Do you feel overwhelmed while deciding between Dropshipping and Amazon FBA? Which is the best eCommerce platform to start an online business? If you are too stuck between these questions, the answer is here in the post. Let’s read the details; entire comparison points to decide in a better way.
With the rising trend of online shopping, running an eCommerce business has proven to be the most profitable way to earn income. Amazon is constantly growing year after year, dropshipping making its way to excel in the marketplace.
So, if you intend to start an eCommerce business with a limited budget, you’ve to look after the odds and even of both eCommerce platforms.
In this post, I’ve covered everything that you, as a beginner, need to know before investing. The in-depth analysis will help you to make the right decision.
Dropshipping vs Amazon FBA – An Overview
Before you jump to the investment only looking at the size of the platform, it is crucial to know that Amazon FBA and dropshipping both have different business operational models. So, there’ll be a huge difference between these platforms. Let’s start with an overview.
What is Dropshipping?
Dropshipping is one of the best eCommerce business solutions where the sellers/retailers directly place the order from the wholesale company and ship the goods to the customers. Here, the seller acts as middlemen who take orders from a wholesaler and send them to the customers.
The business is in trend these days as business vendors think it is cost-effective and easy to start. According to a recent survey, the global dropshipping market size will exceed 28.8% in 2019-2025. The majority of the retailers in the UK, USA, Canada, Australia, and other countries are now using dropshipping.
To start a dropshipping business, the individual doesn’t need to make a massive investment. Even a low-scale trader can reap the benefits of the eCommerce business model easily.
What is Amazon FBA?
Amazon FBA or Fulfilment by Amazon is the best eCommerce business solution that supports sellers and merchants who want to sell their products on Amazon to make an income. The platform is known for its biggest marketplace and stable business growth.
In 2020, more than 1.3 million new sellers joined the FBA program, and solely India contributed 21.1% of the new sellers’ record. Out of 1.3 million, 13.8% of sellers are from the USA only and sign up through Amazon.com.
It receives stable growth every year and has a vast marketplace, so many vendors want to try their luck in the Amazon FBA business. Furthermore, FBA allows all the individual sellers and business persons to start their business for a fruitful outcome.
Dropshipping VS Amazon FBA – Quick Comparison Table
Before you delve into the in-depth analysis of these eCommerce business platforms, read the table below. This will give an overview of the dropshipping business model and Amazon FBA.
|Factors to Consider||Dropshipping||Amazon FBA|
|Investment||Low||High for the business person|
|Direct customer contact||Yes||No|
|Shipping||High risk||Low risk|
|Drive external traffic||Hard||Easy|
How Dropshipping Works?
When you work as the dropshipping partner, you connect with the wholesalers to place the order and sell it to customers. The business work as follows:
- You agree with the Dropshipping supplier who sources products or manufactures them.
- The dropshipping supplier will store the products and manage inventory stock.
- You will host the eCommerce website.
- The customer places the order, and you will process the payment and order.
- You will forward the order to the dropshipping services, and they will prepare the order. Once an order is ready, they ship the item to the customers.
Here, you are the middlemen taking the order, sending it to the supplier, and informing the customer about the products. The rest of the work of preparing orders and shipping will be processed by the seller to the customer.
How does Amazon FBA Works?
Fulfillment by Amazon is the process of packaging, storing, and shipping the orders to Amazon. The program is for the sellers who want to sell their products on this eCommerce website. Moreover, Amazon handles returns and exchanges of orders.
By joining the Amazon FBA program, you can be an FBA merchant and send your products to the FBA center to sell and earn income. The program run as follows:
- Set up the FBA account. You can log in to Seller Central if you want to create an account.
- Once you register as the FBA seller, create your products list and add it to the Amazon catalog.
- Prepare the products for secure transportation to the FBA center. Make sure to follow the Amazon packaging guidelines and requirements of the packaging to avoid any issues.
- Create your shipping plan, print the ID labels, and send the shipment to the Amazon FBA center.
You can start selling the products as an individual seller and as a business person. The individual sellers can start their business without paying the charges. However, charges will be applied to the product item that you sell.
