Are you an e-commerce business owner looking for a way to streamline your shipping and order fulfillment process since it's daunting? You want to ensure that your customers receive their orders on time and in good condition, but you also want to keep costs low and maximize your profits.
You may have heard of Fulfillment by Amazon (FBA) and dropshipping. Both are popular options, but they have some key differences that may make one more suitable for your business, hence the question of Amazon FBA vs. dropshipping, which is better?
This article will discuss the similarities and differences between Amazon FBA vs. dropshipping. In either case, the point is to carefully weigh the pros and cons and choose the fulfillment method that best aligns with your business goals and can help you generate the most revenue for your eCommerce store. Dive in!
What Is Amazon FBA?
Amazon is an eCommerce platform where you can list and sell your goods and choose to ship them yourself or use the wildly famous FBA service. FBA (stands for Fulfillment by Amazon) is a model that helps Amazon FBA sellers to send the inventory to one of Amazon's warehouses and list the products on the main Amazon site.
For every sale a seller makes, the order is picked, packed, and shipped by Amazon directly from their warehouse. Amazon will also deal with customer service tasks and returns, making it a hands-off approach for storing and dispatching your orders.
What Is Dropshipping?
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This fulfillment and storage service allows small businesses to easily and quickly start up, and this is one of the Amazon business models that don't need you to invest large amounts of money upfront. When you sell a product and get an order from a customer, you will contact your dropshipping supplier, who will ship your order to the customer.
You will only place orders with your dropshipper to fulfill customer requests, so you won't have to pay for the merchandise until you get paid. It is a profitable business model for small retail shops and internet-based storefronts.
Dropshipping Vs. Amazon FBA: Similarities
There are several common factors of Amazon FBA and dropshipping. These similarities are why most solopreneurs and entrepreneurs choose these business models as the perfect entry to eCommerce. Let's dive in:
a). Minimal Effort
Both business models need minimal effort from Amazon sellers, although, for packaging and inventory management, you may need to employ various strategies. However, when you compare this effort to the process of handling everything about an eCommerce business alone, FBA and dropshipping methods are on the easy side. A seller can start FBA and dropshipping with minimum knowledge and capital with both systems.
b). Incredible Profit
With Amazon FBA, you can choose the products that will maximize profit, while dropshipping will give you branding, customization, and retail arbitrage advantage. For these reasons only, dropshipping and FBA techniques will give you a great profit margin which is why they are popular.
c). Minimum Prerequisites
Since all the steps are straightforward, you won't need to be an online store expert to start with your FBA business or dropshipping store. You can also find a big collection of tutorials and supportive content on the web. Although you can encounter problems setting up both eCommerce businesses, you will not have to worry.
Dropshipping Vs. Amazon FBA: Comparison
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Comparing Amazon FBA vs. dropshipping is a big part of your decision, and your business goals will determine it. Below is a comparison based on some factors they may have in common.
1. Inventory and Startup Cost
For this business model, you will need to purchase stock upfront, and cover the Amazon warehouse fees and shipping. Although there are Amazon's FBA fees you can skip, some are mandatory, like for the professional seller account.
It's better to start with a low-cost product and place a small order of about 100 pieces, and then you can build up your product value and increase the order number over time.
The initial investment is lower for the dropshipping model, and the main reason is how the system works. This online business only allows you to order your product after a buyer places their order, which means it's unnecessary to have ready stock before processing an order.
However, this doesn't mean you will spend nothing since the dropshipping store doesn't have a secured consumer base. So, to attract more users, you will need marketing techniques and campaigns, which can be expensive sometimes.
When you compare Amazon FBA with dropshipping, dropshipping does not want you to spend a lot of money upfront. This aspect will also affect the seller's risk when using dropshipping and FBA, and it will be a field where dropshipping will win.
2. Profit Margins
For both of these eCommerce business models, success depends on driving traffic to your site and converting the traffic to sales, and this will look different for each model.
You cannot increase the profit margins on FBA since the online store might alter the selling price of your products to get better product visibility. This could also mean selling your product at a lower cost than other Amazon sellers to gain the upper hand over other online businesses.
Although profit margins could be small initially, you could be able to recover the numbers in the long run to give you a steady income from the Amazon marketplace.
Since drop shipping is about retail arbitrage, you have the power to decide your profits to an extent. So, you can expect your dropshipping business to stay lucrative and enjoy better margins while selling online.
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3. Control: Product Quality / Customer Satisfaction
As an FBA seller, you will control your product quality greatly. If you followed the best business procedures and requested samples before placing your order, you should assume you will get a high-quality product.
As a dropshipping eCommerce business, you won't have much control over your product quality.
4. Time to Get Some Profit
Since you are in business to make money, you should know how long it will take to see some profits with each method.
With this fulfillment method, you will take about three to six months before you notice profit margins because you will first have to recoup your initial investment. The debate with the profit margin is how much you will want to keep since you still need to invest in more inventory.
Since dropshipping costs are lower than other business models, you will notice profit margins from the first sale. How long it will take you to enjoy profits will depend on how quickly you can get your business website up and running.
If you are using your own Shopify store, you can try to maximize efforts and make profits before your 3-day trial expires. If you do this, the only expense you will have is the little paid traffic advertising, which will immediately give you a return on your investment.
