With Amazon dominating the eCommerce marketplace, It’s essential for online sellers to understand the differences between two of their most popular fulfillment options: dropshipping vs Amazon FBA. Whether you’re new to selling on Amazon or a seasoned pro, you must stay informed of how these two services compare to make the best decisions for your brand’s eCommerce presence. In this comprehensive guide, we’ll explain the differences between dropshipping and Amazon FBA, explore the advantages and disadvantages of each, and help you decide which option is right for some or all of your products. Read on to find out more!
What is Dropshipping?
Dropshipping is an effective way to handle product fulfillment and customer service without needing a physical presence in an Amazon fulfillment center. It allows brands to ship products directly from their own warehouse, product manufacturer, or third-party supplier at the time of purchase.
With dropshipping, brands can reach their customers quickly, ensuring a great customer experience—many brands ship items through Amazon Prime for guaranteed same-day or 1-day delivery. Many brands use third-party fulfillment services like Amazon FBA or Shopify to make dropshipping easier.
When you choose to dropship on Amazon, you’ll need to know the company's policy. Specifically, Amazon does not permit dropshipping if the seller purchases products from another online retailer to be sent directly to customers. Additionally, all packing paperwork and packages must identify you as the seller of record, with no other names or retailers listed. Lastly, you must comply with Amazon’s seller agreement and other policies.
You can also check our guide on What You Need To Know Before Selling On Amazon for more tips.
What is Amazon FBA?
Amazon FBA (Fulfillment by Amazon) is a service offered by Amazon that allows brands to outsource their entire fulfillment process, from storage and order fulfillment to customer service. With FBA, brands can ship their products directly to Amazon’s fulfillment centers, where they are stored, picked, packed, and shipped directly to customers.
To get started with Amazon FBA, brands must first add the service to their Seller Central account. Then, they must create their product listings and prepare their products according to Amazon’s FBA requirements. The preparation process can vary depending on the product but typically includes printing out a new barcode and covering up the UPC. Brands should also pay special attention to Amazon’s shipping guidelines to avoid additional fees.
To ensure the safety and authenticity of their products, brands should use Amazon Standard Identification Numbers (ASINs) to identify their products instead of UPCs. This will keep their inventory separate from counterfeit goods with a matching UPC. After your products are ready for shipment, you can send them to one of Amazon’s fulfillment centers, and they will take care of the rest.
With Amazon FBA, brands can offer their customers a better shopping experience, faster delivery times, and more reliable customer service. It also frees up valuable time and resources, allowing brands to focus on product innovation and growth.
Don't forget to check our guidelines for boosting your product's ASIN discoverability on Amazon. It will help you learn how to optimize your product listings by increasing visibility and improving your ranking, which will ultimately lead to increased sales.
What are the Advantages and Disadvantages of Dropshipping vs Amazon FBA?
Now that we’ve explored the differences between dropshipping and Amazon FBA let’s take a closer look at the advantages and disadvantages of each option.
Advantages of Dropshipping on Amazon
1. Reduced Risk of Misallocation
With all your products in one place, dropshipping on Amazon reduces the risk of misallocation. You don’t need to assign inventory specifically to Amazon, so there’s less worry and more efficiency in your supply chain.
2. Maximum Control of the Customer Experience
Dropshipping gives you the power to control the customer experience, as it skips steps that could add unnecessary wear and tear to your packaging and product. You get to control the environment in which your product is held instead of being at the mercy of Amazon warehouses.
3. Avoid Risks from Inventory Management Perspective
Amazon’s FBA program may create risks from an inventory management perspective, particularly during the winter holidays. Dropshipping allows you to keep and ship your own inventory, which can help you avoid these risks.
Disadvantages of Dropshipping on Amazon
1. Increasing Cost & Difficulty Competing with Amazon Shipping Speeds
It’s increasingly difficult to compete with Amazon’s shipping speeds. The company is currently focused on one-day shipping, and same-day shipping could be the norm in the future. Failing to meet Amazon’s guaranteed delivery date can result in your dropshipping privileges being revoked.
2. Meeting Amazon’s Promise Can be Expensive and Difficult
Dropshipping products from your facility to meet Amazon’s one or same-day shipping can be either impossible or extremely expensive. Brands need to consider if they want to keep up with Amazon’s logistics system or if they can find a partner that can handle the warehousing needs necessary for timely deliveries.
