When it comes to selling products on Amazon, there are two popular fulfillment models: Amazon FBA vs Dropshipping. Both models have their own advantages and disadvantages, so it’s important to understand the differences before choosing one.
- In Amazon FBA (Fulfillment By Amazon), you list products on Amazon and have Amazon store your products and fulfill your orders.
- In Dropshipping, you list products on Amazon and have a third-party supplier store your products and fulfill your orders.
So, which one is better for your business? Let’s find out. In this article, we will cover:
- Pros and cons of Amazon FBA.
- Pros and cons of Dropshipping.
- Amazon FBA or Dropshipping? – Which is better for your business?
- Amazon tool to compare profits between the two options.
After reading, you will understand the difference between Amazon FBA and dropshipping and can decide which is the right choice for your business.
Amazon FBA – Overview
What is Amazon FBA?
As mentioned above, Amazon FBA, (also known as Fulfillment by Amazon,) is an Amazon program allowing online sellers to store their products in Amazon’s fulfillment centers. When a customer places an order, Amazon handles the shipping, packing, and customer service. When comparing Amazon FBA vs FBM, FBM is slightly different. In FBM, sellers fulfill orders themselves.
Since its introduction in 2006, Amazon FBA has become one of the top eCommerce sites and has attracted approximately 1 million sellers.
Pros and Cons of Amazon FBA
The program is undeniably one of the sellers’ most popular fulfillment options. It offers a number of advantages but also comes with some drawbacks.
Amazon FBA Pros:
- Fulfillment and customer service: With Amazon FBA, you can outsource the entire fulfillment process to Amazon, including shipping, packing, and customer service. It also lets you focus on other lucrative activities, such as marketing and product selection.
- Prime eligibility: By using Amazon FBA, your products become eligible for Amazon Prime, which can attract a larger customer base and increase sales. Your products will then receive fast & free shipping, such as One-Day Delivery.
The program is available for Prime members in select zip codes and eligible items. Customers can select that option at checkout if an item is eligible for FREE One-Day Delivery. The orders typically arrive by 9:00 PM on the next business day.
- Trust and credibility: Amazon is undoubtedly one of the top marketplaces to sell. Selling through Amazon FBA provides customers a certain trust and credibility, as they have confidence in Amazon’s reliable shipping and return policies.
So, is Amazon FBA worth it? The answer is yes. In fact, over 70% of Amazon Sellers use FBA to sell.
Amazon FBA Cons:
Amazon FBA comes at a price, of course. After all, Amazon offers you its service and takes a lot of work off your plate.
- Cost: Amazon charges seller fees for its FBA service, including storage fees, fulfillment fees, and monthly subscription fees. The FBA fulfillment fees can increase depending on the size, weight, and dimension of your product and the shipping service selected by the customer.
Amazon has a Revenue Calculator (with a comparison graph) that provides your fulfillment costs and real-time cost comparisons between FBA vs dropshipping.
- Less control: When using Amazon FBA, you have less control over the fulfillment process. Any issues with shipping or packaging are handled by Amazon, which means you may have limited control over the customer experience.
Amazon Dropshipping – Overview
What is Dropshipping?
Some people might ask, “Is Amazon FBA dropshipping?”. Well, we have to say they are different terms.
Like Amazon FBA, Dropshipping on Amazon does not require you to keep products in stock. However, when a customer places an order, you will buy the product from a third-party supplier, who then will ship it directly to the customer instead of Amazon.
Amazon Dropshipping has some policies you should pay attention to:
- Identify yourself as the seller: You must make it clear that you are the seller of the product on all invoices, packing slips, exterior packaging, and other items coming with the product.
- Do not include wholesalers, suppliers, or manufacturers: You should not include the names of your wholesalers/manufacturers/suppliers in product packaging materials or Amazon store product descriptions since it will violate Amazon’s terms of service.
- Accept and process returns: You are responsible for accepting and processing returns for products you sell on Amazon. Hence, making a clear return policy for your buyers is crucial for maintaining a positive reputation.
- Comply with Amazon Terms of Service: You must comply with the Amazon Terms of Service (login required), as set out in the seller agreement.