Dropshipping VS Amazon FBA – Key Differences Between Them
Dropshipping and Amazon FBA have two different operating models, so there will be a huge difference between their features. Let’s have a look.
Fee and Investment
You focus on that eCommerce business that doesn’t break your back if you’ve got a limited budget. Luckily, both business models require minimum investment. However, as compared to Amazon FBA, dropshipping can be started with the least investment.
Whether you start dropshipping with Shopify or Amazon, you can get the dropshipping services at least cost. But if you want to start as a seller on FBA, you need to pay the fee for the product you sell.
If you are an individual seller, Amazon will cost you $0.99 on the item you sell.
Also, if you choose the FBA professional plan, it will cost you $35.99/month. Some additional fees will also include such as referral fees, warehouse charges, and many more. So, in terms of investment and fees, dropshipping is better than Amazon FBA.
Dropshipping has the risk of poor shipping quality because the retailer does not take responsibility for the shipment of the products to the elite customers. Therefore, to maintain the shipping quality, you need to find a reliable dropshipping supplier who takes care of the shipping process.
On the other hand, if you join as a seller on FBA, the Amazon team takes responsibility for storing, packaging, managing, and shipping the products to send to the customers. They maintain high shipping quality.
So, Amazon FBA would receive the upper hand if anyone talks about the shipping logistics. But for the international clientele, the FBA may receive contradictory statements and can’t deliver in other countries.
The actual difference between the dropshipping and Amazon FBA model is here. In dropshipping, you don’t need to have inventory management. You only act as an intermediate between the supplier and the customers. This means you are helping the clientele to connect with the suppliers and take some portion of the money by facilitating the sales.
On the other hand, the FBA offers stock management and warehousing facilities. They stock up your products in their warehouses. However, you may need to pay the charge of warehousing, which is negligible. Inventory management is a crucial thing of the Amazon FBA business.
Amazon is a brand in itself now and has a wider customer base than the dropshipping stores. Here at Amazon, you get assured traffic to catch customers from multiple selling channels and campaign routes.
However, if you choose the dropshipping business, you may not have assured traffic in starting. It depends on your marketing strategy.
It may take time to take a stand in the market. In that case, Amazon may have a better selling channel that allows your online store to shine brighter and grab the sales opportunities to earn income.
Competition is everywhere, whether you choose FBA or Dropshipping. However, on FBA, you face so many challenges because sellers are trying to pull the customers’ attention. Also, the Amazon FBA is best for experienced entrepreneurs who know how to enjoy maximum selling by beating the competition.
Since it has competition, but Amazon does offer a lot of traffic, the chances of the winner will be improved. The similar thing you may experience with dropshipping.
Here, you compete with the retailers who sell products at competitive prices. There will be tough competition between the wholesalers who are trying to compel the audience with lucrative deals.
Of course, you are choosing a business model for making maximum profit. Luckily, both the Amazon FBA and Dropshipping are profitable, but the question is how much profit you can make. If you have the goal of making more profit by selling limited goods, dropshipping is the best. This will allow you to earn 15-20% of the profit from each good you sell.
However, the profit margin here depends on the cost of goods that you sell. Plus, you can increase and decrease the profit margin too. However, with Amazon FBA, the profit margin will be different. It depends on the amount of margin you keep as profit. It may be between 1-5% and even high as 30% and more.
The advance sellers keep a high-profit margin as they have a plethora of products to sell on Amazon. So, it depends on you what profit margin you want to keep and how many products you want to sell. The higher the profit margin, the more income you earn.
Control on Sellers Account
Which offers better control, Dropshipping or Amazon FBA? This is an obvious question from a lot of sellers. Most sellers like to have full control of their seller account, which can only be possible with dropshipping. Dropshipping business models allow you to control marketing, selling accounts, profit, and other things.
This means you are the owner of your business, not others. Even if your dropshipping account gets suspended from Google, you can still make new emails and start your business. However, with Amazon FBA, you can’t enjoy full control.
Amazon algorithm and reviews are still in control of the FBA. You never know when Amazon can suspend you from your FBA account. So, your business will be at greater risk.
