If you are intending to launch your ecommerce store, the two most beneficial ecommerce business models that you should focus on are dropshipping and Amazon FBA.
In this blog post, we will dissect the whole dropshipping vs Amazon FBA argument, and hopefully, it will allow you to make an informed decision. So, begin your entrepreneurial journey after familiarizing yourself with an in-depth analysis and comparison of both the business models.
What is Dropshipping?
Dropshipping is a great ecommerce solution where you (the ecommerce store owner) will directly place an order with your vendor, commonly a wholesale company. After “dropping” the order to them and providing them with your customer’s details, they will ship the items directly to your customer.
You don’t have to own any inventory, nor purchase stock in bulk. It is hence a low-risk ecommerce fulfillment method.
Dropshipping is one of the most trending retail businesses that is cost-effective and convenient. Retailers in the USA, the UK, Australia, Canada, and Europe are using dropshipping for many years now. Fortunately, it does not require a large investment. Hence, even low-scale traders can reap benefits out of this ecommerce business model. It is a profitable business model for internet-based storefronts as well as small retail shops.
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What is Amazon FBA?
Amazon’s FBA program is a great opportunity for entrepreneurs who cater to a large audience. It is an ideal ecommerce business solution and is known for its remarkable scalability. We all know that Amazon is a marketplace where you can list your products and sell them.
FBA stands for “Fulfillment by Amazon.” This program offers warehousing as well as shipping services for your products. This means that when a customer orders your product on Amazon, Amazon picks, packs, and ships the order from their warehouse for you. Just like it is with dropshipping, they also deal with customer service and returns.
Amazon’s FBA program has a unique approach because Amazon is a huge market for popular products. These products are also eligible for Amazon’s shipping promotions comprising Free Super Saver Shipping as well as Amazon Prime, making FBA even more fruitful.
To help you make an informed decision, I have compiled the Pros and Cons of both. Let’s take a look!
Before we proceed to the pros and cons of both business models, here is a quick sneak peek of what’s coming next:
|Factors to Consider
|Direct Customer Contact
|Freedom of Customize Store
|Drive External Traffic
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Pros and Cons of Dropshipping in 2022
As for the dropshipping vs Amazon FBA debate, the following pros and cons will allow you to clearly check out which business model suits your needs the best.
Pros of Dropshipping
It is important to weigh out the pros of both dropshipping against those of Amazon FBA. Here are the pros of dropshipping that you need to know.
1. Lesser Investment
Dropshipping doesn’t demand a hefty amount of capital, neither it requires a need for a concrete establishment for starting your own business. It is pocket-friendly and saves you from making huge initial investments which can be a huge burden for many new businessmen.
2. Lesser Responsibility
When your customer places an order with you on your online store, all you need to do is place the same order with your supplier. Your supplier will not only prepare the order, but will also ship it to your customer as well as handle any returns for you.
3. Negligible Risks
As a dropshipping business owner, you don’t need to maintain a gigantic inventory stock. If your transaction did not turn up so great, there is hardly any loss. The only expense you need to bear is to start and maintain your online store.
I’m sure you understand the higher the diversity of anything, the better it becomes. If you began your online store with the job of purchasing your own inventory, it would not have been possible for you to sell a number of products. Why? Simply because you would then have to purchase a few products in large quantities.
This is my favorite aspect of dropshipping. Although every business requires time and dedication, with dropshipping, you won’t have to indulge in product packing or shipping process or managing your inventory. It is an ideal solution for entrepreneurs who desire to save their precious time.
6. Location – Independent
Another amazing benefit of dropshipping is that you don’t have to be in or around a particular area or city. You can smoothly run the operations of your online store by just remaining in touch with your suppliers and customers.
Cons of Dropshipping
Where there are pros, there are cons as well. Here are some cons of dropshipping for a better comparison with those of Amazon FBA.
1. Lesser Profit Margin
Although dropshipping doesn’t demand a high initial investment, the returns in terms of revenue is comparatively less. You cannot sell a $10 product for $50. It makes no sense and the customer will search for other retailers who offer a cheaper price. Do remember, you are not the only one who is selling those products. The market is competitive which is why you should sell a $10 for $15 max. There are dropshipping products that can generate higher profits for you however, the laymen do not have such a great purchasing power, which is why you must be ready to experience fluctuations in profits.
2. Scant Information
There is a possibility that your supplier may not have provided you with detailed product information. Therefore, chances are high that you might not be able to answer all the queries from your customers about the product they show interest in.
3. Customer Service Issues
Dropshipping allows you to enjoy a lot of freedom, but when it comes to answering customer concerns, then you heavily rely on the information provided by your supplier. It is their product and you do not really know whether they have described the product accurately or not.
4. Lack of Good Promotional Deals
As a dropshipper, you cannot offer amazing promotional deals or discounts as you are not purchasing any product in bulk. Nonetheless, you can always offer bundle offers comprising of various products from your online store in order to reap higher sales.
5. Intense Competition
When it comes to dropshipping, competition is quite fierce. There are a huge number of dropshippers who are selling the same products that you are trying to sell. Some may even offer these products at a cheaper price while compensating their profits from elsewhere.
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Pros and Cons of Amazon FBA in 2022
When it comes to Amazon FBA vs drop shipping comparison, following pros and cons will allow you to take the right decision:
Pros of Amazon FBA
You now know the pros of dropshipping. Here are some pros of Amazon FBA that you should know.