Pros and Cons of Dropshipping
Dropshipping Pros
- Low initial investment: Dropshipping allows you to start an eCommerce business with minimal upfront costs. Since you don’t have to pay for inventory upfront, you can focus your investment on marketing and customer acquisition. This is the key difference between Dropshipping and Amazon FBA.
- Flexibility and scalability: With Dropshipping, you can easily add or remove
products from your online store, allowing you to adapt to market trends and customer demands. Also, dropshipping is highly scalable, as you don’t have to worry about inventory management. - Higher profit margins: As a dropshipper, you can negotiate better pricing with suppliers since you buy products per order. This might give you higher profit margins than traditional retail business models.
Dropshipping Cons
- Inventory issues: Since you don’t have control over the inventory, there is a risk of selling out-of-stock items or facing delays in shipping if the supplier runs out of stock.
- Customer service: Dropshippers often have to rely on the supplier to handle customer service inquiries, which may not always meet the level of service expected by customers.
- Return process: Very tricky, with about 30 percent of all online purchases eventually being returned. Overall, you must adhere to Amazon’s return policy, which means that you have to accept returns throughout Amazon’s 30-day return period. Additionally, instead of going to Amazon, all returns will be delivered to the address on your seller account. After receiving the return package, you have two days to refund the consumer.
You should learn how to start dropshipping on Amazon, as it is quite challenging at first.
Amazon FBA vs Dropshipping: Comparison Table
We have created a comprehensive comparison table of the two fulfillment methods according to different criteria.
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:
- 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 cost of inventory 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.
| 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 platforms. | Dropshipping requires the seller to manage customer interactions and coordinate with suppliers for fulfillment and returns. |
Amazon FBA vs Dropshipping: Which is Right for Me?
You may wonder whether Amazon FBA or Dropshipping is the better fit for you.
If you are a beginner
Amazon FBA is considered to be a better option for newcomers. It is a more hands-off solution that can help you save time and effort. You do not need to worry about handling inventory or shipping, as Amazon will handle everything.
However, it is essential to note that Amazon FBA requires a more significant upfront investment. You will pay Amazon storage, picking, packing, and shipping fees. Also, you will need to ensure that your products are well-priced and have a strong marketing strategy.
If you are already on FBA
Again, the choice between Amazon Dropshipping vs FBA depends on individual business goals, strategies, and preferences. If you have already sold on Amazon FBA and are happy with the results, you should stay with this fulfillment method.
However, if you are looking for a way to save money, then you may want to consider Dropshipping.
Dropshipping is more affordable than Amazon FBA, as you do not need to pay Amazon fees for storage, picking, packing, and shipping. And you can sell without buying inventory.
Another case is that you want to scale your online business.
However, it is essential to note that Dropshipping requires more time and effort. You must find reliable suppliers, track orders, and handle customer service.
If you already Dropship
Amazon FBA vs Dropshipping debates often revolve around the level of control sellers have over inventory storage and shipping processes.
If you have already sold on Dropshipping and are looking for a way to improve your customer service or have a faster and more reliable fulfillment process, then you may want to consider Amazon FBA.
The program offers a more reliable and consistent shipping experience for customers. It can also help you improve your customer service, as you will not need to deal with returns or exchanges.
Ultimately, the best fulfillment method for you will depend on your specific needs and goals. If you are looking for a hands-off solution with a high profit margin, then Amazon FBA may be a good option.
Dropshipping may be a better choice if you are looking for a more affordable option with more control over the customer experience.
Amazon FBA vs Dropshipping: How can you make the transition?
Switching from FBA to Dropshipping or vice versa can be daunting, but it is possible with careful planning and execution. Here are some tips on how to make the switch:
If you’re considering switching from FBA to Dropshipping, here are some steps you can take:
- Evaluate your current business: Consider your current sales volume, product selection, and customer base to determine if Dropshipping fits your business well.
- Find reliable suppliers: When choosing Dropshipping suppliers, it’s essential to find companies that have a good reputation and offer quality products.
- Set up your Dropshipping store: Once you’ve found reliable suppliers, you can set up your Dropshipping store. This will involve creating product listings, setting up shipping and payment options, and managing customer orders.
- Promote your store: Once your store is up and running, you’ll need to promote it to drive traffic and sales. You can use a variety of marketing channels, such as social media, search engine optimization (SEO), and email marketing.