Marketing for Profitable Sales
Driving the traffic on the platform is the foremost thing if you want to grow the business. To drive traffic, you need to use various marketing strategies that can help to achieve more sales. Fortunately, if you are an FBA seller, you can leverage the Amazon keyword finder tool that helps to provide the right traffic-driven keywords.
Many entrepreneurs have access to the tool to get the right keywords and optimize their product list to drive more sales. The keywords help in ranking the product on the top of the Amazon search page so that your product can catch the traffic.
You get organic traffic, but the problem is you don’t have control over the Amazon algorithm. It works automatically. So, it would be difficult for beginners to stay on the top page in the presence of advanced sellers.
But if you’re thinking of having the best dropshipping site and want to get high traffic, you have to join the hands of paid advertisement services such as PPC, Google Ads, and many more. Though it requires a budget plan to run paid advertisements, it would be worth generating more traffic on your platform.
Both the platforms offer a robust customer support system to attend to the queries of the customers. However, the Amazon FBA is far better as it offers phone contact, and users can even submit the query by filling the form. Dropshipping customer support system doesn’t allow us to attend the quick queries.
Dropshipping VS Amazon FBA: Pros/Cons
The debate never ends without knowing the pros and cons of the businesses. So, let’s read about the pros and cons to check out which business model wins.
- Dropshipping doesn’t demand massive investment, and neither does it require any solid establishment to start this eCommerce business.
- The risk is negligible because you don’t need to maintain the inventory stock. The only thing you need to maintain is your store.
- You don’t need to bother about packaging orders because sellers will do on behalf of you and handle all the shipments.
- Dropshipping isn’t time-consuming because you are just placing an order, and the rest of the work will be done by sellers.
- You can start and do business from anywhere without having any geographical boundaries. Everything in dropshipping is online, which you can maintain from anywhere.
- The profit margin in the dropshipping business is low because the market is immensely competitive.
- Lack of promotional deals and customer services issues
- Amazon FBA allows you enough time to scale your business and has excellent customer service.
- Provide marketing tools and has successive growth for establishing your brand name so that you can earn maximum profit
- Easy return and replacement policies for better customer experience
- Amazon FBA has a vast customer base that keeps on expanding. So, you can enjoy massive growth and profitable business
- Stable growth and Amazon SEO service to rank your products
- There are high competition and shipping problems.
- You’re not able to maintain the record of the stocks
Frequently Asked Questions
Dropshipping is a profitable business for beginners because it requires minimum investment. If you are planning to start your own business of dropshipping on Amazon, here are the key steps that you need to follow:
- Choose an eCommerce platform like Amazon
- Create the Amazon seller account
- Get the approval in the product category
- Now connect your Amazon account to Shopify or Alibaba
- Create the Amazon product listing and directly sync your inventory with the Amazon sales channel
- Start dropshipping business
It is tough to decide which of the business models can help to earn maximum profit. But yes, if you are a beginner and thinking of investing less and earning maximum, then Dropshipping is the right option to have. You can keep the margin up to 30% and even more by joining high ticket sellers and retailers. In this way, you can earn maximum profit.
But if you want to have stable business growth and a perfect profit margin, then Amazon’s FBA business is worthwhile. Like dropshipping, you can set the profit margin and earn the maximum.
Amazon is the biggest marketplace where you get a plethora of opportunities to rank your products on the top Amazon search engine page and start earning profit by selling more products. However, it usually takes three to six months if you want to start your profitable business.
At the same time, it may take a longer time to start earning profit from dropshipping. Because, here, you need to generate traffic, invest in the advertisement and many more things. It may take more than six months to maintain the steady flow of revenues with this business model. But once it starts making a profit and gaining maximum traffic, it will be a win-win situation.
Print-on-demand dropshipping is highly popular these days. It allows you to sell print-on-demand customized products such as mugs, t-shirts, and posters. There is many more print-on-demand available which you can choose to sell and make a profit from this.
So, here you go! The eCommerce business model is excellent for achieving a successful business. However, dropshipping is easy to start as compared to the Amazon FBA business. It requires less investment and is ideal for all kinds of business persons.
But if you have a worthier product that you believe can generate sales, the Amazon FBA business is worth starting. You can also start dropshipping with Amazon too. So, hopefully, the article solves all your queries and helps you decide which business model can be beneficial for you.