How to start an online business without inventory

If you can start an online store and sell products, you don’t necessarily need to be the one who stores and ships them. There’s no warehouse, no logistics and no boxes to move. And this has major advantages, including eliminating many of the financial risks and logistical challenges associated with managing stock while still allowing you to sell a wide range of products. 

In this article, we discuss how to start an online store without inventory, so you can decide if it's right for you and how to fund your venture.

The growth of online businesses without inventory 

Starting a retail business used to mean selling products out of a physical location. But today, due to the ecommerce boom, not only do retailers not need a store, they don’t even need to hold inventory. 

There are several ways to start an online business without inventory, with various platforms and marketplaces facilitating the growing trend, meaning entrepreneurs can get moving faster, with less risk involved.

Can I sell on Amazon without holding inventory?

You can sell on Amazon without holding inventory by using the Fulfillment by Amazon (FBA) service. With FBA, you send your products to Amazon’s fulfilment centres, where they handle storage, packing, shipping and customer service. Learn more about selling on Amazon below. 

Can I sell products on eBay without inventory?

Yes, through dropshipping, you can list products on eBay without holding inventory. When a sale is made, the supplier ships the product directly to the customer, meaning minimal administration and logistical headaches on your side. Also, you can use eBay loans to help grow your online business performance. Learn more about the dropshipping model.  

What about selling on Etsy without having inventory?

On Etsy, you can use dropshipping or print-on-demand (POD) business models to sell products on the platform without holding inventory. This allows you to focus on design and marketing rather than storage and fulfilment.

Is it possible to run a clothing brand without inventory?

Yes, you can run a clothing brand without inventory. Using POD services is a popular way to do this, as it allows you to create custom designs that are printed on apparel and shipped only when an order is placed. We explore the POD model in more detail below. 

Pros and cons of selling online without inventory

The concept of running an online store without holding inventory has gained significant traction, particularly as more entrepreneurs seek flexible, low-risk business models. But what exactly makes this approach so appealing?

Benefits of starting an online business without inventory 

As a less labour-intensive business model, starting an online business without holding inventory is appealing to many entrepreneurs. Here are the key benefits:

1. Lower initial costs: One of the most significant barriers to starting a traditional ecommerce business is the need for substantial upfront capital to purchase and store inventory. Without inventory, these costs are drastically reduced. This model allows you to enter the market with minimal financial investment, making starting an online business more accessible to a broader audience.
2. Reduced risk: Not holding inventory means you’re not exposed to the risk of unsold stock and the challenges of inventory management. Traditional retail businesses face the challenge of forecasting demand accurately. If they overestimate, they end up with excess inventory that ties up working capital and may need to be sold at a loss. Inventory-free models eliminate this risk, as products are only ordered or created once sales are made.
3. Sell from anywhere: Running an inventory-free online store allows you to operate from virtually anywhere. Without the need to manage physical stock, you’re not tied to a warehouse or storage facility. This flexibility is ideal for digital nomads or those seeking a location-independent lifestyle.
4. Focus on growth: Without the logistical challenges of managing inventory, you can dedicate more time and resources to marketing, customer service and growing your online business. Your energy can be focused on activities that directly contribute to revenue and business development.

Potential drawbacks to consider

The no-inventory online business model does have its drawbacks, particularly when it comes to the degree of control and profit you can make. Here are the main drawbacks to consider:

• Lower profit margins: While you save on inventory costs, many inventory-free models, like dropshipping, often come with lower profit margins. You pay suppliers or third-party service providers for their role in the process, which can eat into your revenue. This trade-off is something to consider carefully, especially if your goal is to maximise earnings.
• Limited control: When you don’t manage your inventory, you often have less control over the quality of the products and how they’re presented to the customer. For example, with dropshipping, the supplier handles packaging and shipping, which means you might not have the opportunity to include your branding or ensure that products meet your quality standards.
• Dependence on third parties: Relying on suppliers or fulfilment services can be a double-edged sword. While it reduces your workload, it also means that your business is at the mercy of these third parties. If a supplier fails to deliver on time or provides subpar products, your business takes the hit.
• Potential for higher long-term costs: Over time, the fees associated with third-party services like Fulfilment by Amazon (FBA) or dropshipping providers can add up. While these costs are manageable initially, they can become significant as your business scales, potentially reducing the financial advantages of an inventory-free model.

