I’ve spoken a lot about hybrid dropshipping in the past. Why? Because it works.
Don’t get me wrong, traditional dropshipping is great. You’ve got low start-up costs, minimal overhead, and you can scale quickly. In fact, the dropshipping market is expected to reach $434.98 billion this year and grow to $2,241 billion by 2033.
However, the problems I faced with the traditional dropshipping model were limited control over inventory, fulfillment speed, and product quality.
Hybrid dropshipping solves these problems by allowing you to stock the bestsellers in-house and reduce delivery times. You can also keep key products on hand to avoid stock shortages and buy high-demand products in bulk, reducing costs and increasing profitability.
Today, I’m going to share why hybrid dropshipping is the ideal solution for eCommerce retailers looking to run a more profitable, flexible business while meeting customer demands and scaling up when it suits you.
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The hybrid dropshipping model is a retail fulfillment strategy that combines elements of traditional inventory holding, dropshipping, and other fulfillment methods.
In my view, hybrid dropshipping is a model where retailers take physical possession of some inventory while still relying on manufacturers or distributors to dropship other products.
In the past, retailers primarily held their own inventory. But with the rise in dropshipping, many businesses shifted entirely to a model where they kept no inventory and relied on manufacturers to ship products directly to customers.
However, hybrid dropshipping has emerged as a middle-ground approach that I believe is particularly beneficial for eCommerce businesses with large catalogs of SKUs.
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A hybrid dropshipping model may sound confusing initially, but let me explain how it works before you decide if this strategy is right for your business.
Retailers using hybrid dropshipping typically keep their best-selling or most critical products in stock while continuing to dropship a broader range of items.
This allows them to ship high-demand items faster and avoid stockouts when manufacturers run out of certain products.
Physical inventory can be stored in your own warehouse, a third-party logistics provider (3PL), or even prepaid at the manufacturer’s facility:
This approach is especially useful in industries with a wide range of products, such as auto parts, where you might stock your top-selling 100 SKUs while relying on manufacturers for thousands of others.
By keeping certain products in stock, you can maintain availability when your competitors run out, giving you a more strategic advantage. I’ll go into more detail on this shortly.
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By blending traditional and hybrid dropshipping, you can create a more sustainable business that overcomes the typical challenges of traditional dropshipping.
There are many benefits to this dropshipping method. Below, I’ve outlined the few that I believe are the most impactful.
One of the biggest challenges with traditional dropshipping is the extended shipping times. Dropshipping suppliers often take anywhere from two to six weeks to deliver orders to customers, which can lead to frustration, chargebacks, and negative reviews.
In a world where 90% of consumers expect two to three-day shipping, slow delivery can impact customer satisfaction and reduce the likelihood of repeat purchases.
Hybrid dropshipping solves this issue by allowing you to hold inventory for your best-selling items in a local warehouse or third-party fulfillment centers.
By storing stock closer to customers, you can offer same-day or two-day shipping, aligning with customer expectations. In-house fulfillment enhances the overall customer experience and gives you a competitive edge.
Traditional dropshipping suppliers typically charge a higher per-unit cost since each product is purchased individually rather than in bulk. As a result, your profit margins in a pure dropshipping model are often lower.
Hybrid dropshipping allows you to buy inventory in bulk for your best-selling products, which could reduce your cost per unit.
The bulk purchasing strategy leads to higher profit margins, as you can negotiate better rates with third-party suppliers and eliminate per-order dropshipping fees.
As you know, in traditional dropshipping, you don’t physically handle products. Instead, your suppliers ship products directly to your customers. This can lead to issues with product quality, inconsistencies, and supplier errors.
Since you don’t see all your products before they reach your customers, you risk dealing with refunds, complaints, and poor brand reputation.
If 51% of customers consider quality more important than price and 20% of product returns are due to low quality, you can’t afford not to have control over product quality.
If you implement hybrid dropshipping, you address this problem because you can inspect the quality of your inventory before it’s shipped.
By stocking the best quality products in your own warehouse or a fulfillment center, you can ensure that items meet quality standards before reaching customers.
Holding full inventory comes with some financial risks, as you typically have to invest in large amounts of stock before knowing if the product will sell successfully.
If one of your products fails to perform as you want it to, you’re left with unsold inventory, leading to losses.
Hybrid dropshipping mitigates this risk by allowing you to stock only proven best-sellers while continuing to use dropshipping to test new products. This approach lets you gradually scale your operations without making large upfront inventory investments.
Hybrid dropshipping allows you to test new products before committing to bulk purchases. If a drop-shipped product gains traction through your online store and sells consistently, you can switch to bulk purchasing to maximize your profits.
This method enables you to scale safely and efficiently, reducing the risk of failed product launches. By consistently testing new products with minimal risk, you can stay ahead of market trends and expand your product offering without the financial risk.
I found an interesting statistic recently: 86% of customers are willing to pay more for a better experience with a brand.
With hybrid dropshipping, you can provide an excellent customer experience through faster shipping times, higher-quality products, and even custom branding to contribute to customer satisfaction.
As I mentioned earlier, scaling a traditional dropshipping business can be challenging due to supplier limitations, processing delays, and inconsistent stock availability.
Hybrid dropshipping allows you to scale your operations more efficiently by combining having inventory in-house with dropshipping.
You can handle large order volumes without logistical bottlenecks by outsourcing fulfillment for stocked products and using dropshipping for seasonal demand spikes.
