Selling online can be lucrative, but knowing which model best fits you is crucial. Amazon FBA and dropshipping are two popular options that you can use for eCommerce business.
In this article, we’ll compare both models so that you can choose which one is better suited to your needs as an eCommerce seller.
We’ll look at the overview of these two models, their respective pros and cons, and finally provide tips on how to get started with either of them. By the end of this article, you will have a clear understanding of Amazon FBA vs. Dropshipping to decide which route is right for your online business.
Overview of Amazon FBA and Dropshipping
Nowadays, business owners are considering creating an eCommerce business where it will be convenient for many people to access their products. With just a little browsing time and adding the item to the cart, you will have to wait a few days for the delivery right to your doorstep.
- Amazon FBA stands for ‘Fulfillment by Amazon,’ sellers send their products to an Amazon warehouse. Then Amazon handles the order fulfillment – from packing and shipping orders to customer service and returns.
- Dropshipping business model is where the seller does not stock any inventory. Instead, they partner with a dropshipping supplier who handles the order fulfillment.
Both models have their advantages and disadvantages that need to be weighed carefully before choosing one over the other.
Comparison Between the Two Business Models
Amazon FBA and Dropshipping are some of the many popular models used for eCommerce businesses, each with unique pros and cons. When deciding which online business model best fits you as an eCommerce seller, although both are beneficial, it is still best to know how it is managed and how it works.
Pros and Cons of Amazon FBA
Amazon FBA (Fulfillment by Amazon) is an excellent option for an online business catering to many customers. This type of business model is ideal for ecommerce business solutions and is known for its remarkable scalability. Amazon is also a marketplace where you can list and sell your products online.
Pros of Amazon FBA
Here are the advantages of using Amazon FBA over dropshipping model:
- Quick Start: To begin with, you will only need to follow a few simple steps to use the Amazon FBA. First, create an account and sort the products you want to add to a listing on the FBA inventory. Then, proceed to prepare and send the products to Amazon’s fulfillment centers, and they will handle the shipment.
- Allows To Focus & Scale The Business: When using Amazon FBA, they take care of the product’s packaging and shipping. They also handle customer service. Keeping it in focus, as a user, you don’t have to worry or do much. That will give you enough time to focus on scaling your business.
- Increased Visibility and Reach: With Amazon’s huge customer base, your products will be exposed to a much larger audience than if you were selling them from your store. You’ll also benefit from tapping into Amazon’s powerful marketing tools, such as its sponsored ads program, which can help boost sales significantly. This makes it easier for sellers to connect with potential buyers and increase their sales figures.
- Automated Order Processing and Shipping: With automated order processing, sellers can save time by processing orders automatically without manually entering each one. Furthermore, Amazon handles its shipping process, meaning they don’t have to worry about packing and sending orders. This makes it much easier and more efficient for sellers to get their products into the hands of their customers quickly and reliably.
- Customer Service Support from Amazon: Amazon’s customer service assistance is available 24/7, making it easy for sellers to quickly get help with any issues. Additionally, Amazon offers many helpful resources and tools to help sellers with anything from order fulfillment to product returns. This makes it much easier to maintain customer satisfaction levels and make changes as needed.
- Easy Returns and Replacement Policy: Returns and refunds often happen in the online store, and Amazon FBA provides customers with a return policy and assistance to those who would like to return a purchased product. This can be done through the online return center, where customers can easily apply for the following procedures: refunds, returns, replacement, and reimbursement.
- Better Profit/Gain: If you use the Amazon FBA business model for your eCommerce store and have products that could not sell for a good profit margin through the website, you can sell them at a higher price on Amazon. Keep in mind that all credit goes to Amazon and its brand image.
Cons of Amazon FBA
Here are some drawbacks of Amazon FBA program:
- High Fees: The biggest drawback of using Amazon FBA is the fees associated with it. The fees are high, especially for small businesses and startups. These fees include storage, fulfillment, and referral fees, among others. Amazon also charges extra for certain services, such as returns and customer service support.
- More Competition: Another downside of using Amazon FBA is increased competition. With many other eCommerce stores using the same platform, standing out and attracting customers can take time and effort. Additionally, sellers might find that their products are being sold at a lower price by other sellers, making it challenging to stay competitive and profitable in the long run.
- Limited Control Over the Selling Process: Since Amazon controls pricing, product selection, and other sales-related areas, there must be more room for flexibility when customizing a store’s offerings or creating unique shopping experiences. As a result, sellers may need help differentiating their stores from competitors and standing out from the crowd.
- Uncertain Profits: Using the Amazon FBA does not guarantee that all your listed products will quickly generate a profit for your online business. Sometimes it will sell quickly, but you must consider using other strategies and setting a competitive price range to maintain a stable profit.
- Unable to Directly Contact Customers: Amazon holds the entire record of the clients, and if you wish to sell the same products to the same customer, this is not allowed.
- Problems With Shipping: Amazon FBA has limitations in shipping items, especially those considered dangerous such as flammable products.
