Amazon FBA vs. Dropshipping: Which Model Will Work Best in 2022
The world is becoming digital, and the demand for online products is increasing daily. Many people have stepped into online businesses to cater to the high number of online shoppers.
There are around 2.14 billion digital buyers as of 2022 globally.
Yet, it can be overwhelming to choose the right kind of selling model for you. Amazon FBA and Dropshipping are among the most popular eCommerce choices for sellers.
So, which one to choose?
Let’s have a quick look at both eCommerce models:
|Amazon Dependency||Vendor Dependency|
|Higher Costs||Less Profits|
We have compiled all information to help you choose which is better, Amazon FBA or dropshipping. Keep reading to know everything.
Amazon marketplace is the most widely used platform by shoppers, which increases the demand for sellers as well. Despite the high competition, Amazon has a high rate of sales. Amazon offers two selling models: FBM (Fulfillment By Merchant) and FBA (Fulfillment By Amazon).
Amazon introduced Amazon FBA in 2006 to facilitate sellers in their business. The retailers list their products in their stores while Amazon manages the inventory. It is an excellent choice for sellers to cater to a large number of buyers. Amazon FBA enables you to scale your businesses faster. FBA is just like dropshipping, only that Amazon handles everything for you while you wait for your profits. Here’s how Amazon FBA works:
- A customer places an order on Amazon
- Amazon picks the product from the inventory
- It is properly packed and shipped to the buyer
- Amazon deals with returns and complaints
So, Amazon is a hands-free dropshipping approach where you do not have to worry about inventory, fulfillment, or customer service.
Why Choose Amazon FBA?
Did you know that Amazon FBA is a more opted-for choice on Amazon than others?
Reports show 92% of all Amazon sellers use Amazon FBA dropshipping.
If you are wondering why so many sellers opt for FBA, let us tell you why:
The best part of Amazon FBA is that you do not have to manage many things simultaneously. It takes away your worry about managing the inventory and ensuring the timely delivery of the product. Similarly, you do not have to handle complaints and manage the returns. Thus, FBA offers you a lot of time to invest in other activities.
Better Scaling Opportunities
As we discussed, having more time at hand when Amazon manages your orders can shift your focus to upscaling instead of fulfilling. Write better product descriptions, update the pictures you don’t like, improve marketing, procure more products, and see what works best for you.
One of the most critical differences between Amazon FBA vs. dropshipping is the service provider. Sellers that choose dropshipping or FBM usually operate the store independently and have a lot on their plate. On the other hand, Amazon helps you build a brand more conveniently as specialized teams manage each task.
Who doesn’t like better profits in their eCommerce business?
Amazon FBA gives you better profits than you receive on your eCommerce store or website. The reasons are Amazon’s credibility and the buyer’s trust in Amazon. Amazon can help you bring in more customers and retain them while offering better profits.
Amazon’s return policy is one of the most liked features of FBA that makes sellers choose it over others. Usually, it can be quite troublesome to receive returned parcels from buyers. However, Amazon FBA’s customer service is unparalleled, which helps you maintain loyal customers.
Drawbacks of Amazon FBA
Contrary to the numerous benefits of amazon FBA, you might also face a few drawbacks. Besides concerns about the team managing your account, there are some other cons, as mentioned below:
One of the most critical factors of amazon FBA is that you must adhere to their policies at all costs. Amazon FBA may remove your store from Amazon, and you can do nothing about it. This dependency may hinder your growth or lead to the loss of clients.
As you want to make the best out of Amazon FBA, many others wish the same. Thus, you are one of many willing to make a good profit from Amazon FBA dropshipping. Due to the high number of sellers, the competition is also high.
As you are not dealing with the inventory directly, you might not get to know about inventory until quite late. You may run out of stock or have a lot of material while the FBA team procures more; it can lead to massive losses.
All the Amazon FBA program services do not come free of cost. You require a decent amount of capital to start your business with Amazon. You have a pay a fee to get Amazon FBA services for your store.
The choice between Amazon FBA vs. dropshipping would not be possible until we tell you everything about dropshipping. Here’s what you need to know about dropshipping.
