Amazon FBA vs Dropshipping are two popular business fulfillment methods. They share similarities but also have some distinct differences. Each has a set of pros and cons, making them ideal for different seller goals and budgets.
But which fulfillment method is best for your Amazon business? This article will be your one-stop handbook, diving deep into every corner of FBA vs Dropshipping to help you choose the suitable model for your business. It will cover:
- Amazon FBA vs Dropshipping – Overview
- Choose Amazon FBA or Dropshipping? Consider their pros & cons
- Difference between dropshipping and Amazon FBA
- Amazon FBA vs dropshipping: Which is right for me?
Keep reading to select the right method to start your selling journey!
Amazon FBA vs Dropshipping – Overview
What is Amazon FBA?
Amazon FBA, or Fulfillment by Amazon, is a program where sellers store their products in the Amazon fulfillment center. When someone orders, Amazon handles shipping, packing, and customer service. It’s a very popular choice, with 89% of sellers using it. Whether selling branded products, reselling items, or doing wholesale, FBA is a great way to manage your Amazon business.
What is dropshipping?
Dropshipping on Amazon is similar to Amazon FBA in that you don’t need to store inventory. Instead of storing products in Amazon’s warehouses, when a customer buys something, you purchase it from a supplier, who then ships it directly to the buyer.
Dropshipping is popular on platforms like Amazon, eBay, and Shopify because it’s easy to start. However, there are strict rules that Amazon sellers must follow if doing dropshipping on this marketplace. For example, sellers must get a letter of authorization when selling branded products.
Choose Amazon FBA or Dropshipping? Consider Their Pros & Cons
Both Amazon FBA vs dropshipping are popular fulfillment models for e-sellers. You can choose to use either one or both to start your business. However, before making any decisions, let’s explore the pros and cons of each option.
Pros and cons of Amazon FBA
Amazon FBA can be a great way to sell online, but there are other options. While it has a lot of benefits, there are also some downsides to consider before you jump in. Let’s break down both pros and cons to see if FBA is the right fit for you.
Pros of Amazon FBA
- Convenience: Sellers send their products to Amazon’s warehouses, and Amazon takes care of picking, packing, shipping, refunds, and returns.
- Faster and reliable shipping: Customers benefit from Amazon’s vast fulfillment network, with Prime two-day shipping as a major perk. This can significantly boost customer satisfaction.
- Trust and credibility: Selling through Amazon FBA builds customer trust and credibility because of Amazon’s reliable shipping and return policies, which can lead to increased sales.
- No customer support needed: Handling customer inquiries can be time-consuming. With FBA, Amazon’s customer service manages buyer questions around the clock and has no extra fees for using this service.
- Increased sales and exposure: Selling on Amazon gives you access to millions of Prime members, who are likely to buy more. Products with Prime eligibility also appear higher in search results, boosting visibility. Additionally, FBA Export also lets you sell in over 100 countries.
Read more: Is Amazon FBA worth it?
Cons of Amazon FBA
- FBA fees: There are several fees linked to FBA, such as storage, fulfillment, and pick & pack costs. These fees can reduce your profits, especially for cheaper items.
- High competition: Since Amazon is one of the most popular global selling platforms, you’ll encounter other businesses selling similar products, often at lower prices. Be prepared to work a little harder to compete with experienced sellers.
- Limited customer connection: Amazon handles most customer interactions, and you aren’t allowed to collect customer email addresses. So, it makes it harder to build brand loyalty through things like email marketing or special offers.
- Sales limited to one platform: Unlike other models, such as dropshipping, you can only sell products exclusively on Amazon’s online platform. Any changes in Amazon’s selling policies or account termination could significantly impact your eCommerce operations.
Pros and cons of dropshipping
Dropshipping is popular with new businesses because it’s affordable to start. But before you dive in, let’s look at the pros and cons of dropshipping to see if it’s the right fit for you.
