In today’s article, we’re going to look at the pros and cons of Amazon FBA versus dropshipping.
The e-commerce model has been around for a long time and has more than proven to be an extremely profitable strategy for many entrepreneurs sitting at the kitchen table.
Gone are the days when any successful ecommerce entrepreneur would sometimes awkwardly stand in line at the post office for hours on end, enduring the hooting and hooting from the queue that lined up behind them! A queue that eventually went straight out the door onto the street, full of huffing and puffing customers who were getting more annoyed by the minute due to delays, with one customer taking 20 minutes to stamp all their parcels!
For the original e-commerce brigade, this was the norm. Then came the concept of dropshipping, which was seen as the answer to the prayers of all ecommerce sellers, followed by the launch of Amazon FBA.
Both Amazon FBA and dropshipping have become gamechangers of business models, and both strategies have become the most popular and considered options for new startups today. But how do you figure out which approach is right for you and your ecommerce business? You need to get answers to a few important questions to make an informed decision and ensure your business is successful and profitable.
If you’re thinking about starting an eCommerce business but don’t know which path to take. If you want to expand your current venture when it comes to Amazon FBA and dropshipping, you’ll find all the answers here to make an informed decision and take the next step.
What is dropshipping?
First, let’s talk about the concept of dropshipping. Essentially, it’s a warehousing and delivery service that allows small businesses to get started quickly and easily. It is important to note that the dropshipping model does not require you to invest huge amounts of money upfront.
You simply advertise items through your Shopify store, Amazon Marketplace, eBay, or other suitable sales platform and sell specific items that are stored with individual suppliers elsewhere. When you sell an item and take an order from a customer, you contact your dropshipping supplier and they will ship the order to the customer for you. The customer will think the order was shipped directly from you and will not know anything. You will only place orders with your dropshipper to fulfill your customer’s needs, so you only pay for the product once you receive payment. It really is that simple.
Unfortunately, dropshipping has been notorious in the past, but that’s because some people called it a “quick way to make easy money” and you can see why when you consider how it works. As with any other business model, there is work involved, of course. However, with the right approach and the right suppliers, dropshipping is a viable option.
Related articles: Dropshipping on Amazon
What is Amazon FBA?
Amazon is an e-commerce platform where you can list and sell your products by shipping them yourself or using the popular FBA service. FBA stands for Fulfilment By Amazon, and it’s a very simple process.
As a seller, you ship your items to one of Amazon’s warehouses, list them on Amazon’s main website, and then each time you sell, the order is picked, packed, and shipped by Amazon directly from the warehouse. They also handle customer service and returns, so just like dropshipping, this involves storing and shipping your orders.
Related articles: How FBA works
Amazon FBA vs dropshipping: What’s the difference?
Judging by these descriptions, the two concepts – Amazon FBA and dropshipping – sound very similar, don’t they? And to some extent, they do, as they are both remote ways of providing efficient and reliable service to your customers.
When you use the services of a dropshipper, they are essentially an intermediary between you (the retailer) and your customers. You are responsible for processing orders, making payments, answering customer questions, and dealing with returns and refunds.
You will have nothing to do with storing merchandise, nor will you be involved with packing and shipping orders. This means that you will never own your products as such, because they belong to your dropshipper until the order is placed, and once shipped, they belong to your customer! You will never handle the merchandise yourself – unless, of course, you need a return.
You’ll get all of these benefits with Amazon FBA as well, but in addition, they’ll handle returns, refunds, and customer service for your customers. While you won’t handle the merchandise when it comes to ordering and shipping, you will be responsible for sourcing and initially shipping the item to one of Amazon’s warehouses.
So far, there seems to be very little difference between dropshipping and Amazon FBA, so let’s take a look at the pros and cons of Amazon FBA versus dropshipping, as this is where some significant differences come into play.
Pros and cons of Amazon FBA vs. dropshipping
Pros of Amazon FBA
- It is a time saver, allowing you to focus on growing your business
- You don’t have to deal with administration
- It’s easy to build a brand
- You get instant access to Amazon’s global audience
- Built-in customer support
- You’ll have access to a convenient returns and refunds service
- Much higher profit margins possible
- No need for customer contact
- No need to build a website
In a nutshell, Amazon FBA will allow you to focus on growing your business and brand by targeting a global audience that is right at your fingertips. You won’t need to build a website, as you’ll be able to leverage Amazon’s platform and positive reputation.
Using FBA allows you to completely eliminate not only the storage and delivery of goods, but also customer service, freeing you up to focus on making money. Even with FBA fees, you can make a decent profit.
