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The dropshipping vs. Amazon FBA debate has been going on for a while now.
Both are online business models that allow sellers to hand over the responsibility for goods storage and order fulfillment. This means they have more time to focus on running the business.
Furthermore, both offer you the freedom to choose your product source, fulfillment method, and delivery methods.
Of course, each has its own set of benefits and challenges.
The right one for you will depend on your business goals, desired level of control, and availability of funds.
And that’s exactly what we’re going to cover.
At the end of this guide, you will be able to decide between dropshipping vs. Amazon FBA for your ecommerce store.
Dropshipping is a type of ecommerce business model that lets sellers list products without purchasing inventory upfront.
Instead, the seller serves as an intermediary between manufacturers, wholesalers, retailers, and customers.
You will look for the products online, market them, and then the customer receives the package directly from the dropshipping supplier. The simplicity of the process makes it a great way to start an online business.
With several marketplaces like Shopify, eBay, and Amazon competing for sellers, the dropshipping model has steadily increased in popularity over time.
However, if you choose Amazon as your dropshipping store, you must follow strict guidelines to avoid account suspension.
For instance, Amazon prohibits sellers from dropshipping orders from rival retailers like Walmart, Target, and Costco.
- You don’t need capital upfront, which means there is lower risk involved
- You can test different products easily
- You don’t have to worry about inventory or shipping issues
- You have more time for marketing
- You can run your business anywhere
- You can target a different customer base anywhere in the world
- You can build good relationships with dropshipping suppliers and customers over time
- You have full control over your shopify store
- It takes a lot of time and effort to start making sales
- The profit margins can be discouraging
- You might encounter shady suppliers
- The suppliers’ products may be of bad quality
- You can’t offer discounts, deals, or negotiate the pricing
- You have to deal with customer orders, concerns, and potentially returns
- Your suppliers may fail to deliver products on time
- The dropshipping store needs to be setup properly with the right tools and add-ons
Amazon FBA (Fulfillment by Amazon) is the ideal ecommerce platform for entrepreneurs because of its high potential for scalability.
The program provides Amazon fba sellers warehousing, packaging, and shipping services for their products. In other words, Amazon will prepare and ship customer orders for you.
On top of that, Amazon FBA handles customer services and returns as well.
Unlike a dropshipping store, you will be in charge of purchasing inventory and then shipping it to Amazon’s warehouses. Amazon will take it from there.
- Access to Amazon’s huge market as soon as you sign up
- Shipping, packaging, customer service, and return orders will be taken care of by Amazon
- Potential to generate higher profits and bigger opportunities for business growth
- Amazon offers a simple refund and return service
- Customer support is pre-installed, and you don’t need to deal with customers directly
- Predictable profit margin
- You will be covering FBA storage and shipping expenses
- You’ll need substantial capital to start your business
- Your customers are limited to a single platform.
- No proper online store aside from the storefront
Comparing Amazon FBA vs. dropshipping, a large part of your decision will be dictated by your business goals.
For instance, if you have little to no initial capital, a dropshipping business model will make sense.
It’s easy to set up, and you can start selling almost immediately without an initial customer base.
On the other hand, the amazon FBA business model will make more sense if you have money to invest in your ecommerce business. While it does involve bigger financial responsibilities, its benefits are simply too good to ignore.
Now let’s address the elephant in the room: how do you choose the ideal online business model for you?
Here are some questions to help you with that:
- How much is your capital (if any)?
- On which platforms are you planning to sell?
- What is your marketing budget for your e commerce business?
- How involved do you want to be in running the business?
- Are you great with customer service?
- What profit margins are you comfortable with?
Outside of the two business models, you can also consider another option: selling on Amazon FBM, and using third-party logistics (3PL) services to deliver your products instead of Amazon FBA.
This ecommerce model combines both dropshipping and Amazon’s strengths.
So, here’s the deal.
3PL companies are getting more popular in the Amazon business model as it increases the overall profit margin.
In fact, Amazon’s FBA program costs a lot of money because you’re paying to store your products in Amazon’s warehouse and have them fulfill the order on your behalf (FBA stands for Fulfilled by Amazon).
These 3PL companies offer you a wide range of services like distribution, storage, packaging, and transportation.
So, instead of using Amazon’s FBA program, many sellers choose to outsource management to 3PL companies.
This lets them get cheaper prices on fulfillment services and time to focus on brand building.
Similar to the Amazon FBM model, you can use 3PL services not only to store products that are listed on Amazon, but also to store products that are listed on your own Shopify store!
In fact, most established businesses around the world use 3PL services for their ecommerce store.
This is a natural transition from a standard dropshipping business model.
That’s because when successful drop shipping businesses make enough money, they need to have better control over the supply chain and to rely less on the same supplier and the possible problems that they might bring.
Instead of drop shipping from the supplier to the consumer, the supplier will send the items to the 3PL warehouse.
The customer places an order on your store as usual, but it’s the 3PL company that delivers the order.
In some ways, 3PL services are similar to both Amazon FBA and dropshipping online businesses.
However, with 3PL services, you can source your products in bulk and set your fulfillment terms with your service provider.
For instance, you can offer discounts and a same-day fulfillment process to increase customer loyalty.