Pros of dropshipping
- Low startup costs: The biggest advantage in comparison between dropshipping vs Amazon FBA is the low cost. You don’t need to spend thousands of dollars to buy inventory upfront, so there’s minimal financial risk.
- Starting with ease: Getting started is easier, as you can quickly find products from a supplier and list them on Amazon for sale.
- Less responsibility: This method frees you up from storing and shipping products yourself. So you can spend more time on branding, marketing, and growing your sales.
- Flexibility: Dropshipping lets you run your store from anywhere, that’s great! But, be careful who you partner with. Pick a reliable supplier you can easily contact. If they mess up deliveries, your customers won’t be happy and your business could be damaged.
- Scalability: Dropshipping lets you effortlessly add new products to your store or remove underperformers because you don’t hold any inventory yourself.
- Wide product range: You can provide a wide range of products without concerns about manufacturing, storage space, or inventory management.
Cons of dropshipping
- High competition: Because dropshipping is easier to start, there is also much more competition in the market.
- Lower profit margins: Since you’re not buying in bulk, you typically have less negotiation power with suppliers, leading to lower profit margins. High competition also means you should offer competitive prices, which further reduces profits.
- Potential slow delivery: With drop shipping, slow delivery times can be a concern because it depends on who you partner with. If your supplier is overseas, especially in Asia, but you sell for the US market, shipping times can be longer than domestic suppliers.
- Lack of quality control: Your products will be shipped directly from the supplier, so you’ll have limited control over product quality, shipping times, or packaging. Problems with any of these can damage your brand reputation. We advise you to order samples from your suppliers before working with them.
- Dependency on the supplier: You depend on your supplier’s information for customer inquiries when doing dropshipping. Also, you’ll need to check with your supplier for detailed product questions, which can take extra time.
Difference Between Dropshipping and Amazon FBA
For a quick overview of the differences between Amazon FBA vs dropshipping, check this comparison table.
Criteria | Amazon FBA | Amazon Dropshipping |
Fulfillment | Amazon handles all the fulfillment, including storing, picking, packing, and shipping products to customers. | A third-party supplier handles all of the fulfillment, including storing, picking, packing, and shipping products to customers. |
Fees | FBA sellers pay for some fees: ▪FBA fulfillment fees ▪FBA storage fees ▪Other fees: _Inventory fees _High-volume listing fees _Refund administration fee _Rental book service fees _Aged inventory surcharge | Dropshippers typically have higher product costs but no storage fees. You will negotiate the shipping costs and any other fees with your supplier. |
Profit margin | Overall, Amazon FBA has a higher profit margin (10–20%), as sellers do not need to factor in the cost of inventory or shipping. | Dropshipping has a lower profit margin, as sellers need to factor in the product costs from suppliers and shipping. |
Time commitment | Amazon FBA requires a smaller time commitment, as sellers do not need to handle inventory or shipping. | Dropshipping requires a more significant time commitment, as sellers need to find reliable suppliers, track orders, and handle customer service. |
Control & Branding | With FBA, while there’s more branding potential than dropshipping, it’s still limited compared to self-fulfillment. | Dropshippers have to rely on third-party suppliers to fulfill orders promptly and maintain product quality, which can be risky. They also have limited branding opportunities |
Risk | Amazon FBA has a lower risk, as sellers do not need to worry about handling inventory or shipping. Although it is rare, there is a chance that Amazon may lose some of your inventory during the receiving process. In that case, they will reimburse you for lost units in the Amazon warehouse. | Dropshipping is more risky, as sellers rely more on their suppliers to provide high-quality products and timely shipping. It is possible that the suppliers you rely on for Dropshipping will provide low-quality products that will leave customers dissatisfied and annoyed. |
Customer service | FBA handles customer service, which is great because Amazon has a reputation for excellent customer service. Also, it provides 24/7 support via multiple channels. | Dropshipping requires the seller to manage customer interactions and coordinate with suppliers for fulfillment and returns. |
Fulfillment
Amazon FBA requires you to send your products to Amazon’s fulfillment centers. Amazon then takes care of storage, packing, and shipping. While this adds an extra step to the process, it provides a reliable and efficient logistics network that can enhance delivery speed and customer satisfaction.
