Dropship vs Amazon FBA, Which is the Better Option?
If you're aiming to start an online business, the two most popular low-cost models you could focus on are dropshipping and Amazon FBA.
In this blog post, I attempt to examine the whole dropship vs Amazon FBA debate. Hopefully, after getting insight from this in-depth comparison, you will be able to make a better decision.
Introduction: Dropship vs Amazon FBA
Dropshipping is a retail business model where the retailer does not keep the products that are being sold. Instead, the retailer sends the order details to the supplier, where they ship directly to the customer. The retailer doesn't need to invest in inventory, they pay for the product being sold only when it’s purchased.
Dropshipping is a popular and cost-effective business model. It has become very popular in the US, UK, Australia, and Canada. No big investment or product storage is needed, allowing, even low-scale traders to reap benefits from this ecommerce business model.
Amazon FBA (Fulfillment by Amazon) on the other hand is a fulfillment service provided by Amazon that allows merchants to store their inventory in Amazon's warehouses, and Amazon will fulfill orders on behalf of those merchants. . This way, Amazon has an inventory of the items that can be sold on its website. This is in contrast to traditional fulfillment services where the merchant must fulfill orders themselves, typically using their own warehouse, and directly marketing their products to customers.
Pros and Cons of Dropshipping
Pros of Dropshipping
- Low Investment
Dropshipping is often seen as a cost-effective way to start your own business. With it, you can create your own business without the need for huge initial investments and expensive overhead.
- Low Responsibility
When a customer places an order on your store, you place the same order with your supplier. Your supplier will prepare and ship the product, as well as handle any returns.
- Low Risk
You don't need to maintain a huge inventory. Deals don't always work out, but that doesn't matter as much with Dropshipping. Your biggest expense is the money you put into setting up and running a store online, you don’t need to work about the risk of inventory loss.
If you started your online store with the intent of purchasing your own inventory, it wouldn't have been possible to sell a large number of products. Why? Because you'd have to purchase multiple products in large quantities and stock them.
Dropshipping means you don't have to worry about stocking, packing or shipping your products to customers. Dropship vendors will handle this process for you. Considering how time-consuming these tasks are, it's an option many entrepreneurs find very appealing.
Cons of Dropshipping
- Low Profit Margin
Customers are always looking for a better deal and since drop shipping is very competitive, you need to keep your profit margins low.
- Customer Service
You have to rely heavily on your supplier to answer most of your customers questions.
Pros and Cons of Amazon FBA
Pros of Amazon FBA
- Time to Scale
Amazon handles the shipping and packaging process, leaving you with more time to focus on scaling your business.
- Customer Base
With Amazon’s FBA program, you'll enjoy their thriving customer base of over 300 million active customers.
- Return Policy
You don’t have to worry about managing product returns, their customer service will handle this directly.
- Higher Profits
You can sell products that don't sell well at your ecommerce website to Amazon at a higher price.
Cons of Amazon FBA
You will have to buy product stock and send it to Amazon’s warehouses, your unsold products could accumulate, leaving you with storage costs.
There are many other businesses selling the same products as you. So, it might be difficult to compete with experienced entrepreneurs who have years of experience.
- Startup Capital
You need capital to start with for initial product purchases, advertising, and Amazon fees.
There you have it. I have covered all the major dropshipping vs Amazon FBA pros and cons for you. Which option should you go with? well I would suggest you start with dropshipping. Here is why…
- Its much easier to start with dropshipping, you can get going with a working website and a few suppliers.
- No upfront cost for inventory.
- Lower risk, you wont be sitting on huge amounts of inventory if things go wrong.
This doesn’t mean you shouldn’t venture into Amazon FBA, you definitely should, once you get things sorted out in dropshipping and have managed to scale your business, you can easily expand into Amazon FBA.
I also think the core to any successful business is proper product research, you need to find out what sells, current trends, profit margins, etc. So I recommend looking into tools such as JungleScout and ScanUnlimited for Amazon FBA, or Spocket for dropshipping.