- Capital To Start: You will only be able to start selling products on Amazon FBA if you have enough secured amount for capital. Also, you will need to pay a certain amount to Amazon to avail of their services.
Before considering other business models that you can use to cater to your customer orders and other same-day fulfillment services, or considering availing a third party logistics company, learn about the Pros and Cons of Dropshipping.
Pros and Cons of Dropshipping
Dropshipping model is one of the best alternative models where sellers do not keep inventory. Instead, they will partner with a supplier who handles product warehousing, packaging, and customer delivery. This model offers many advantages, and according to the latest data, the forecast dropshipping market size is expected to reach $287.36 billion in 2023
Pros of Dropshipping
Here is a list of advantages of the dropshipping business model:
- Overhead Costs: Since there’s no store or you don’t ship the products, Dropshipping can lower overhead costs, such as maintaining the storage facility or fulfilling the customers’ orders.
- Low Startup Costs: Dropshipping is an excellent option for online sellers or eCommerce stores who don’t have large budgets to invest in inventory up-front. When you have a dropshipping store, you only need to pay for the products when they are ordered and shipped—meaning you don’t need to purchase any stock until it’s sold. This makes Dropshipping an ideal model for sellers who are just starting and have limited resources.
- Less Responsibility: Dropshipping model provides less responsibility for fulfilling an order. When a customer orders in your store, you only place the same order with the supplier. The supplier will not only do the preparation of the order but will also do the shipping as well as handle any returns.
- Minimal Risk: Another advantage of dropshipping is that it carries minimal risk for online sellers. Since you don’t need to invest in stock up-front, you don’t need to worry about losing money if the product doesn’t sell or if there’s a sudden shift in demand. This makes it much easier for sellers to take risks and try new products without worrying about potential losses.
- Flexibility and Scalability: Dropshipping also offers excellent flexibility and scalability to online sellers. Since you don’t need to invest in inventory or manage fulfillment, you can easily add or remove products from your store as needed. Additionally, you can add new suppliers and modify your product offerings with just a few clicks of the mouse. This makes it much easier for sellers to stay agile and keep up with changing market demands.
- Time Saving: Time is essential, especially in handling a business. Having a dropshipping store, you won’t have to spend much time handling the products, shipping, doing the inventory, and more. It is an ideal solution for business owners or eCommerce businesses who want to save time and allow them to do other things.
- Independent Establishment: Dropshipping allows you to run your store anywhere. But, you have ensured that your dropshipping supplier is legitimate and reachable to prevent any issues with the product shipping. If not, this will prevent you from being unable to meet the expectation of customers and damage your business’ reputation.
Cons of Dropshipping
Here are the drawbacks of dropshipping:
- Lack of Control Over the Product Quality: One of the most significant downsides of dropshipping is that the seller does not have control over the product quality. Since you rely on a third-party supplier to handle warehousing and shipping, you cannot always guarantee that products meet your standards. This can lead to customer dissatisfaction and negative reviews, which can negatively affect the reputation of your business and sales figures.
- Less Profit Margin: Although you may start doing dropshipping at a lower budget, it can potentially generate a lesser profit margin. You must pay a certain amount to the supplier, and upselling products may not help because customers will look for alternative products that offer better value.
- Limited Customer Service Support: Dropshipping offers limited customer service support to online sellers due to reliance on a third-party supplier. Since the supplier is responsible for warehousing and shipping, it can be difficult for sellers to assist with any issues related to these factors. Additionally, sellers often have no control over the quality of products being shipped, which makes it hard to respond quickly and effectively to customer issues.
- High Competition: The competition for dropshipping can be pretty intense. Many dropshipping stores sell the same products you are trying to sell, and some may offer these products at a much cheaper rate while redeeming their profit elsewhere.
- Dependent On The Manufacturer: If you have a Dropshipping store, you don’t own the products you sell, which means you will have to rely on the Dropshipping suppliers with the information they provide when you need to seal with customers’ inquiries. But, a Dropshipping supplier may provide wrong information about the shipping process. When customers ask for a detailed question about a product, you might need to double-check this with your supplier, which can often take time to fulfill.
- Lack of Promotional Deals: If you are Dropshipper, you cannot offer promotional deals or discounts since you are not purchasing bulk orders of products. But you can consistently offer bundles of various products from your online store to help reach higher sales.
- Timeline of Fulfillment: Dropshipping services handle the fulfillment process, and you do not have any control over the order selection, packaging, or shipment.
- Supplier Error: A low-quality Dropshipper can make mistakes when processing the fulfillment of the orders, and this can lead to substandard orders, low-end packaging, and missing items.
Which is Better for Sellers – Amazon FBA or Dropshipping
There are various business models to choose from when it comes to selling online. Two of the most popular options for eCommerce sellers are Amazon FBA (Fulfillment by Amazon) and Dropshipping. Each model has advantages and disadvantages that must be considered when deciding which is suitable for your store.