Cons of Amazon FBA
- You will have to factor in FBA storage and shipping fees that are charged on every sale
- You have to adhere to Amazon FBA’s strict rules and regulations
- Amazon is a very saturated platform and competition for FBA items is very high
- It requires a lot of capital for the initial launch
- You rely on only one platform for your sales
- All customers ultimately belong to Amazon
In a nutshell: Amazon’s FBA fees, while pretty reasonable considering you get a ready-made audience and can automate the entire process of storing, picking, packing and shipping, and customer service, can cut into your profits significantly. You’ll also need a decent amount of capital to pre-purchase goods to ship on Amazon FBA. Amazon is a very saturated platform and the demand for FBA is high, so if you purchase the wrong item, you may not be able to sell it or change products easily. You’ll also have a harder time building your email list because the customers belong to Amazon, not you.
Pros of dropshipping
- No upfront investment in products is required
- Risk is lower as no capital needs to be invested
- A variety of product options are available
- It is a time saver as the storage and delivery of the product is done by yourself
- You can manage your e-commerce business from anywhere
- You will have the ability to build a list of customers and build relationships with them over time
In a nutshell, Dropshipping allows you to sell products without risking capital at the start, which is why this strategy is popular. If you choose the wrong product to sell, you can quickly stop your listing and switch to another product without worrying about having unsold inventory.
This is a business that can be managed from anywhere, as your only job is to keep an eye on inventory and ensure that orders are fulfilled for the dropshipper. Moreover, you will be able to start building a list of customers that you can make additional sales to in the future. Using a dropshipper gives you the opportunity to capitalize on every opportunity with minimal risk.
Cons of dropshipping
- Profits will be small
- You may receive inadequate product information from suppliers
- You will not be able to offer deals or discounts
- You will not be able to negotiate prices for the supplier’s products
- There is no opportunity to build a brand
- You will face huge competition in the market for goods
- Direct contact with customers is necessary
- You may face potential restrictions on where your products can be sold
- You need to create a website
In a nutshell, dropshipping is a risk-free alternative to Amazon FBA if you don’t have the capital. However, you’ll be relying on product information from your supplier, which may not be adequate, which means you’ll have to do more research to make sure you have the right data and can properly market the product.
Since your product prices are set by your dropshipper and you won’t be buying the product in bulk, you won’t have the ability to negotiate for supplies. Your profit margin will likely be small, preventing you from offering exclusive deals or discounts to your customers. Competition can be high and you’ll have to contact customers when it comes to returns, refunds and inquiries, so it’s not exactly a ‘hands-off’ approach.
What works for my business: Amazon FBA vs. dropshipping
As you’ve already realized, both options have their advantages and disadvantages, pros and cons. Dropshipping and Amazon FBA are very similar, but choosing one doesn’t mean that the path will be easy, as either option will always require effort and attention from you.
You have to consider the specifics of your business and your individual situation. If you are just starting your e-commerce business, dropshipping offers a very low-risk model that requires no initial investment. This is certainly very attractive if you don’t have a lot of spare cash to spare, and you’ll find plenty of platforms where you can promote your chosen products, including Shopify for a low-risk, low-investment start. Creating a dropshipping account and running a business this way is quite easy.
So if you’re risk averse and want to try out the possibilities of e-commerce, dropshipping might be the right choice for you.
But if you have the capital to invest and are willing to take a risk, Amazon FBA and the significant leverage you’ll gain through Amazon’s existing audience is a huge plus. Amazon FBA requires a decent investment, which of course doesn’t guarantee success, but is a suitable option if you’re already running an ecommerce business and want to scale up. The nature of Amazon FBA will allow you to focus on marketing your business and products.
That said, neither option will give you complete control over all aspects of your business. You will be at the mercy of Amazon FBA rules and regulations, and with dropshipping, a tiny profit margin.
Final thoughts
It’s not an easy decision to make. But choosing between Amazon FBA and dropshipping ultimately comes down to how much investment you can make and how much risk you’re willing to take. So, ask yourself:
Do you want to invest your money in stock that may or may not sell – but still control brand building with the possibility of making a decent profit with the right product selection?
Do you want to sell other people’s stocks with little or no risk but potentially lower returns with these highly competitive products?
Your answer to these questions will determine which path you should take when choosing between Amazon FBA and dropshipping. Whatever you choose, you should treat it as a serious business because both Amazon FBA and the dropshipping model require work not only to get started, but also to succeed.