1. Enough Time to Focus & Scale Your Business
Amazon takes care of the product packaging as well as the shipping process. It also provides excellent customer care services. Keeping that in focus, there is nothing much left for you to do. Hence, you have enough time to focus on scaling your business effectively. Just make sure your Amazon product photography is professionally done, and you’re set to go.
2. Successive Goodwill
Amazon’s FBA allows you not to tirelessly focus on establishing a brand name for yourself. Thanks to the honored goodwill of Amazon, you will get all the brand recognition you need. Yes, it comes in quite handy and your online store will be able to scale significantly.
3. Larger Customer Base
Developing a customer base is one of the most difficult tasks that any entrepreneur has to face. Nonetheless, with Amazon’s FBA program, you will be able to enjoy their massive customer base and extract fruitful results.
4. Returns and Replacement Policies
This is one of my favorite aspects of the FBA business model. You don’t have to worry about anything. Whether it be packaging, shipping or returns. Customer services are Amazon FBA’s primary task. It will allow you to maintain loyal customers.
5. Better Profits
The products that you are unable to sell for a good profit margin at your website, you can sell at higher prices on Amazon. Once again, all the credit goes to Amazon and its brand image.
Cons of Amazon FBA
There are some cons associated with Amazon FBA as well. Compare them against the cons of dropshipping to make a more informed decision.
1. No Record of Inventory
Unfortunately, your unsold products will get accumulated. It might become large enough that you won’t be able to maintain a proper record of your stock.
2. High Competition
Undoubtedly Amazon’s FBA program is a pool of healthy competitors. You won’t be able to take sole advantage of FBA. There are many other businesses selling the same products as you. So, it might be difficult to compete with experienced entrepreneurs.
3. No Profits are Guaranteed
You have to be careful while developing the product mix that you wish to sell because it is unlikely that every product will generate profits for you.
4. Shipping Problems
There is no chance on Earth that Amazon’s FBA program will deliver flammable products.
5. Blind Dependency
There is nothing you can do if Amazon decides to change its regulations and remove your store from its platform. All your hard work will go to waste.
6. No Direct Contact with Customers
Amazon will have a hold over the entire record of your clientele and unfortunately, you won’t. What if, down the road, you wish to sell the same products to the same customers? Oops! Sorry, but you can’t do that because you are too dependent on Amazon.
7. Basic Needs
You won’t be able to start your online business with FBA unless you have secured a decent amount of capital. Also, you need to pay a fixed amount to Amazon in order to avail their services.
How to choose between dropshipping vs. Amazon FBA vs. 3PL services
Besides dropshipping and Amazon FBA, there is another option you can consider to fulfill your warehousing and fulfillment needs. This option is 3PL services. These are offered by third-party logistics companies.
How does 3PL work? Well, you can use one provider to ship orders from Amazon, your WooCommerce or Magento store, and all your selling platforms.
Why should you use 3PL services? Well, one of the challenges with both dropshipping and FBA is that you don’t have control over your fulfillment. With a 3PL, you source products in bulk, have the inventory, and get a partner to handle the work. Moreover, you are also able to set the terms of your fulfillment. For example, you can offer the option of same-day fulfillment services to get your orders out fast.
There you have it. I have covered all the major dropshipping vs Amazon FBA pros and cons for you. If you seek my opinion, I will suggest you go with dropshipping. Why? It’s pretty simple. Here are my best reasons:
- It is simpler.
- It doesn’t require a large investment.
- You face lesser risks. .
- Freedom to customize your strategies.
- Direct contact with customers.
If you wish to save your hard-earned money and want to stay away from bigger risks, dropshipping is what you should go for. You can also choose both dropshipping as well as FBA to start your ecommerce business, however, it can get a little complicated.
Moreover, dropshipping seems to be a good choice if you are on the verge of starting a new ecommerce store, simply because of the lower investment and reduced risks involved.
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Q.What’s better: Dropshipping or Amazon FBA?
If you’re just starting your online business then opt for the dropshipping business model. It comparatively provides more perks than Amazon’s FBA program. If you are already running an online business and wish to further scale, then opt for Amazon FBA.
Q. What is the difference between Amazon FBA and Dropshipping?
In simpler terms, the primary difference is stock possession. When you are dropshipping, you don’t own any merchandise and act as a middleman between suppliers and customers. Whereas when you use Amazon’s FBA program, you have to invest in merchandise and store it in Amazon’s warehouse. In return, Amazon takes care of all your shipments and returns.
Q. Which one to go for in 2022 Shopify dropshipping vs Amazon FBA?
Depends on your type of business and goals. If you have an online wholesale store, Amazon FBA will be more suitable for you. However, if you want to grow your brand awareness, sell print-on-demand products, and want to sell while holding no inventory, dropshipping is better for you. Instead of Shopify, you can choose WooCommerce dropshipping if you don’t yet have a huge store.
Q. Should I go for affiliate marketing or dropshipping?
Affiliate marketing is a business model where you promote the products or offers of another manufacturer or retailer and earn a commission on every sale. In comparison with dropshipping, affiliate marketing doesn’t demand you to handle orders or manage customer support. All you need to do is promote the product on various platforms and earn handsome commissions.
Umair Qureshi is a Digital Marketer at Cloudways. He loves to read and share his digital marketing experience with Ecommerce & Startups community. In his spare time, he enjoys watching and playing cricket. You can email him at [email protected] or connect him on linkedin: https://pk.linkedin.com/in/umair-qureshi-seo