Dropshipping Vs. Amazon FBA

The online business idea has been around for a while and has shown to be quite successful for many people working out of their homes.

However, the days of the unpleasant wait in line at the post office for hours on end while the people behind you frown and roll their eyes at your success as an e-commerce business are long gone. The same line wrapped around the building and out onto the street, with customers becoming more and more impatient as one man took 20 minutes to get his packages stamped.

This was expected behavior for the pioneers of online shopping. Then, shortly after the introduction of Amazon FBA, dropshipping emerged as a viable option for online sellers.

Amazon Fulfillment by Amazon (FBA) and dropshipping are two business model disruptors that have become standard, mainstream choices for new ventures. However, it may be difficult to determine which strategy is best for your particular e-commerce business. The success and profitability of your business depend on your ability to answer many crucial questions.

If you want to launch an online store but don’t know where to begin, this is the article for you. If you’re trying to decide between Amazon FBA and dropshipping for your growing business, you’ll discover all you need to know right here.

What Is Dropshipping?

Dropshipping is a method of order fulfillment that enables online retailers to have a third party (usually a supplier) handle product acquisition, inventory management, and distribution on their behalf.

Although the dropshipping business model seems ideal for startups looking to save costs, there are certain disadvantages to consider.

What is Amazon Dropshipping?

As a business concept, “dropshipping” on Amazon entails listing things for sale on the site without keeping any stock on hand or handling any customer deliveries directly. The concept is identical to the traditional dropshipping method.

First, you need to settle on a marketable product; second, you must track down reliable dropshipping vendors from whom to get those goods. Having settled on a provider, you can next post your items on Amazon and begin advertising them.

Order details and payment for the goods and delivery must be sent to the provider after a consumer puts an order with you via Amazon. The supplier then dispatches the goods and makes the delivery to the client.

The Amazon Drop Shipping Policy states that you must always:

• Have a written agreement with your supplier stating that they will list you as the seller of record on all packing slips, invoices, exterior packaging, and other paperwork pertaining to your items.
• Before sending an order to a customer, you should obscure any references to a dropshipper on the packing slip, invoice, or outside packaging.
• It is your responsibility to handle product returns from satisfied customers.
• Abide by all other provisions of your Seller Agreement and relevant Amazon rules.

What Is Amazon FBA?

As in “Fulfilled By Amazon” on Amazon.com. Getting your goods to the Amazon fulfillment center in one piece is a prerequisite to making a sale. You may have your items stored in an Amazon warehouse until you get store orders by sending them there along with Amazon shipping ID labels.

When a consumer places an order for your goods on Amazon, the Amazon FBA team will take care of the packaging, shipping, and delivery. Since you must pay the inventory fees and delivery costs before you turn a profit, you will need an initial commitment to getting started with Amazon FBA.

Which Is Better: Dropshipping or Amazon FBA?

Dropshipping and Fulfillment by Amazon (FBA) seem fairly comparable from these descriptions. They are similar in that both are done remotely to guarantee quality service for clients.

In the case of dropshipping, the supplier acts as an intermediary between the retailer and the end consumer. You’ll need to process orders, take care of payments, respond to questions from clients, and deal with returns and exchanges on your own time.

In this scenario, you won’t have to worry about where your goods are being stored or who is packaging and delivering your orders. The goods remain the property of the dropshipper until an order is made and then passed to the client after they have been sent. With the possible exception of handling a return, you will never have to physically touch the merchandise.

With Amazon FBA, you receive all these perks in addition to having Amazon handle customer care, returns, and refunds. You will be responsible for sourcing and initially transporting the goods to one of Amazon’s fulfillment warehouses, but Amazon will handle all orders and distribution.

It may seem like there aren’t many distinctions between dropshipping and Fulfillment by Amazon (FBA), but the benefits and drawbacks of each model reveal important distinctions that have been overlooked thus far.