Conversely, in dropshipping, the supplier handles inventory and shipping, meaning you don’t need to manage physical products. When a customer buys something, your supplier takes care of packaging and shipping it straight to their doorstep. This model reduces the burden of storage fees and logistics on the seller.
Total fees
Amazon FBA sellers must pay higher storage, fulfillment, and referral fees. The costs of sending products to Amazon’s warehouses also need to be considered. While the fees for Amazon FBA can be higher, the streamlined logistics and access to Amazon Prime customers can justify these costs through potentially higher sales volumes and efficiency.
Dropshipping generally has lower upfront costs since you don’t need to purchase inventory in advance. However, fees can include supplier charges and higher shipping costs. These variable costs can add up, especially with international shipping.
Amazon has a Revenue Calculator (with a comparison graph) that provides your fulfillment costs and real-time cost comparisons between Amazon FBA vs dropshipping. This tool gives you a clear picture of the true costs and facilitates your decision-making.
Profit margin
FBA offers the potential for bigger profits because you can buy inventory in bulk at lower costs and have more control over pricing. The higher upfront investment in inventory can pay off with better margins and increased sales potential. Managing pricing and offering fast shipping through Amazon Prime can further enhance profitability.
Profit margins in dropshipping, on the other hand, tend to be lower due to higher product costs from suppliers. You also have less control over pricing, which can affect profitability. However, the lower initial investment can make it easier to start.
Time commitment
Amazon FBA requires less time since sellers are free from managing inventory and handling shipping. Amazon also takes care of customer services, refunds, and returns, allowing sellers to focus on other aspects of their business, like marketing and growth.
Dropshipping, on the other hand, demands more time from sellers. They need to find reliable suppliers, track orders, and handle customer service issues directly. Managing these aspects can be time-consuming, requiring continuous attention to ensure smooth operations and maintain customer satisfaction.
Control and branding
With Amazon FBA, there is more branding potential compared to dropshipping, but it’s still not as flexible as self-fulfillment. You can customize packaging and include branded materials, but Amazon’s guidelines may impose some limitations.
In dropshipping, sellers rely on third-party suppliers to fulfill orders and maintain product quality, which can be risky. Branding opportunities are limited since suppliers control packaging and presentation. This makes it challenging to create a unique brand identity and ensure consistent quality for customers.
Risk
Amazon FBA carries higher risk due to the upfront investment in inventory and associated fees for storage and fulfillment. If products don’t sell, you can incur significant costs. However, the potential for higher sales volumes and profit margins can offset these risks if managed carefully. The structured fulfillment process can also reduce operational risks. If you worry about losing some of your inventory during the receiving process. In that case, they will reimburse you for lost units in the Amazon warehouse. The maximum amount per unit of any FBA-eligible item is $5,000.
Dropshipping involves lower risk because you don’t need to invest in inventory upfront. This reduces financial risk, especially if products don’t sell as expected. However, relying on suppliers can introduce risks related to product quality and shipping reliability.
Customer service
With Amazon FBA, customer service is handled by Amazon, which is beneficial because they are known for excellent customer support. Amazon offers 24/7 assistance through various channels, ensuring customers receive timely and effective help. Additionally, Amazon will remove negative feedback and reviews related to FBA products.
In dropshipping, the seller must manage all customer interactions and coordinate with suppliers for order fulfillment and returns. This can be challenging and time-consuming, as the seller needs to ensure smooth communication and resolve any issues that arise promptly.
Another business strategy you can consider besides Amazon FBA or dropshipping is retail arbitrage. To choose the right one, check out our How to Start Amazon Retail Arbitrage guide.
Amazon FBA vs Dropshipping: Which is Right for Me?