What are the main ways to sell online without inventory?

There are a number of different business models you can use to sell online without inventory, depending on your goals and available time. All of these models avoid holding inventory directly, helping you focus on the user experience and the selling aspect of your online business.

Here are 5 popular ways to sell online without inventory in the UK:

1. Dropshipping 

Starting a dropshipping business is one of the most popular methods for running an online store without inventory. In this model, you list products for sale on your website, but instead of holding stock, you rely on a third-party supplier to ship the product directly to the customer once an order is placed.

What are the main benefits?

• Dropshipping is a popular option due to its low startup costs – since you don’t need to purchase inventory upfront, your initial investment is minimal.
• It’s easier for entrepreneurs to test different products and niches without the financial risk.
• The model offers a wide range of products that you can sell without worrying about storage, handling or shipping logistics.

Downsides to consider

• Margins can be thin, particularly when you factor in the cost of goods, shipping and transaction fees. 
• Because you’re not handling the products yourself, you have less control over the customer experience. 
• If a supplier fails to deliver a quality product on time, it’s your brand that suffers, not theirs. Managing customer expectations and dealing with supplier issues can end up taking a lot of your time.

2. Print-on-demand

POD is another popular model that eliminates the need for inventory. This model allows you to create custom designs that are printed on products like t-shirts, mugs or phone cases, only after a customer places an order.

What are the main benefits?

• POD is perfect for entrepreneurs who want to focus on the creative side of the business, as it allows you to sell unique, branded products without the risk of unsold inventory. 
• Since the products are printed on demand, there’s no need for storage or upfront stock purchases.
• You get greater creative freedom, as you can continuously update your product line with new designs based on trends or customer feedback.

Downsides to consider

• Profit margins can be lower than if you were managing production yourself, especially when you factor in the cost of printing and shipping.
• The quality of the products and the accuracy of the print can vary depending on the service provider you choose.
• Like dropshipping, POD also means you’re reliant on a third-party supplier to deliver a satisfactory product to your customers.

3. Affiliate marketing

If you’re focused on other forms of online business, say, publishing or content, you can still benefit from retail business models. Affiliate marketing allows you to earn money by promoting other companies’ products on your website. When someone makes a purchase through your affiliate link, you earn a commission on the sale.

What are the main benefits?

• Unlike the other models above, affiliate marketing requires no inventory or product management at all. 
• You simply need to focus on driving traffic to your site and encouraging visitors to click through your affiliate links. 
• It’s a low-risk model with the potential for passive income, especially if you can attract a large audience through content marketing or social media.

Downsides to consider

• If you’re looking to make affiliate marketing your main source of income, commissions can be quite low.
• You’ll need a high volume of sales to generate significant income. 

4. Digital products

Selling digital products, such as ebooks, online courses or software, is a model that completely sidesteps the need for physical inventory. Once a digital product is created, it can be sold an infinite number of times without any additional production costs.

What are the main benefits?

• This model offers incredibly high profit margins since there are no costs associated with manufacturing or shipping. 
• Digital products are also highly scalable, so you can reach a global audience with no incremental cost per unit sold. 
• These products can be delivered instantly, which enhances customer satisfaction.

Downsides to consider

• Competition in this space can be fierce, and creating high-quality digital products often requires a significant upfront time investment
• Issues like digital piracy and the need for ongoing content updates to remain relevant can pose challenges.

5. Fulfilment by Amazon (FBA)

Fulfilment by Amazon allows you to store your products in Amazon’s warehouses, where they handle the storage, packing, and shipping. This model offers access to Amazon’s vast customer base, but it does require you to invest in inventory upfront, even if you’re not the one holding it.

What are the main benefits?

• The most significant advantage of FBA is the access it provides to Amazon’s enormous customer base and logistics network. 
• Products sold through FBA are also eligible for Amazon Prime, which can significantly increase your sales. Furthermore, Amazon handles customer service and returns, which can save you a lot of time and effort.
• Amazon offers finance to its sellers to help them grow their business through an invite-only Amazon Lending facility. 

