Last Updated on April 16, 2021
Amazon FBA vs Dropshipping
For several kitchen table developers, the e-commerce paradigm has been around for a long time now and has more than proven itself to be a highly successful strategy.
However, the days are gone when any influential e-commerce pioneer will often find himself uncomfortably waiting in line for hours at the post office, suffering the tutting and eye-rolling behind him from the crowd! The same queue that finally snaked into the street straight out of the entrance, full of huffing and puffing clients getting more irritated by the minute with the delays because it took 20 minutes for one client to have all his parcels stamped!
This was natural for the initial e-commerce brigade. Then the idea of drop shipping came along and was praised as the solution to the prayers of any e-commerce vendor, closely followed by the introduction of Amazon FBA.
Both Amazon FBA and dropshipping were game-changers in the business model, and both techniques have now become the most common solutions considered by new start-ups. But how do you understand the strategy is right for you and your e-commerce company? For you to make an educated decision and ensure that your company is successful and sustainable, you need to be prepared with the answers to many vital questions.
If you are thinking of beginning an e-commerce venture, but are unsure about which path you can follow. If you’re trying to grow your current market, you’ll find all the answers here when it comes to Amazon FBA vs dropshipping to make an educated decision as you take the next move.
What is Dropshipping?
Let’s talk about the dropshipping idea first. This is essentially a service for storage and distribution that helps small enterprises to start up fast and efficiently. Notably, the model of dropshipping does not require you to spend large sums of cash in advance.
Via the Shopify store, the Amazon website, eBay or any appropriate distribution site, you can merely promote goods and sell unique products that are kept elsewhere with distinct suppliers. You will call your dropship provider anytime you sell a product and take an order from a client, and they will ship the order to your client for you. The customer would assume that the order has been dispatched directly from you, but none of them will be wiser. You’re only going to position orders for your dropshipper to satisfy your customers’ demands, but you only pay for the item until you get billed. It’s that easy actually.
Unfortunately, in the past, dropshipping has had some negative news, but this is because some have touted it as a ‘quick way to earn simple cash’ and you can understand why when you consider how it works. For every business model, there’s effort involved, of course. However, dropshipping is a perfectly viable choice, correctly executed and with the necessary suppliers on board.
What is Amazon FBA?
Amazon is an e-commerce website where the goods can be classified and distributed and dispatched on your own or using the widely popular FBA program. FBA stands for Fulfillment by Amazon, and it is a simple mechanism.
As a seller, you deliver your inventory to one of Amazon’s warehouses, list the goods on the leading Amazon platform, and then Amazon picks, bags and deliver the order directly from their warehouse for any transaction you make. They can also work with the customer care and refunds, but when it comes to the handling and dispatch of the shipments, it’s a hands-off policy, like dropshipping.
What’s the Difference?
The two definitions of Amazon FBA and dropshipping sound very familiar, judging from these examples, don’t they? And they are to the extent where they are both distant means of supplying your consumers with an affordable and secure service.
They are the middleman between you (the retailer) and your customers if you use a dropshipper. It is your job to manage the orders, manage the checks, address clients’ relevant questions, and comply with any refunds and returns.
The handling of your goods or the packaging and delivery of your shipments would have nothing to do with you. However, this suggests that you can never own the goods as such because they belong to your dropshipper before the order is put and then until dispatched they belong to your client! You can never really treat the object yourself, unless you need to deal with a refund, of course.
With Amazon FBA, you’ll already get all these perks, but also, they’ll deal with your returns, discounts and all your customer support. You will be responsible for sourcing and initially delivering the goods to one of Amazon’s distribution centers. Still, you will not manage the goods when it comes to orders and dispatch.
There are very few variations between dropshipping and Amazon FBA so far so let’s look at the benefits and drawbacks of Amazon FBA vs dropshipping since some significant differences come into play here.
The Pros and Cons of Amazon FBA vs Dropshipping
Amazon FBA Pros
- It is a time-saving service that helps you to concentrate on increasing your business.
- There are no management things for you to perform.
- Establishing a brand is simple.
- You will have direct access to Amazon’s worldwide audience.
- Built-in customer support is
- You will have recourse to a simple refund process and returns
- Much more substantial profits can be made,
- No customer contact is needed.
- You won’t have to build a website.
In a nutshell: Amazon FBA would encourage you to concentrate on increasing your company and brand while reaching a global audience at your fingertips. As you can piggy-back off of Amazon’s platform and right image, you won’t need to create a website.
Using FBA helps you to take a genuinely hands-off approach not only to the storage and delivery of your goods but also to the activities of your customer service, freeing you up to focus on making profits. Decent returns are possible, even with FBA payments.