Generally, most 3PL businesses provide the following services:
3PL companies can order and receive products from suppliers on your behalf. They can also:
- Manage the inventory on your behalf as their customer
- Identify when the stock is getting low
- Contact the manufacturers or suppliers for new stock
- Arrange for the transport of products from the manufacturers or suppliers to their warehouse
- Receive the products and manage the storage in the 3PL warehouse, ready for new orders
In addition to the above, 3PL companies can also be assigned to:
- Receive requests or orders from customers
- Manage the inventory and plan for pending orders
- Collect and pack ordered items from the warehouse and prepare for dispatching
- Organize for loading and dispatching towards order destinations
As part of storage services, 3PL companies may offer:
- Inventory management and auditing to ensure accuracy in the stocktaking and distribution of goods
- In-house tracking and positioning to simplify identifying, storing, or retrieving items in the warehouse
- Security for items in their warehouse with special guidelines and storage areas for sensitive or volatile goods
- Contract warehousing for individuals to rent out space for a specific amount of time
- Public warehousing for outsiders to rent space based on demand, capacity, and priority
3PL service providers may arrange for consolidation, deconsolidation, management, and distribution. Distribution services from 3PL business include:
- Tracking of the items using GPS
- Fleet optimization for efficient transportation and delivery
- Various distribution method, including truckloads, container load, brokerage, intermodal transport, drayage, and cross-docking, among other modes of transportation. Inquire with your 3PL provider for more information
Other 3PL services worth mentioning are IT systems integration, inventory management, reverse logistics, reporting, and data exchange.
Before signing up for a 3PL, think if and how it will contribute to your success.
Do your research carefully and choose an honest and reliable provider.
Aside from the plethora of services offered by 3PL companies, there are other perks to working with them too.
- When you buy from 3PLs upfront, you get the wholesale price. The more you buy from them, the lower your costs.
- You can source products from different manufacturers but store them under the same roof. This offers better flexibility when packing items from different manufacturers for the same customer. It saves you on extra shipping costs too.
- You can pick 3PL warehouses near your customer base for faster deliveries.
- 3PL logistics warehouses can process returned orders quicker, allowing for better customer service.
Amazon dropshipping is technically not allowed by Amazon.
Sellers who dropship using Amazon have very low control over the listings they are attached to. This is why it’s generally not recommended and it’s not more profitable than shopify.
However, an Amazon FBA business is certainly more profitable than a standard Shopify dropshipping business.
Amazon gets around 2.4 billion visitors every month, which you can leverage to acquire new customers.
You can spend less on Amazon PPC ads and still get better chances than with Shopify.
However, Amazon sellers are charged a 5-15% referral fee for each purchase.
Yes, you can do multi-channel selling to maximize both business models.
Many Amazon sellers have listings on both Amazon and Shopify. Both platforms are compatible, and Shopify even allows you to connect to Amazon and other marketplaces.
However, Amazon FBA fees and restrictions make it difficult, especially for new sellers.
If you are considering selling on Amazon, be prepared to abide by their strict rules.
On the Amazon marketplace, your success also relies on customer reviews and feedback.
You’ll also have to deal with competition, price fluctuations, and other factors that make it challenging to stay in full control of your ecommerce business.
On the other hand, if you sell online through Shopify, you will have complete control of your ecommerce business, with your own branding leading to brand recognition, own inventory (if you don’t use a dropship supplier), and shipping process.
You have the final say in your shop’s design, logos, and overall branded online experience.
Their fees are fair as well.
The downside is that you’ll be completely on your own. Fulfillment, marketing, and customer services will all fall on your shoulders.
There are various ways to take advantage of both platforms, though. For instance, you can attract the customer base you have built on Amazon FBA to your listings on Shopify.
Ending the debate of Amazon FBA vs. dropshipping: both ecommerce businesses are excellent. However, there are a few key differences that will help you choose one over the other.
Dropshipping works better for beginners or new sellers with limited capital.
Once you acquire a supplier, you can open an online store and start marketing the products. This presents lower risk while still offering a potential for a decent profit margin.
On the other hand, Amazon FBA is more suited for sellers with substantial capital.
Considerable expenses and fees are often the first wall encountered by new Amazon FBA sellers, but the growth and profit opportunities on the other side are much bigger.
You also need to consider how much you want to be involved with the products.
With drop shipping, you never have to see, let alone touch, even a single product.
The downside to this is not being able to check the quality of your products, which may lead to dissatisfied customers, so you might spend more time handling customer concerns.
With FBA, you can take time and order sample products as you’re building your inventory.
No, you cannot use Amazon FBA to dropship when selling online.
You can dropship on Amazon as a regular seller using FBM (Fulfilled by Merchant), but that option becomes restricted once you’re on the FBA program.
Amazon’s FBA program requires you to send products to the Amazon warehouse.
This gives them immediate access to your products, allowing for same day fulfillment services without you needing to worry about third-party logistics companies.
As confusing as the dropshipping vs. Amazon FBA debate is, coming up with a decision for your business is actually quite simple.
Don’t think about which one has a longer list of advantages or involves smaller risk. Start with what you want for your business.
When you take a closer look at it, it’s not about dropshipping vs. Amazon FBA. It’s about what you want to achieve vs. how much effort you’re willing to put in.
If you want a side hustle that’s uncomplicated to manage, dropshipping will make more sense.
Conversely, Amazon FBA will provide the perfect opportunity to be hands-on with a business and access to a big market if that’s what you’re looking for. We even have a guide to starting an Amazon FBA business with a limited capital to help you get it up and running.
Make sure to visit our blog for more informative posts like this. Good luck!