The eCommerce model is one that has existed for a long time now. It blasted open the door for kitchen table entrepreneurs, giving those with limited budgets and resources the opportunity to achieve business success.
These days, the eCommerce world has evolved and supplied more opportunities than ever to generate major profits. However, with so many different routes that can be taken, newcomers can struggle to decide on the right one to take for their own circumstances.
This is the case when choosing between dropshipping or Amazon FBA. Both of them are recognized as among the most effective eCommerce strategies available, but which one comes out on top? This article will search for the answer.
What is Dropshipping?
Dropshipping is, in essence, a middleman service. It’s a process where you don’t have to deal with inventory, splash out on stock in bulk, or ship items out. You receive an order from a customer, you provide these customer details to a wholesale vendor, and the vendor then fulfills the order.
Due to the nature of dropshipping, it has been a popular online retail option for low-scale traders. Effectively, all it takes to get up and running is to create an online storefront and select a suitable dropship supplier.
What is Amazon FBA?
Amazon FBA (Fulfillment by Amazon) possesses a number of similarities with dropshipping, but there are significant differences that make it a viable – and in some respects, a better alternative.
As the name suggests, you are presented with the chance to harness the power of the biggest global online store. The FBA program begins when you send your products to Amazon. The retail giant will then store these products in their warehouses. Once a customer makes a purchase, Amazon packs and ships the order. Additionally, they’ll also handle customer service inquiries and returns.
Rather than having to start a dedicated online storefront, your products are listed for sale on Amazon. With FBA, you also gain eligibility for shipping promotions like Amazon Prime, which is beneficial in more ways than one. Discover more advantages to Amazon FBA and Amazon Seller as a whole in our Professional Amazon Seller Training & FBA Course.
Dropshipping: The Pros & Cons
To get a better idea about dropshipping and if it’s a suitable fit for your business, let’s take a closer look at the positives and negatives of this eCommerce model.
The Pros of Dropshipping
Small investment required
You don’t need to purchase inventory or have a concrete establishment. In theory, you can get started by simply investing in a website.
Your dropship supplier prepares your order, ships it, and deals with possible returns. Your main responsibility is getting customers to your online store.
By not having to process orders or manage inventory, you save considerable time for other areas of your business.
Scale up your product range fast
There’s no real limit to the number of products you can offer. You can also sell a wide assortment of items from the very start.
With minimal capital invested, dropshipping is a low-risk venture.
The Cons of Dropshipping
Reduced profit margin
It’s not viable to sell dropship items with a high markup attached. Others will be selling the same products – and your customers will search for retailers offering the best price. The result: there’s a limited profit margin available for each product sold.
Limited promotional opportunities
Promotional deals like discounts are generally not possible with dropship products.
It’s possible your supplier won’t provide detailed product information. This means your product descriptions and answers to customer queries can be lacking.
Issues with customer service
Extending on from the last point, you might not have enough product knowledge to sufficiently answer customer concerns.
Competition can be fierce with many advertising the same products as you.
Amazon FBA: The Pros & Cons
You’ve seen the pros and cons of dropshipping. Now, it’s time to do the same with Amazon FBA.
The Pros of Amazon FBA
Benefit from the Amazon brand
By benefitting from the goodwill built up by Amazon, there’s less need to establish your company’s own brand name.
Massive customer base
You gain instant access to Amazon’s huge customer base. Statistics say there are 95 million Amazon Prime users in America alone!
Greater profits available
With Amazon’s strong brand image, it’s possible to sell products with greater profit margins than doing so on your own website.
Customer service policies
FBA takes care of all customer service aspects on your behalf.
Due to FBA dealing with packaging, shipping, and more, you save significant time for other areas of your business.
The Cons of Amazon FBA:
Significant capital required
Unlike dropshipping, you have to invest in the products you sell.
With FBA, you have to follow strict rules and regulations when shipping products to Amazon.
Storage and shipping fees
FBA is not free. You have to account for storage and shipping fees when using the program.
Reliance on one platform
It might be the biggest eCommerce platform, but Amazon is still only one platform. As a result, you’re relying only on Amazon – and a sudden change in regulations could cause your store to be removed.
No direct contact with customers
Without this direct line, there’s no chance to promote new products to past customers.
How to Decide Between Dropshipping & Amazon FBA
Dropshipping and Amazon FBA have numerous similarities, but there are distinct differences between the two in terms of advantages and disadvantages. As a result, the one you choose and decide is ‘better’ ultimately depends on your business.
If you’re only starting out on your eCommerce adventure and have limited funding in the bank, the inexpensive, low-risk dropship model will certainly appeal. Yet, if you have the necessary capital and are more willing to take a risk, leveraging the power of Amazon, FBA has the potential to deliver bigger rewards.
Deciding on dropshipping or Amazon FBA is not easy. Just keep in mind you can decide to switch between the two in the future or even go with both at the same time. Whatever you decide, however, it requires you to treat it like a serious business – which means putting in the necessary effort to make it work.
Ryan Flannagan is the Founder & CEO of Nuanced Media, an international eCommerce marketing agency specializing in Amazon. Nuanced has sold $100s of Millions online and Ryan has built a client base representing a total revenue of over 1.5 billion dollars. Ryan is a published author and has been quoted by a number of media sources such as BuzzFeed, CNBC, and Modern Retail.