Amazon FBA Cons
- FBA storage and delivery costs, payable on any transaction, would need to be considered.
- You must adhere to the stringent guidelines and regulations of Amazon FBA
- Amazon is a heavily saturated platform, and competition for FBA goods is fierce.
- For initial start-ups, a significant amount of capital is needed for
- For your revenue, you depend on only one site.
- Ultimately, all users belong to Amazon.
In a nutshell: Amazon’s FBA fees, while reasonably realistic in mind that you meet a ready-made audience and can simplify the entire method of packaging, choosing, packaging and dispatch along with your customer support, can drastically cut into your earnings. To buy stock upfront, you would need a fair amount of money to give to Amazon FBA as well. Amazon is a heavily saturated platform with high demand for FBA, so you can end up being unable to sell it or move goods quickly if you source the wrong thing. Building an email list would also be more challenging for you when clients belong to Amazon, not you.
- No initial investment in goods is necessary.
- There is a decreased chance, so there is no need to spend money.
- There are several product alternatives available,
- When the storage and delivery are done, it is a time-saving operation.
- You can run your e-commerce company from anywhere,
- You will be able to create a client list and connect over time.
In a nutshell: Dropshipping helps you to sell goods without investing any money in advance, which is why it is a common tactic. You can quickly discontinue the listing and move to a new category without having to think about the unsalable stock if you choose the wrong product to market.
It is a company that can be managed from anywhere. When the only duties are to ensure that you stay on top of your inventory and ensure that orders are delivered for fulfillment to your dropshipper, what’s more in the future, you will be able to start creating a list of clients of which you will upsell. It encourages you to take a hands-off approach with reduced risk by using a dropshipper.
- Profit margins will be small
- You could obtain insufficient product details from distributors
- You are unable to provide discounts or rebates
- You will not be allowed to compromise the price of your supplier’s commodity.
- There is no way to establish a brand,
- You’ll face tremendous competition for goods
- Communication with direct customers is required
- You can face possible constraints on where your goods can be sold
- A website needs to be made.
In a nutshell: If you do not have any money, Dropshipping is a risk-free option to Amazon FBA. However, you can rely on the supplier’s stock records, which may be incomplete, meaning that you will need to do more testing to guarantee that you have the right data and can properly market the product.
Because your dropshipper controls your commodity rates, and you’re not going to purchase in bulk, you don’t have the value of being able to bargain stock. Your profit margins are likely to be slim, leaving no room for you to supply your clients with exclusive offers or discounts. Competition can be intense, because when it comes to returns, discounts and enquiries, you may need to have some interaction with clients, but it’s not a completely ‘hands-off’ method.
Which is Right for my Business:
Yeah, as you’ve noticed, there are clear benefits and drawbacks, pros and cons of all decisions. Dropshipping and Amazon FBA are somewhat close, but choosing one over the other doesn’t mean it’s going to be an easy road, as you do need commitment and focus from either choice.
You should consider your company and your particular condition. Dropshipping presents a very low-risk model without the need for an upfront investment while you are just beginning your e-commerce venture. If you lack available capital, this is hugely desirable, and you can find plenty of outlets where you can market your selected products, including a low-risk and low-investment start-up, Shopify. It is reasonably easy to set up a dropshipping account to conduct business in this manner.
So if you’re not a risk-taker and want to sample an option for e-commerce, dropshipping may be the right option for you.
If you have money to spend and are more open to taking a chance, then it is a big plus for Amazon FBA and the tremendous leverage you can receive from Amazon’s current audience. Amazon FBA needs a reasonable amount of investment that of course, does not guarantee profitability. Still, if you are currently operating an e-commerce company and want to expand higher, it is an acceptable choice. Amazon FBA’s existence would encourage you to focus on promoting your company and goods.
That said you will not have complete control over any part of your business venture with either alternative. You will be at the hands of the laws and regulations of Amazon FBA and with dropshipping, tiny margins of benefit.
It is not a decision that is simple. But basically, deciding between Amazon FBA vs dropshipping would depend on how much investment you will make and how much chance you can face. Therefore, ask yourself this:
Would you want to spend your money in stocks that can or may not sell but are in charge of creating a brand with the potential to make good profits with the right product?
Do you want to sell the inventory of someone else with little to no risk, but with these extremely competitive goods, you theoretically make less profit?
Your answers to these questions will decide which route you can take when deciding between dropshipping and Amazon FBA. You have to approach it as a severe enterprise, whichever you want because Amazon FBA and the dropshipping model both work, not just to get started, but to thrive.