You’ve probably heard the rave about how dropshipping is the best online business to start this year, and no lies were told. The e-commerce market including dropshipping has seen a massive revenue growth of over $3 billion in 2024 alone and is projected to hit over $5 billion by 2028.
So, how do enter this goldmine? Well, there are two ways -physical and digital dropshipping. Physical or traditional dropshipping involves selling physical products like fashion accessories, electronics, beauty products, etc. Digital dropshipping, on the other hand, is selling digital products like ebooks, courses, music, etc.
Both physical and digital dropshipping can be money-makers, but they work in different ways. These differences matter, and understanding them will help you pick the perfect dropshipping path.
Let’s get into their differences⏬
What Is the Difference Between Physical and Digital Dropshipping?
While both physical and digital dropshipping share the core principle of selling products without holding inventory, that’s where their similarities end. Here is a breakdown of their differences⏬
Product Type
The physical dropshipping model sells tangible products such as clothing, fashion accessories, gadgets, home decor, and more. So, while you don’t physically keep products, there has to be a middleman who will get the products your customers ordered to them.
Digital dropshipping focuses on intangible products like ebooks, online courses, or software. So, there’s no need for a middleman to handle inventory; customers gain access to products via download or license keys from your online store.
Inventory and Storage
You won’t have to physically handle products in either physical or digital dropshipping. However, in physical dropshipping, you still need to rely on suppliers for stocking and restocking your dropshipping store.
With digital dropshipping, there's no inventory management, your customers immediately get your products once they buy them on your website. This means you will never have to worry about receiving too many orders, or shipping delays, just focus on building an optimized digital dropshipping store, and you won’t have to break a sweat over inventory management.
Shipping and Fulfillment
With physical dropshipping, your supplier handles shipping and fulfillment, but you have limited control over the process and delivery times. You’ll also have to factor shipping costs into your pricing.
However with digital dropshipping, there’s no waiting period, customers immediately get access to products as they pay. The only factor you need to worry about is your store’s optimization. If your store is well-optimized, customers won’t deal with error messages while trying to purchase your products or have issues accessing their products.
Profit Margins
Sure, your dropshipping business profitability varies depending on how well you meet your target market expectations and outperform your competition. But with physical dropshipping, you’ll need to factor in supplier costs, shipping, and marketing expenses.
You are not spending on physical inventory or shipping costs with digital dropshipping. However, you have to deal with high competition, branding, and high marketing costs. So, what you are not spending on shipping costs, you will most likely spend on marketing and branding.
Startup Costs
Setting up a physical dropshipping business requires minimal upfront investment. You mainly need an online store platform and ad revenue.
Setting up digital dropshipping is also almost effortless. You don’t even need to create the digital products yourself, you can simply buy the rights to already digital products and rebrand them as yours.
Scalability
Digital dropshipping is way more scalable than physical dropshipping- no extra physical inventory or fulfillment complexities. All you need to do is optimize your store for high website traffic, and that’s all.
With physical dropshipping, it’s a little more complex, you might have to change suppliers or get more suppliers to ensure customer fulfillment. You may also need to build an automated system of collecting and fulfilling customer orders, which is not cheap.
Is It Better to Sell Digital or Physical Products?
Deciding between digital and physical dropshipping boils down to understanding the pros and cons of each model, and then aligning them with your goals and resources. Here’s a breakdown to help you choose:
Digital Dropshipping
Let’s look at what makes digital dropshipping great as well as its downsides:
Pros
Low startup costs: You are dealing with zero inventory management. You can start your digital dropshipping business with just your computer and an internet connection.
High-profit margins: You are also not handling storage, shipping, and physical product costs. This leaves you with a lot of your generated revenue, allowing you to gain higher profits per sale.
Scalability: Once you create or buy the rights to your digital products, that’s all. Regardless of how many copies of the digital products you sell, you are not paying extra fees for shipment or creation- you don’t have to contact suppliers for a new batch of products or look for a bigger supplier.
Passive income potential: You don’t have to process customer orders yourself, everything is automated from start to finish, and you get your money once they pay.
Global reach: Unlike physical dropshipping where you are limited to the locations your supplier ships to, you can sell to anyone in the world with digital dropshipping. As long as they have an internet connection, they can buy your products.
Cons
Competition: The digital dropshipping space is heavily saturated. You would need a highly effective market strategy to stand out, which could significantly eat into your profits.
Intangible products: Unlike physical products, where people can share photos and videos of what was shipped, you’re dealing with digital products that people can’t review with photos or videos. Your credibility is heavily reliant on store ratings, and one bad review can turn away 1000 customers or even more.
Piracy risks: Most digital products can be easily copied and reproduced, allowing so many people to access them without paying for them. This could significantly lower the demand for your products and reduce your sales because why would people pay for products they can get for free?