- If you don’t want to own an inventory
✅ Best option: Dropshipping
Reasons: Dropshipping allows you to sell products without purchasing or storing inventory. Your supplier handles inventory and shipping directly to customers. Conversely, with Amazon FBA, you need to send your products to Amazon’s warehouses, which requires upfront investment in inventory.
- If you don’t want to handle the whole fulfillment process
✅ Best option: Amazon FBA
Reasons: Amazon FBA takes care of everything from storing your products to packing, shipping, returns, refunds, and even customer service. This makes it a hassle-free option for fulfillment compared to dropshipping, where you must coordinate with suppliers to offer the best customer support and ensure timely order fulfillment.
- If you don’t have much budget
✅ Best option: Dropshipping
Reasons: Dropshipping requires a lower initial investment since you don’t need to buy inventory upfront. You only purchase products after making a sale, reducing financial risk. In contrast, Amazon FBA requires you to invest in inventory and pay for storage and fulfillment fees.
- If you want to build a brand identity
✅ Best option: Amazon FBA
Reasons: Amazon FBA allows for more control over branding and packaging. You can customize the packaging and include branded materials before sending products to Amazon’s warehouse. In contrast, dropshipping offers limited branding opportunities since the supplier controls the packaging and presentation of the products.
Dropshipping offers a low-barrier entry into the world of Amazon selling, making it an attractive option for beginners. Our detailed comparison guide will guide you on How to Start Dropshipping on Amazon.
Amazon Dropshipping vs FBA – FAQ
FBA works with both Individual and Professional selling plans on Amazon. Opting for FBA may be more cost-effective if you sell 40 or more items per month with a Professional plan. To decide between Amazon FBA vs Dropshipping, calculate your margins by factoring in storage and fulfillment fees. You may also want to consider upgrading to a Professional selling plan if you want to use advanced features like Sponsored Brands product listing ads and brand analytics. The cost of Amazon FBA varies depending on the item being sold. For example, if you sell a backpack for 50$, the Amazon fee will be $8.49: To determine the exact cost of FBA for a particular item, you can take a look at all the amazon seller fees and use the FBA revenue calculator above. If you already sell on Amazon, you can enroll products in FBA through Seller Central. You can choose to enroll as few as one product, or you can outsource your entire inventory to FBA. Once you have enrolled your products in FBA, you will need to package and ship them to Amazon fulfillment centers. If you are new to Amazon, you will need to sign up for a selling account create product listings. Once done, you can send inventory to Amazon fulfillment centers. For more details, check our How to start an Amazon FBA business guide. Whether you are a Dropshipping or Amazon FBA seller, there are many potential products for you to sell on Amazon. However, before selling products on Amazon, whether you use FBA, FMB, or SFP, you must meet certain restrictions and requirements. Some products require approval before they can be listed on Amazon, such as: You can check out our ultimate guide to sell on Amazon to get started. Yes. For example, some sellers choose faster-selling products available to customers via FBA, while also using dropshipping as a way to get slower-moving items to the doorsteps of customers. When comparing Amazon FBA vs Dropshipping, one important factor to consider is the overall cost involved in each model. There isn’t a single cost associated with dropshipping on Amazon, but there are several factors that contribute to the overall expense such as: As an Amazon seller, you can choose between the Individual plan and the Professional plan. The Individual plan costs $0.99 per unit sold, while the Professional plan costs $39.99 per month, no matter how many units sold. Here is a list of Dropshipping products you can consider: The key difference between Amazon FBA and Dropshipping is that with FBA, sellers send inventory to Amazon’s warehouses. In dropshipping, sellers don’t hold any inventory; customers receive products directly from suppliers.
Choosing Dropshipping vs Amazon FBA – It’s Up to You!
When choosing between Amazon FBA vs Dropshipping, there is no one-size-fits-all option. Each has its own advantages and disadvantages, so it’s crucial to consider your business needs, goals, and preferences. To make an informed decision, you should consider budget, product type, control, scalability, and automation factors.
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