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Your main risk in an FBA business is making no sales when you have already spent the cost of your inventory, warehousing, and shipping fees. As we mentioned above, a good way of mitigating this risk is by starting with low-value products and placing small orders. You can further minimize the risk by having a screening and product selection strategy.
Amazon's FBA program creates a high risk for first-timers, and it will be better if you are an already established business.
Since you won't have to buy stock upfront, the significant risk is out of the way, and your primary concern is the cost of running your advertisement campaigns. Whatever route you choose for advertising, ensure you get the proper training to minimize your chances of losses.
For first-timers, drop shipping has a low risk; if you fail the first time, you can still make it. You will only need to connect with more dropshipping suppliers or change to a different product nice and start over by copying the theme of your Shopify store.
6. Access to Customer Base
For this online business, once you get the product into your warehouse, you will need to put your product listings live and create the biggest storefront on the planet. People visit Amazon with the sole intention of making a purchase, and the site is a highly effective conversion tool.
Your products will be eligible for Amazon Prime if you are an Amazon FBA seller. Amazon customers are frequently willing to pay a price premium for Prime's quick order processing and a bullet-proof refund guarantee.
You will need to find your customer base through whatever advertising channel you prefer and try to find the best target audience with your ad campaigns. Most Amazon sellers use the Facebook Marketplace to boost their sales. Although this may call for some trial and error, the advantage is that you can gain customer base loyalty once you find your target audience.
7. Shipping Process to Customer
Your products will be on Amazon Prime, where you can offer same-day fulfillment services. With Amazon Prime shipping, you will get tracking on all the shipments, which minimizes the chances of lost items.
Using Amazon's Pan-European-FBA service, you can sell in most European nations if you're selling in that region. FBA reduces complications, so you won't have to think about it.
Somewhere on the earth, the whole continent is made up of lost ePackets. These are the packaging and shipping methods of choice for most dropshippers.
Amazon comes with a lot of competition since many Amazon sellers own brick-and-mortar stores and are trying to make what they have in their shops available online. It would be best to search for and screen products that fit the best strategy to maximize your Amazon sales.
With this eCommerce model, competition is still high, and there's a big chance that other sellers have similar products to the ones you have and target similar audiences. So, to sell online profitably, you will need to create targets more intelligently and write better ad copy.
Amazon FBA fees are exorbitant since you will also have to pay FBA storage and shipping costs apart from the membership fee. However, if your Amazon Prime account still gets sales throughout the year, you will not have anything to worry about.
In addition, if your inventory takes up more space in Amazon's warehouse, you will have to pay extra fees. There might also be additional fees with some FBA limitations.
With a dropshipping store, you won't have to worry too much about fees, but you will have to pay your dropship supplier to deal with customer orders. You will get to focus more on critical aspects since the Amazon dropshipping company will take care of supply and inventory management.
10. Customer Support
On the dropshipping vs. Amazon FBA debate, FBA wins when it comes to customer support since when you deliver a product through FBA, you won't worry about technical or logistical issues.
Although your dropshipping offers customer service, you can't expect the best standards. You will need to set up customer care for your customers if they cannot access a dropshipping agency.
Which Is Better for My Business? Amazon FBA vs. Dropshipping
Both dropshipping and Amazon FBA involve outsourcing some parts of the goods supply chain, as either method won't need you to pack and dispatch goods directly to your customers. The strategy that will work the best will depend on the state of your business and the tasks you intend to be more involved with.
A dropshipping model is the best for new and small businesses. Once you get a dropshipping supplier, you can market your goods on your online store without purchasing inventory upfront. This makes it perfect for companies with low budgets or looking for a low-risk business model to test the market with no investment.
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On the other hand, Amazon FBA is the best choice for already-established businesses and the ones looking to grow. This business model makes more sense as your orders and stock turnover increases since you will need additional staff and FBA storage space. When you transfer this business model to Amazon with your established turnover, your business will also be able to commit to an advance purchase of goods.
Another necessary consideration is how much involvement you will want to have with the ordered goods.
With drop shipping, you will never handle or see the goods meaning you will not inspect your goods before dispatch. However, with Amazon FBA, you will need space and time to receive goods and prepare for a bulk dispatch, which will offer you better quality management control.
Can I Use Amazon FBA for Dropshipping?
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No, you cannot. Amazon FBA is a service that operates by holding your already-bought stock, but Amazon will not order your stock as needed for you or pass your orders to another party. However, Amazon FBA offers the same benefits as a third-party fulfillment service.
Also, remember that you can use dropshipping while operating as a regular Amazon seller (without FBA). On the Amazon Marketplace site, you can advertise your products, sell them, and transfer any orders you receive to a different party.
Amazon allows the use of dropshipping so long as you can be identified as the seller of the record. This implies that you assume possession of the product before it is shipped to the buyer and that you record the purchase as revenue.
Conclusion on Amazon FBA vs. Dropshipping
There is no correct answer to Amazon FBA vs. dropshipping; from what we have discussed above, they are not the same. However, the differences are significant and could directly impact how your eCommerce business will move forward.
So, you should choose between two business models based on the effort and money you can invest. We hope this dropshipping vs. Amazon FBA read helps you to select the suitable business model for selling products.
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