Highly technical: While digital products are light on inventory management and storage, maintaining and optimizing your store can be very technical. If you don’t have the right technical skills, customers may experience slow website loading, download errors, and so many other problems that can make you lose them.
Limited product variety: Unlike physical dropshipping where there’s a very wide product variety, digital products have limited product formats. So, if you are not very innovative with your product generation, you will run out of ideas and close shop.
Physical Dropshipping
If you are thinking of going with physical dropshipping are some factors to consider:
Pros:
Wider product variety: There is almost no limit to what you can sell with physical dropshipping. This allows you to curate different products for different target markets, allowing you to gain more store traffic and sales.
Tangible products: With physical dropshipping, people can upload pictures of how good your products are. So even if there’s a negative review, it’s easier for a first-time buyer to ignore it after seeing multiple photos demonstrating your product quality.
Lower competition: If you carefully select your niche and products, physical dropshipping is typically less competitive than digital dropshipping. This way you don’t have to spend so much of your revenue on ads.
Low technical difficulty: While you need to have an optimized online store for both physical and digital dropshipping, physical dropshipping is not so complex. You’re focused on creating a platform that doesn’t lag and provides customers with a seamless shopping experience. You don’t have to worry about the products themselves like you do with digital dropshipping where you’re constantly monitoring display errors, downloads, and other product issues.
Potential for recurring customers: Also with physical products, customers tend to repeat purchases because so many dropshipping stores don’t satisfy their customer expectations. So, once you’re able to deliver products that meet or exceed their expectations, they will be loyal to you and recommend you to their friends and family.
Cons:
Inventory management: Your dropshipping business effectiveness is as good as your supplier’s inventory and shipping management. If your supplier mixes up or delays customer orders, they get frustrated and that’s a negative experience that could drive them away.
Shipping costs: Unlike digital products, customers also have to pay shipping costs, which increases your product prices without adding to your profit. if there’s a home-based store that sells the same products without shipping, you would struggle to pull customers unless you drop your prices. Reducing your price means lower profits or even loss because you were never getting profits from shipping in the first place.
Geographical limitations: You can only ship to locations your suppliers and their shipping companies ship to. Even if you have a high-potential customer base in another country, you can’t dropship there if your supplier doesn’t ship there.
There’s no “better dropshipping model”, it all depends on how well the model aligns with your strength, vision, and resources. Both physical and digital dropshipping can be successful paths: the key is to find the one that lets you leverage your skills and build a thriving business you’re passionate about.
Talking about thriving dropshipping business, let me introduce you to the hack I use to build and scale mine⏬
Trend Hijacking- The Secret Strategy to Help You Build A Successful Dropshipping Business (Physical or Digital)
The trend hijacking strategy is a highly effective dropshipping strategy I have used personally to grow my and other dropshipping businesses (both digital and physical) to over $11k in sales per day.
Here’s how it works⏬
The Trend hijacking strategy monitors popular product trends and spies on competitors’ marketing strategies to drive traffic and sales to your e-commerce store. So, instead of looking for how to generate demand for your products, the trend hijacking strategy helps you to identify the winning products in your niche and makes you the first option your target market would see when they search for it.
Another advantage to using the trend hijacking strategy is that it helps you significantly cut down on marketing costs. Instead of going in blind and spending your money running ads to a cold audience, you advertise to an already interested audience, lowering your ad spend.
Scaling and Automation with Trend Hijacking
Aside from helping you select winning products and making your marketing efforts way more effective, you can also automate your dropshipping business with Trend hijacking.
After the initial startup stage of your business and growing to become profitable, scaling is the next step. There’s no scaling without automation because you can’t do everything.
Dropshipping on a large scale is time-consuming, from customer service, product research, website design, and even supplier relationship management, how would have the time to do it all without losing track or getting burnt out?
The trendhijacking team has various automation programs to help you take out the grunt work from your dropshipping business and focus on big decisions that help grow your business and revenue.
Conclusion
Both physical and digital dropshipping have their strengths and drawbacks, what matters is choosing a path that aligns with your strengths, and interests. So, weigh the pros and cons, and decide on the specific dropshipping model you would run.
Also, as long as you implement effective marketing, customer experience, and automation strategies for your dropshipping business, you are on the path to building a dropshipping business that thrives!
The trend hijacking strategy is a proven method that has helped many physical and digital drop shippers like myself select the right products for your target audience, minimize marketing costs, and run a profitable and rapidly growing dropshipping business. If you want to learn more about how to use this strategy for your digital dropshipping business, book a free call.
Before You Go, Let’s Keep in Touch⏬
Have more questions about physical vs. digital dropshipping ? Drop a comment below, I’ll be happy to answer them. Also, if you found this post helpful and would love to see more content like this- follow me.