When deciding between Amazon FBA and dropshipping, there are a few key factors to consider to make the best choice for your business.
- Setting up and running an Amazon FBA business is typically higher than Dropshipping, as sellers must pay for storage, fulfillment, and other associated fees. But, the cost of operation will depend on several factors, including your product selection, order volumes, and storage space requirements.
- Dropshipping only requires minimal upfront investment since purchasing any inventory up-front is unnecessary. The cost of running a dropshipping business will depend mostly on your chosen supplier and the quality of their products and service.
Product Selection and Fulfillment
- Amazon FBA gives sellers or online business access to a massive range of products from Amazon’s catalog, making it easy for them to quickly list and sell items that are already popular with customers. However, some sellers may find that their products are being sold at a lower price by other sellers, making it challenging to stay competitive and profitable in the long run.
- Dropshipping is ideal for those who want to offer unique or custom-made items that may not be available on Amazon. Sellers have complete control over product selection, enabling them to quickly add and remove products from their store as needed. Additionally, since the supplier is responsible for warehousing and shipping, sellers have less responsibility when fulfilling orders.
- Amazon FBA offers excellent customer service support with 24/7 assistance available for sellers and many helpful resources and tools to help them with anything from order fulfillment to product returns.
- Dropshipping offers limited customer service support due to reliance on a third-party supplier. Since the supplier is responsible for warehousing and shipping, it can be difficult for sellers to assist with any issues related to these factors.
Overall, Amazon FBA is an excellent option for those who want access to Amazon’s catalog of popular products and reliable customer service support. Dropshipping, on the other hand, is an ideal model for sellers who don’t have large budgets to invest in inventory up-front and want to offer custom-made or unique items that may not be available on Amazon.
In the end, it is essential to carefully weigh both models’ pros and cons before deciding which is best for your eCommerce business, which will help you gain more profit.
Tips on How to Get Started with Either Model
Getting started with the Amazon FBA or dropshipping business model can be daunting, but it doesn’t have to be. With the proper knowledge and preparation, you can ensure that your foray into online selling is successful and profitable. Here are a few tips on how to get started with either of these models:
1. Research Your Niche – Before getting started, take some time to research your niche to determine what products would be most suitable for your store. This will help you narrow your product selection so that you don’t waste time and resources on items that won’t sell well. Additionally, researching competitors in the same niche will give you an idea of what pricing strategies they use so that you can stay competitive without sacrificing profit margins too much.
2. Choose Your Suppliers Wisely – When using dropshipping as a business model, choosing reliable suppliers ensures quality products and fast customer delivery times. Make sure to read reviews about potential suppliers before signing any contracts with them; this will help ensure that they are trustworthy and can provide good customer service when needed.
3. Invest in Automation Tools – Automation tools can benefit online sellers, as they streamline many tedious and time-consuming tasks associated with running an eCommerce store. Investing in automation tools such as order management systems and inventory management software will make managing orders much more manageable, tracking customer interactions, and optimizing your store for better performance.
Ultimately, Amazon FBA and dropshipping can be excellent business models for online sellers. When deciding which is best for you, it’s important to compare both options to make an informed decision. With the proper knowledge and preparation, you’ll be able to get started with either model and have a successful business in no time!
Conclusion About Amazon FBA vs Dropshipping
When choosing between Amazon FBA and Dropshipping for your business, it’s essential to consider the pros and cons of each model. While Amazon FBA offers excellent customer service support with 24/7 assistance, dropshipping requires minimal upfront investment since there is no need to purchase any inventory up-front.
Ultimately, you should carefully weigh both models’ advantages and disadvantages before deciding which is best suited for your business needs. With the proper knowledge and preparation, you’ll be able to get started on either model without fear or hesitation to maximize success in your online store.
Frequently Asked Questions
Q: What is Amazon FBA?
A: Amazon FBA (Fulfillment by Amazon) is a popular business model for online sellers in which the seller sends their products to an Amazon warehouse. Then Amazon handles the fulfillment process, including packing and shipping orders, customer service, and returns.
Q: What is dropshipping?
A: Dropshipping is a model in which the seller does not stock any inventory; instead, they partner with a dropshipping supplier who handles warehousing, packaging, delivery, and other related activities. The seller only pays for the products when ordered and shipped to customers.
Q: What are the advantages of Amazon FBA?
A: Some advantages of using Amazon FBA include increased visibility and reach due to access to Amazon’s massive customer base; automated order processing and shipping, saving time; and reliable customer service support from Amazon.
Q: What are the disadvantages of using Amazon FBA?
A: The main disadvantage of using Amazon FBA is its high fees. Additionally, sellers are subject to more competition and have limited control over the selling process due to Amazon’s policies.
Q: What are the advantages of Dropshipping?
A: The main benefits of dropshipping include low startup costs, minimal risk, flexibility, and scalability. Sellers don’t need to invest in any stock up-front, making it easier to take risks and try out new products without worrying about potential losses.