Dropshipping has become a popular business globally among retailers, and 27% of online sellers are dropshipping now.It is very similar to Amazon FBA, but you are solely responsible for all the tasks involved in drop shipping.
Dropshipping refers to sending a product to the buyer directly through the vendor instead of keeping an inventory yourself. However, many drop shippers take help from expert dropshipping agencies like Wefullfill to manage their eCommerce business.
The popularity of dropshipping is attributed to reduced costs, lesser risks, and efficiency. You do not have to worry about keeping your products safe or waiting for the delivery from the vendor before you send them to the customer. It is a direct approach utilized by millions of sellers worldwide.
Why Choose Dropshipping?
While FBA offers numerous benefits, dropshipping has its plus points. You are more aware of the processes and related issues to avoid problems in the long term. Let’s tell you the pros of dropshipping to help you choose Amazon FBA or dropshipping accordingly.
Capital is the most notable difference between Amazon FBA and dropshipping. While you need sound capital to start a business with Amazon FBA, there are no such requirements with dropshipping. You can decide your budget and choose the products accordingly. The investment reduces further because you do not have to deal with Amazon’s service charges.
When you do not have to maintain a massive inventory, it reduces your risk to almost zero. There is no need to keep staff to take care of the products, and no power supply is required. The shipping costs are also less as you do not have to bring the product to you first. All you have to do is maintain your online store.
Location and Time Independent
You can operate your dropshipping store from anywhere in the world. It allows you to work in various countries globally without being present there. Customers from all over the world can place their orders at your store anytime.
Besides money, dropshipping also saves you time. Imagine how much time you would spend managing the inventory, packing and shipping the products, and responding to customers. But you don’t have to worry when you are a drop shipper!
Drawbacks of Dropshipping
Drop shipping also has some drawbacks, whether you dropship from Amazon to Shopify or any other platform. Let’s have a quick look at them:
Dependency on Vendor
The most important drawback of dropshipping is the dependency of the seller on the vendor. Finding a reliable vendor is a grave task, and you have to put in a lot of effort. When you connect to a vendor, you have to trust that they will provide the right product to your customer, as you cannot monitor it directly.
Dropshippers typically make 20% – 30% profit on each product because of high competition.
As many sellers sell the same product on the platform, keeping a much higher price will drive your customers to them. Thus, dropshipping does not offer high profits.
Limited Product Knowledge
As a drop shipper, you do not have all the information about the product as it does not reach you. Eventually, you might not be able to provide the exact details to your customer. The customer may sometimes be dissatisfied with the product due to miscommunication.
Customer Satisfaction Issues
Customer satisfaction can be difficult if you are new to dropshipping. Sometimes customers can be difficult to deal with, and you may have to bear loss to keep a customer loyal to your store.
Amazon FBA vs. Dropshipping: Which One is Better?
Choosing Amazon FBA vs. Shopify dropshipping can be challenging when you are unaware of their basic differences. Dropshipping has lesser risks and costs, and thus it can be a suitable choice if you are stepping into eCommerce with low capital. At the same time, Amazon FBA dropshipping is more efficient and time-saving. You do not have to worry about managing your store.
So, the final decision about “Amazon FBA vs. Dropshipping: Which One is Better” depends on your needs considering the benefits and drawbacks of both we have explained above.
- Can I use Amazon FBA for dropshipping?
Yes. You can use Amazon FBA to set up your dropshipping business when you are too busy to manage everything independently. Connect your store to Amazon and apply for the Fulfillment by Amazon program.
- What type of dropshipping is the best?
Many people dropship from amazon to Shopify and make significant profits through it. Shopify and Printful are considered the best dropshipping models.
- Is Amazon-to-Amazon dropshipping profitable?
Amazon dropshipping can be profitable, but establishing your store might take some time, especially as an FBM. However, Amazon takes around 15% of your revenue. So, if you make 30% profit on each product, you will be left with 15%. But, Amazon offers high sales due to customer trust.
shailesh is a Design Founder & Advisor, Berlin School of Creative Leadership Executive MBA participant, Zippie advisor, Wolt co-founder, and Nordic Rose stakeholder.