Dropshipping and Amazon FBA are two formidable eCommerce business models in online selling. Both offer paths to eCommerce success, but which one is best for you depends on your specific goals and resources. While both methods appear similar, they vary when it comes to inventory management.
Let’s break down Dropshipping vs Amazon FBA to find out their strengths, weaknesses, and ideal scenarios to help you choose a suitable business model to start selling online.
What is Dropshipping and how does it work with Amazon?
Consider a business where you sell products without possessing them. That’s dropshipping! You work with a supplier who stores and ships items directly to your customers under your business’s name. It’s like having a remote warehouse you never have to visit.
Droshipping falls under the category of FBM (Fulfilled by Merchant) where you yourself handle your storage and inventory.
Dropshipping is a popular way of doing business among Amazon, eBay, Walmart and, Shopify sellers because it is simple to get started and does not require a significant initial investment.
Now that we have discussed what dropshipping is let’s focus on how sellers can do Dropshipping on Amazon. Do keep in mind that where Amazon Allows to do dropshipping there are strict policies in place. A seller must adhere to the policies only then you can survive by doing Dropshipping on Amazon.
I will be guiding you with the following example assuming you are ready to start your dropshipping journey on Amazon.
Suppose you have listed a product on Amazon through Amazon’s add a product tool but you do not have the product in hand but found that the product is available at a certain supplier. When a customer on Amazon places an order with you on Amazon you will put those customer details and place an order for that item on that supplier’s site and then that supplier will be liable to get that product shipped and delivered to that customer. The customer gets their product and you keep the margin as a Profit. Easy right? So, this is how dropshipping with Amazon.
What is Amazon FBA?
Fulfillment by Amazon (FBA) is a service offered by Amazon in which you send your products to Amazon’s massive fulfillment centers, and they handle everything from storage and picking to packing and shipping. Prime shipping? Amazon takes care of that too, boosting your sales potential.
According to a report issued by Statista in 2022, 64% of the sellers relied on Amazon as their partnered fulfillment method. The sellers using the FBA have seen significant growth in their business touching customers locally and globally.
Due to Amazon’s enormous market for well-liked goods, the FBA program takes a different approach. Offering various shipping items and shipping discounts, super savings, and last but not the least Amazon Prime, maximizing the benefits of FBA.
Let’s dissect further Dropshipping vs Amazon FBA, finding out their pros and cons. Before that let’s see a list of factors involved in these models.
Factors Involved in Dropshipping vs Amazon FBA
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Now let’s discuss the Pros and Con’s for Dropshipping and Amazon FBA.
Dropshipping: Pros and Cons
- Low startup costs: No need for inventory or warehouse space.
- Scalability: Easily add new products without upfront investment.
- Flexibility: Control your brand and product offerings.
- Lower profit margins: Suppliers take a cut, and shipping costs can eat into your profits.
- Less control over fulfillment: Rely on suppliers for quality and timely shipping.
- Branding challenges: Difficult to build a strong brand without direct control over packaging and customer experience.
Amazon FBA: Pros and Cons
- Fast and reliable fulfillment: Prime shipping boosts sales and customer satisfaction.
- Professional customer service: Amazon handles returns and inquiries, freeing you up.
- Increased visibility: Access to millions of Amazon shoppers.
- Higher fees: FBA storage, fulfillment, and selling fees can add up.
- Less control over branding: Limited customization options for packaging and product pages.
- Competition: Highly competitive marketplace with saturated product categories.
These are a few pros and cons for Dropshipping and Amazon FBA. Moving forward we will be doing a round-by-round analysis.
Dropshipping vs Amazon FBA: Round-by-round Analysis
Inventory and Fulfillment:
Dropshipping: You’re basically a middleman, relying on suppliers to store and ship products. This means less control over quality and delivery times.
Amazon FBA: You ship your stock to Amazon, and they handle the rest. This leads to faster shipment, Prime qualification, and a more professional experience. Nevertheless, there are upfront expenses and recurring storage charges.
Scalability and Flexibility:
Dropshipping: Finding new suppliers can make adding additional products easy! Because of this, dropshipping is suitable to test new product ideas and staying agile.
Amazon FBA: Using FBA to scale can be challenging. To prevent unnecessary storage costs or stockouts, you must precisely predict demand. Furthermore, introducing new products requires shipping inventory to Amazon, which may be costly and time-consuming.
Profitability and Margins:
Dropshipping: With lower overhead costs, dropshipping can offer higher potential profit margins on individual products. However, shipping costs and supplier fees can eat into your profits.
Amazon FBA: While FBA fees can be significant, they come with the benefits of Prime shipping and increased sales potential. Ultimately, your profitability depends on your product choice, pricing strategy, and ability to manage FBA fees effectively.
Choosing the right fit: Dropshipping or Amazon FBA
Think over the following facts before choosing the winner:
Budget and Resources: Dropshipping is more budget-friendly, while FBA requires upfront investment and ongoing fees. Consider your financial resources and risk tolerance.
Your Experience: If you’re new to eCommerce, dropshipping’s lower barrier to entry might be ideal. FBA requires familiarity with Amazon’s platform and fulfillment processes.
Your Business Goals: If you are looking for quick profits and product testing then dropshipping might be the right fit for you but if you prioritize high sales volume and brand building FBA could be the better answer for that.
Product Considerations: While doing dropshipping it is recommended to work on the items which are not fragile or bulky as these items have high shipping costs. On the other hand slow moving and low value products might not be suitable for Amazon FBA due to FBA fees.
Long-Term Vision: If you envision steady growth without involving any risks, FBA is the way to go. But, if you prefer rapid growth, and flexible product testing then dropshipping is the right fit.
Dropshipping and Amazon Hybrid Strategy
Remember, dropshipping and FBA aren’t locked in mortal combat. Consider these hybrid strategies for double the impact:
Inventory Arbitrage: Use dropshipping for low-demand items and FBA for high-demand or high-profit items to diversify your product line.
Seasonal Surge Support: Increase existing FBA inventory with dropshipping during high seasons to minimize overstocking and missed chances.
Private Label Powerhouse: Use FBA for your main private label products and dropship additional products or variations to offer a wide range of products and catering various needs.
Final Verdict from Buzz Byte
Remember, the real champion is the model that aligns with your unique business strengths and aspirations. Analyze your budget, goals, resources, and product strategy. Experiment if needed, and don’t hesitate to switch models as your business evolves.
What do you prefer for your business? Let us know in the comments!
Additional tips for your eCommerce success
Research: Dig deep into Amazon’s FBA fees, supplier directories for dropshipping, and product profitability calculators. Knowledge is your ultimate weapon.
Optimize: Use keyword research tools to optimize your product listings for both dropshipping and FBA, maximizing your online visibility.
Brand it Up: Even with dropshipping, invest in building a strong brand identity through compelling product descriptions, consistent messaging, and high-quality visuals.
Customer is King: Regardless of your model, prioritize excellent customer service. Respond promptly to inquiries, handle returns efficiently, and go the extra mile to build customer loyalty.