It’s crucial to weigh the benefits and drawbacks of Amazon FBA before making a decision. Consider the following list of pros and drawbacks of using Amazon’s Fulfillment by Amazon service to see whether it’s right for you.

Pros Of Amazon FBA

• Amazon takes care of all the fulfillment for you, so shipping and logistics are simple. This is vital when dealing with bulk orders.
• Shipping costs are reduced with Amazon FBA, boosting your profit margin.
• Amazon takes care of all your customer service needs, so you won’t have to find a virtual assistant or dedicate your own time to it.

Cons Of Amazon FBA

• The initial investment is large since you must buy all of the product and transport it to Amazon.
• In general, Amazon FBA returns are higher than those through dropshipping.
• Paying Amazon’s long-term storage costs depends on whether or not your things sell. A negative impact on profits may result from this.

Pros Of Dropshipping

• Experts in Dropshipping
• There is no need to purchase anything upfront.
• The danger is reduced since no money has to be spent.
• There is a wide variety of products to choose from.
• When you use this service, you won’t have to worry about storing or transporting your items.
• When you have an online store, you have the freedom to manage it from anywhere.
• With time, you’ll be able to establish a consumer base and a rapport.

Cons of Dropshipping

• The margin of profit will be low.
• Suppliers may not provide you with sufficient details about their goods.
• Deals and discounts are not permitted.
• Because of this, you will have little leverage to negotiate lower product prices with your supplier.
• Establishing a name for yourself is not an option.
• The product market is very competitive.
• Contact with customers must be made personally.
• There might be limits on the markets in which your items can be sold.
• There is a requirement for a website to be developed.

How can I determine the best fulfillment option for my business?

If you’re trying to decide between dropshipping and FBA, the most crucial question you can ask yourself is this: “Do I want to compete with Amazon, or do I want to cooperate with Amazon?”

To compete logistically with Amazon FBA, if you opt to choose, pack, and ship your goods yourself through dropshipping, you will have an uphill struggle. It’s usually too difficult and costly to meet Amazon’s required shipping timeline. That’s why, whenever it makes sense for them to work together, we advise businesses debating between the two to go with FBA.

While this is often the case, there are times when the dropshipping model is the perfect fit for your business. Many items are not allowed in FBA, including alcoholic beverages, tires for motor vehicles, gift cards and gift certificates, and stickers from companies other than Amazon. Products that need to be refrigerated must be dropshipped since Amazon fulfillment facilities do not have refrigeration capacity.

Some goods aren’t banned by FBA, but it may make more sense to dropship them instead. This is especially true for bulky items like a big cooler that you may not want to send more than once. Shipping a cooler to an Amazon fulfillment center, then shipping it from the fulfillment center to your consumers, is an unnecessary added cost. It may be more cost-effective to send the goods straight from the warehouse to the client in these and similar situations.

The advantages of dropshipping may also exceed the expenses for high-end brands and other pricey items. Customers seldom make spontaneous purchases of high-priced luxury items. Customers are more willing to wait for delivery of expensive, well-researched goods like a laptop than they are for a cheap, impulsive buy like a pack of gum, reducing the relevance of the Prime badge.

However, the Prime logo on the product listing is such a competitive advantage that sales of even pricey or luxury products are likely to grow. Regardless matter how high the price tag is on your goods, it’s important to provide fast, hassle-free delivery from a trusted brand.

Conclusion

This is not a simple choice. The amount of money you can spend and the amount of risk you’re willing to accept will ultimately determine whether you choose dropshipping or Amazon FBA. Therefore, you should question yourself:

Do you want to take a chance on stocks that may not do well at the moment but give you a chance to develop a name for your business and perhaps reap substantial rewards if you choose the correct product?

Do you wish to sell someone else’s inventory with little to no risk yet possibly lose money on these highly competitive products?

Consider these issues before deciding between Fulfillment by Amazon (FBA) and dropshipping. Both Amazon FBA and the dropshipping model need effort both to get started and to be successful, so select wisely.