Downsides to consider

• FBA comes with its own set of costs, including storage fees, fulfilment fees and Amazon’s commission on each sale, which can add up, especially if your products don’t sell as quickly as anticipated. 
• You must comply with Amazon’s strict guidelines, which can be challenging for some sellers.

How to choose the right no-inventory online business model

Selecting the right inventory-free model depends on your business goals, budget, and personal preferences. Here are some key factors to consider:

1. Initial investment: If you’re starting with limited capital, dropshipping or affiliate marketing might be the best options, as they require minimal upfront investment. On the other hand, if you’re willing to invest more for potentially higher returns, FBA or creating digital products could be more suitable.
2. Creative control: If maintaining creative control and brand identity is important to you, print-on-demand or creating your own digital products might be the best fit. These models allow you to dictate the look and feel of your products and let your talents shine.
3. Scalability: Consider how quickly and easily you want to scale your business. Dropshipping and FBA offer excellent scalability due to their reliance on third-party logistics. In contrast, digital products offer unlimited scalability with minimal additional costs.
4. Long-term goals: Think about where you want your business to be in the long term. If your goal is to build a brand, print-on-demand or creating your own products might be the best path. If you’re looking for passive income with minimal ongoing effort, affiliate marketing could be ideal.

How do I calculate the cost of goods sold without inventory?

The cost of goods sold (COGS) in a business without inventory is calculated based on the direct costs required to produce or deliver the product or service. Instead of tracking physical stock, you focus on the expenses directly tied to creating and providing the offering. For digital products, COGS can include costs like product development, licensing fees and hosting charges, plus certain marketing expenses. 

It’s also worth considering overhead and general operating expenses, although they’re not typically counted as COGS.

How to start an ecommerce store with no inventory

Once you’ve chosen the right business model, it’s time to get your things up and running. Here’s how to start an online business without inventory and run a successful ecommerce store:

1. Research your market: Understanding your target market is crucial. Use tools like Google Trends, keyword planners and other SEO solutions to identify profitable niches and validate your product ideas.
2. Choose an ecommerce platform: Select a platform that suits your business model. Shopify, WooCommerce and Etsy are popular choices, depending on whether you’re dropshipping, using POD or selling digital products.
3. Set up your ecommerce store: Customise your online store with a user-friendly design, clear product descriptions and high-quality images. Make sure your site is optimised for SEO to attract organic traffic.
4. Source your products: If you’re dropshipping or using FBA, establish relationships with reliable suppliers. For POD, focus on creating unique, appealing designs that resonate with your target audience.
5. Develop a marketing strategy: Create a comprehensive marketing plan that includes SEO, social media marketing and email campaigns. The goal is to drive traffic to your site and convert visitors into customers.
6. Launch and optimise: After launching your store, monitor its performance using analytics tools. Continuously monitor your product offerings, marketing campaigns and customer service to improve sales and customer satisfaction.

Can I get business finance without inventory?

Yes, like any other online business, you can get loans and other business finance solutions to help you grow operations and manage cash flow. While secured loans require assets like equipment, premises or inventory as collateral, unsecured loans and certain other funding facilities don’t require you to use inventory or other assets as collateral as part of their approval criteria. 

How business finance can help you grow your ecommerce store

While setting up an online business without inventory may not require the expenses of other business models, growing your venture will inevitably need investment. Whether you need an injection of cash to improve and promote your online store or an ongoing finance facility to keep cash flow steady, there are various options to consider.

You could get a short-term loan to invest in marketing and advertising, a merchant cash advance to provide crucial working capital (with repayments that scale with your revenue) or a revolving credit facility to draw from, as and when you need a cash boost.

At iwoca, we provide flexible business loans for SMEs to support growth and help businesses deal with fluctuating cash flow. You can borrow between £1,000 and £1 million for a few days, weeks or as long as 60 months, using the loan like a line of credit, where you only pay interest on the funds you use.

Learn more about the benefits of our Flexi-Loans, including getting a funding decision within 24 hours, and try out our handy business loan calculator.