Read more: How to Dropship on Amazon
If you’re considering the opposite way, consider:
- Identify your products: Consider which products are best suited for FBA fulfillment. These are typically products that are high-volume, have a high-profit margin, and are not fragile.
- Calculate your costs: Estimate the costs of storing, picking, packing, and shipping your products through FBA. Make sure to factor in Amazon’s fees and expenses.
- Set up your FBA account: Once you’ve calculated your costs, you can set up your FBA account. This will involve providing Amazon with information about your products and shipping preferences.
- Send your products to Amazon: Once your account is set up, you can send your products to Amazon’s fulfillment centers. Amazon will then store, pick, pack, and ship your products to your customers.
Read more: How to start an Amazon FBA business
How You Can Find a Reliable Dropshipping Supplier
When comparing Amazon Dropshipping vs FBA, finding a Dropshipping supplier is more difficult and time-consuming, as you must ensure they provide high-quality products and services. Here are some tips for you to choose the suitable one:
- Read reviews: Once you have a few potential suppliers in mind, read reviews from other businesses that have worked with them. This will give you a good idea of their reliability and customer service.
- Order from the competition: When you order from your opponents, Google will return the address of the original shipper. In some cases, it will be a supplier you can contact.
- Work with a supplier in your country: This will help avoid delays or customs issues.
- Choose a supplier with a good customer service track record: This is essential for any Dropshipping business.
- Attend a trade show: A trade show helps you contact all the major manufacturers and wholesalers in a niche.
- Use a Dropshipping directory: Several Dropshipping directories are available that can help you find reliable suppliers.
Some Dropshipping suppliers you can try out
- Spocket: Spocket is a Dropshipping supplier that offers a wide range of products from many suppliers in the United States, Europe, and more. Spocket also offers free shipping on all orders over $50, which can help you attract customers and increase sales.
- AliExpress Dropshipping: a Dropshipping service offered by AliExpress that allows you to sell products from this platform without worrying about inventory or shipping. AliExpress Dropshipping’s most significant advantage is its wide range of products. AliExpress has over 100 million products on its platform, so businesses can find almost anything they need to sell.
- Modalyst: a Dropshipping supplier that offers a wide range of products from independent designers and brands. With Modalyst, you can offer your customers a unique and exclusive selection of products they cannot find elsewhere.
- SaleHoo: a Dropshipping directory that offers a variety of features to help businesses find and vet Dropshipping suppliers, including supplier ratings, reviews, and product photos. SaleHoo also offers a free trial, making it an excellent option for new businesses.
- Doba: a Dropshipping marketplace that offers a variety of features to help businesses manage their Dropshipping businesses, including order tracking, inventory management, and marketing tools. Doba integrates with major eCommerce platforms, such as Shopify, WooCommerce, and Amazon.
Amazon FBA vs Dropshipping: Frequently Asked Questions
Fulfillment by Amazon (FBA) can be used with either an Individual or a Professional selling plan on Amazon. However, FBA may be a more cost-effective option if you sell 40 or more items per month with a Professional plan. To determine if Amazon FBA or Dropshipping is right for you, calculate your margins by taking storage and fulfillment fees into account. You may also want to consider upgrading to a Professional selling plan if you want to use advanced features like Sponsored Brands product listing ads and brand analytics. The cost of Fulfillment by Amazon (FBA) varies depending on the item being sold. For example: If you sell a backpack for 50$, 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. 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: Other products do not require approval, 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. Dropshipping fees can vary depending on the types of products you want to sell and the supplier. There are no Amazon costs or fees specifically for Dropshipping. 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.
Choose a Fulfillment Method That Suits Your Business Need
When it comes to choosing between Amazon FBA vs Dropshipping, there is no one-size-fits-all answer. Both methods have pros and cons, and it’s essential to consider your business needs, goals, and preferences.
To make an informed decision, you should consider budget, product type, control, scalability, and automation factors.
You should also consult with other sellers and carefully plan any transitions if you are considering a switch from one method to another. Are you an online seller looking to connect with other retailers, learn about the latest eCommerce trends, and get advice on how to grow your business? Don’t forget to join LitCommerce’s Retailer Blog and elite community.