code, sign up for a brand’s newsletter, and things like that.
- Wholesale: This is when you sell in bulk to your buyers. Your buyer can be a marketplace (for example, in first-party selling) or a reseller who plans to add your products to their catalog.
- Dropship: This is when you sell items to consumers, but don’t store or fulfill products. Instead, your supplier or manufacturer takes care of fulfillment, so you don’t need any storage space or fulfillment capabilities. Dropshippers have little to no control over their buyer experience once they hit that buy button.
This article covers direct-to-consumer and wholesale, since we’ve noticed a growing number of merchants who are trying to do wholesale and direct-to-consumer at the same time.
Merchants are trying to do it all, and their buyers suffer
We’ve seen many operators who think they can do wholesale alongside direct-to-consumer. Here’s how that usually goes;
- They want to run 2-day delivery out of their stores
- They don’t plan to separate D2C and wholesale programs
- They end up doing both okay, but neither well
And in eCommerce, your buyer experience is everything.
The importance of separating D2C and wholesale operations
There are some fundamental differences in how you need to run wholesale and D2C. For wholesale orders, you don’t really need 4 warehouses – many wholesale sellers can make due with 2 and require buyers to order with plenty of time in advance.
But consumers want fast shipping, and if you don’t provide it on short notice, they’re going to your competitors.
In order to get next-day delivery coverage, you need inventory in at least 18 locations. You would also need to run sortation(efficiently), since carriers don’t typically offer that as a service.
- Purchases are made in bulk
- May have predictable replenishment schedules
- Can be done from 1-2 warehouses
- Have your buyers send in their orders early to get items on time
- Small purchases directly from the end-user
- No way to predict exactly when an order will come in
- Must have 18 fulfillment centers to reliably get next day coverage
- Likely have to run sortation, which carriers don’t usually offer
So when we hear that merchants want to have the same fulfillment process for both their warehouse and D2C orders, we don’t advise it. There’s a lot of considerations to executing next day delivery affordably.
Differences with 3-day, 2-day, and next-day delivery
The most common fast shipping speeds are;
- 3-day delivery (eBay considers everything faster than 4 days for Fast ‘N Free)
- 2-day delivery (for example, Walmart TwoDay delivery)
- Next day delivery (available in Deliverr’s Shopify fulfillment program)
Here are some key differences between those service levels, as seen from the fulfillment and supply chain perspective.
3-day vs 2-day delivery
As shipping speeds get faster (and they are), consumers will tend to lump 3- and 2-day shipping together, and then convert better with next day delivery.
For example, we’ve noticed on one marketplace, 3-day delivery gets a 30% increase in conversions, and 2-day delivery gets a 40% increase. That 10% difference in conversions is still important, but not groundbreaking. On the other hand, on this same marketplace, we saw an 80-90% increase in conversions when offering next day delivery.
On another channel, we observed a 44% increase in base conversions when our merchants added 2-day delivery, and a 75% increase in conversions when they added next day delivery.
These are significant jumps in conversion, that shouldn’t be ignored.
Note: These conversion cliffs may differ when you don’t offer next day. For example, the difference between 2-day and 3-day conversions was only 10%, but when you offer only 2- and 3-day, with no next day option, the conversions are significantly higher for 2-day.
Think of it as the difference between:
- When you offer 3-day, 2-day, and next day = “Fast shipping” (3- and 2-day) versus “Next Day”
- When you offer 3-day and 2-day, with no next day = “3-day shipping” vs “The fastest shipping option”
Now, the difference between next day versus any other fast shipping speed merits a closer look. Let’s break down 2-day shipping and next day shipping.
2-day vs next day delivery
You may have started seeing 2-day delivery pop up in more and more places recently. That’s because there are some lazy ways to get 2-day to work, so it doesn’t have a huge barrier to entry.
For example, you can run 2-day delivery out of 1-2 warehouses and only 1 carrier, but this method gets expensive, and quick. It’s a waste of resources and poorly optimized.
Next day delivery is another beast. You need to be precise and efficient, or it’s going to get unprofitably expensive and impossible to scale. Deliverr has an entirely separate supply chain when it comes to providing next day delivery.
Next day is more difficult to achieve, but the benefits are significant.
The difference between 3-day and 2-day delivery lift is closing, but the jump between 2-day and next day is huge. This is a logarithmic increase, not a linear increase, which means it can grow and scale in proportion to your business.
As 2-day and 3-day becomes “anything faster than standard” and next day is seen as on par with in-store retail purchases, it’s important to start investing in next day delivery, fast.
Predictions in fast shipping
In 2021 and beyond, consumer expectations will only get higher when it comes to delivery speed. Here are a few of our predictions:
- 2-day and 3-day delivery will continue to see 20-30% conversion increases on average (from standard shipping).
- Next day can easily double or even triple conversions. One Deliverr beauty seller saw a 100%+ increase when adding next day.
- When you don’t offer next day delivery, the conversion boost between 3-day and 2-day is more significant. But when next day delivery enters the picture, it changes buyer behavior.
D2C vs. Wholesale: How to fulfill your orders
So, if you still want to offer both D2C and wholesale orders, what should you do?
- D2C fulfillment – You should have multiple fulfillment centers that can cover nationwide fast shipping. You can also outsource to a fulfillment partner like Deliverr, who can take care of a uniform fast shipping experience for your buyers.
- Wholesale fulfillment – You can have a few warehouses fulfill this since they aren’t as time-sensitive. Your wholesale customers also know to order well in advance to restock.
Your current fulfillment setup is likely alright to continue for your wholesale orders. However, if you want to get next day fulfillment and create an unforgettable buying experience for your customers, you need to offer next day delivery.
We recommend creating a network of at least 18 fulfillment centers, and looking at where your orders are mostly concentrated to figure out what percentage of your inventory to distribute where.
This isn’t feasible for many sellers, so for those who can’t swing it, or simply don’t want the hassle, you can always outsource your fulfillment.