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I’ve found that hybrid dropshipping can be used in several strategic ways to optimize an eCommerce business like yours:
Hybrid dropshipping is particularly useful when you have an extensive catalog of SKUs. Instead of keeping every product in stock, you can selectively hold inventory for the high demand of frequently out-of-stock items while still relying on dropshipping for most of your catalog.
For example, if you have 100,000 SKUs, you might only keep the top 100 best-selling products in stock while dropshipping the rest. This ensures faster shipping for popular products while maintaining the ability to offer a wide product selection.
Many retailers rely entirely on dropshipping, which means they depend on the manufacturer’s inventory levels. When a product goes out of stock at the manufacturer, dropshippers can no longer sell it.
However, you can stockpile limited quantities of high-demand products with hybrid dropshipping. When your competitors run out of stock, you can continue selling, often at a premium price.
Returns are often a challenge in dropshipping since sending products back to your manufacturers may incur restocking fees.
With hybrid dropshipping, you can accept returns, keep the items in your inventory, and resell them to another customer. This reduces the costs associated with returns and restocking fees.
You can gain a competitive edge if you’re selling on platforms like Amazon or eBay by keeping inventory for products that frequently go out of stock.
Many dropshippers list the same items, so when suppliers run out of stock, those relying on dropshipping lose the ability to sell. As a hybrid dropshipper who holds stock and can continue fulfilling orders, you can capture sales your competitors miss.
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I’ve been in the dropshipping automation game for a while now. I’ve even created a platform that automates the entire dropshipping process, from full product data integration to intelligent order routing.
In my opinion, automation is key for anyone who wants to try hybrid dropshipping. Why? Because managing both in-house inventory and dropshipping suppliers manually can quickly become overwhelming and error-prone.
You’ll have to juggle stock levels, coordinate with multiple suppliers, route orders effectively, and ensure your pricing remains competitive. Without automation, the complexity of these tasks can lead to inefficiencies, stockouts, overselling, and missed opportunities.
Automation streamlines the entire hybrid dropshipping workflow, eliminating manual tasks and reducing the risk of human error.
By leveraging automation, you can efficiently manage inventory, synchronize supplier data, and optimize your fulfillment methods. Automation also ensures you can scale your operations without being bogged down by logistics.
Let’s discuss four key automation features that can help you get started with hybrid dropshipping:
A challenge you may face when it comes to hybrid dropshipping is deciding whether an order should be fulfilled from your in-house stock or a supplier.
Automation solutions like Spark Shipping intelligently direct each order based on your predefined rules, such as stock availability, cost efficiency, or delivery speed.
This ensures that in-stock items are shipped immediately while outsourced products are routed to the best supplier without manual intervention. This completely streamlines your order fulfillment process.
Keeping track of stock levels across multiple suppliers and your own warehouse is crucial to avoiding overselling or stockouts.
Automated inventory management systems sync real-time stock data, ensuring that product listings are always accurate. This prevents you from selling items that are no longer available.
A hybrid dropshipping model means working with multiple suppliers. Automation simplifies supplier management by integrating various vendors into a centralized system.
If one supplier runs out of stock, automation can instantly switch fulfillment to another supplier, ensuring customers receive their orders without delays.
As you likely already know, market conditions fluctuate constantly, so pricing strategies must adapt to remain competitive.
Automation can track supplier pricing and stock availability, allowing you to adjust product prices dynamically. This ensures you can capitalize on profitable opportunities while avoiding losses due to outdated pricing.
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You now know a lot about hybrid dropshipping, but how do you implement it? Below are four steps I recommend you follow to get it right:
The first step in implementing hybrid dropshipping is deciding which products should be stocked in-house and which should be drop-shipped.
To make informed decisions, you should analyze your sales data, customer demand, and product profitability.
High-demand items with consistent sales, low storage costs, and high margins are worth keeping in stock to ensure fast fulfillment.
On the other hand, products with unpredictable demand, large physical dimensions, or lower turnover rates are better suited for dropshipping.
Of course, you also need to consider supplier reliability and shipping times when you make these decisions.
Once you’ve finalized your product selection, you need to invest in automation for the reasons I gave above.
You need to integrate an automated system that can handle order routing, real-time inventory synching, and supplier coordination.
Investing in a robust eCommerce automation platform that supports hybrid fulfillment will streamline your operations and reduce errors.
A successful dropshipping model requires efficient shipping strategies and clear customer communication.
You should aim to work with reliable shipping carriers and fulfillment partners to minimize delivery times and costs.
One thing I can tell you is that transparency is absolutely key. Customers should receive accurate tracking information, estimated delivery dates, and notifications for split shipments if an order includes both in-stock and drop-shipped items.
Again, implementing a centralized system will help you coordinate shipping logistics and maintain a seamless buyer experience.
Once your hybrid dropshipping model is running smoothly, you can focus on scaling strategically. This can include:
I also recommend exploring private labeling or exclusive supplier partnerships to differentiate your offering.
Spark Shipping is the ideal platform for operating a fully automated hybrid dropshipping business.
Now, I’m not just saying that because it’s my product, it’s because I truly believe that automation is the only way dropshipping businesses can succeed.
Our software offers hybrid dropshippers:
Embrace the world of hybrid dropshipping and seamless automation by signing up for a free Spark Shipping demo today. I promise you won’t be disappointed.