Ultimately, dropshipping on Amazon has its advantages and disadvantages. It’s important to assess your business needs and decide if the cost and difficulty of competing with Amazon’s shipping speeds are worth the reward. Carefully weigh the advantages and disadvantages, then decide what’s best for you and your business.
Advantages of Amazon FBA
1. Prime Shipping
One of the biggest advantages of using FBA is that Amazon’s Prime customers can get their product in one or two days. This can give you a competitive edge over other sellers, as customers are more likely to buy products with Prime shipping. It also increases your product rankings, as Amazon rewards sellers with fast shipping times.
2. Logistical Simplicity
When you use FBA, you don’t need to worry about packing and shipping your products or dealing with customer service inquiries. Amazon handles all that for you so you can focus on other aspects of your business.
3. FBA Programs
Amazon offers exclusive programs to brands that use FBA, including Subscribe & Save, FBA Small and Light, and FBA Export. These programs can help you save money on shipping costs and expand your reach to new international markets.
Disadvantages of Amazon FBA
1. Input Costs
Using FBA requires a hefty upfront investment, as you’ll need to send your products to Amazon’s fulfillment centers. You also need to ensure that your products are correctly packaged and addressed to avoid additional costs.
2. Low-volume Products
Not all products are well-suited for FBA, especially low-volume products. Dropshipping may be more cost-effective in these cases as you won’t need to pay for Amazon’s shipping and fulfillment services.
3. Logistical Complications
FBA may sound simple, but some products require complex logistics to get to the right fulfillment center. This can be a time-consuming and expensive task, especially if you’re dealing with multiple fulfillment centers.
Overall, Amazon FBA is a great option for businesses looking to expand their reach and take advantage of Prime shipping benefits. However, the upfront and ongoing costs can add up quickly, so it’s important to research and compare different shipping options before deciding. At SwiftStart, we offer a free 1-1 Amazon account audit that will help you assess your business needs and make the best decision for you.
Which Fulfillment Method is Right for Your Business?
The answer to this question will depend on your business, budget, and product offering. If you’re selling products that are prohibited from FBA or require refrigeration or a specialized shipping process, dropshipping may be your only option. Other factors to consider when deciding between the two include shipping costs, logistics complexity, customer experience expectations, and the necessity of Prime eligibility.
If you choose FBA, make sure you understand the different service levels Amazon offers and how these can affect your logistical process. Additionally, compare the cost of FBA services to your own shipping costs and decide which option is more cost-efficient for your business. Dropshipping can be an economical choice when selling expensive, luxury-oriented products or requiring a specialized shipping process.
Whichever option you choose, ensure you understand each option's costs and benefits. This will determine which fulfillment method is best for your business in the long run.
Dropshipping vs Amazon FBA - The Verdict
We hope this article has helped you better understand Dropshipping vs Amazon FBA services. Consider all the factors discussed in this article and determine which fulfillment method is most cost-effective and offers the best customer experience. You can also reach out to our experienced Amazon consultant for advice on which fulfillment method is the right choice for your business. Also, don't forget to check out our popular Amazon podcast for all the latest eCommerce news and tips.
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Answers to All Your Questions Related to Dropshipping vs Amazon FBA
How much does an average dropshipper make on Amazon?
Well, the truth is there is no definitive answer. Dropshippers can make anywhere from $1,000 to $50,000 a month on Amazon, depending on their product offering, fulfillment methods, customer service, and marketing efforts.
Can you become a millionaire from Amazon FBA?
Yes, while becoming a millionaire through Amazon FBA may not happen overnight, achieving success and financial freedom is possible if you are willing to put in the effort. You will need to build a strong brand that customers recognize and trust and create a well-developed product offering. Additionally, your cost structure, customer service efforts, shipping policies, and marketing strategies will all play an important part in your success.
Is dropshipping still profitable in 2023?
Yes, dropshipping is still a viable business model. It is projected to remain profitable in 2023. You must research your chosen niche, source reliable suppliers, and create a well-designed website to begin selling products. Additionally, you should always stay up to date with eCommerce trends and utilize the latest tools to optimize your business for success.
