Amazon FBA VS Dropshipping: Which One Should You Choose?

Before you get any ideas; no, I am not here to argue which option is better. Unlike some people, I don't think Amazon FBA is better than dropshipping, and I don't think dropshipping is better than Amazon FBA.

They are both different business models and with all business models, there is no one 'best route'. We all have our own ideas about what we want to get out of a business that we make.

What I do want to do, however, is give you an overview of both Amazon FBA and Dropshipping. I will make it as in-depth as I can. This way you can decide which option is the right one for you.

Introduction to Dropshipping

Before we can compare Amazon FBA vs Dropshipping, we need to understand what both the terms actually mean. I will start with dropshipping. It is worth noting that you can dropship using a variety of different platforms.

However, I am suggesting that you use Shopify. It is easiest to get your site set up on, and you could feasibly be up and running, selling products within a few hours. It's also the preferred platform used in the top dropshipping courses found online.

With dropshipping, you won't be keeping any physical stock. Instead, you will be working with a warehouse who has the stock at hand. When an order is placed within your website, you contact the warehouse who will send the product directly to your customer.

At no point will you be interacting with the product, short of putting it up on your website. In fact, you won't even be paying for the product until somebody has paid you for it. This means that you won't be out of any money (other than the Shopify and advertising fees)

Introduction to Amazon FBA

Amazon FBA, known as Amazon Fulfillment by Amazon, is also a way in which you can sell products to a customer. However, with Amazon FBA, you will need to interact directly. However, it won't be in your hands for too long.

Once you have received the product, you will be packaging it up and sending it to Amazon. Amazon will then keep it in their warehouse (for a fee). In the meanwhile, your product will be listed on the Amazon website. When your product is sold, Amazon will ship it out directly for you. It is nice and easy.

You can also have the product sent directly from your supplier to the fulfillment center as there's some option here and depends on a few factors. For more on this, check out this webinar by Kevin David. Set aside some time as it's a long one.

The Similarities and Differences

You will understand a lot more about the similarities and differences between these two business models as I dive into the pros and cons.

I do just want to give you a very quick overview of some of the similitaries and differences, though. This may give you a bit of an indicator as to which method is going to be for you right off of the bat.

Both dropshipping and Amazon FBA are methods of eCommerce. You will be selling products directly to a consumer. The way in which you approach this will be incredibly different, though.

With dropshipping, you will be running your own website. With Amazon FBA, you will be 'leeching' off of the goodwill that Amazon have built up over the years. Basically, your products are going to be listed on the largest eCommerce site on the planet.

With dropshipping, you will be receiving the funds before you purchase the product. With Amazon FBA, you will need to buy all of your stock upfront. You will also be paying Amazon fees until your product sells.

However, with dropshipping it isn't all 'no payment until product sold'. You will need to spend money on advertising, and you have Shopify fees to think about too.

Now that you have a 'rough' idea about the similarities and differences, I will start to dive into the pros and cons of each of the methods. Hopefully,this will give you more of an idea as to which option is the right one for you.

Amazon FBA Pros

As I mentioned before; when you sell a product on Amazon, you will be selling it on the largest eCommerce site in the world. If your products are listed here, then you will be getting eyes on it.

You are far more likely than with dropshipping to make a 'quick' sale too. After all, there are no advertising fees (unless you want to pay), and you could feasibly make money within seconds of your product being listed.

Listing your product on Amazon FBA is virtually brainless too. In fact, this is where you will be 'leeching' off of the years of expertise that Amazon has in the world of selling. They were one of the first online companies to pioneer the 'recommended' products algorithm.

If you list your product properly on Amazon, then there is a pretty strong chance that it will start to appear in all sorts of searches. As your product starts to make more sales, chances are this is only going to increase.

Customer service is also going to be handled by Amazon. They will handle refunds and replacements on your behalf. This means that Amazon FBA is going to be perfect for those who want to be more 'hands-off' with the way they are running their business.

Obviously, you will on occasion still need to interact with your customers, but it won't be anywhere near as frequently as if you were running a dropshipping store.

You will also find that the profit margins on Amazon FBA will be a lot higher than with dropshipping. Of course, this does mean that you will need to be putting in a bit of effort to buy your products well.

You also have a lot more places that you can buy products from. After all, not every warehouse will offer a dropshipping service.

List of Pros to Amazon FBA

Pros

  • Qualify for Amazon Prime with your listed products
  • Win the Buy Box - Precedence is usually given to FBA sellers over self-fulfilled sellers most of the time.
  • Shipping is handled by Amazon, no need to do anything!
  • Taking advantage of the largest online retailer in the world

Amazon FBA Cons

The biggest downside is that the start-up cost can be high depending on the product. You will need to buy in your initial stock. You will also need to ensure that the stock you have sent to Amazon is kept 'up to date'.

This can be particularly hard, because you may have product lines which are selling all of the time, but you may also have products which are not selling. That is a dead cost.

You will also find that with Amazon FBA you are putting all of your eggs in one basket. While Amazon is unlikely to be dropping their FBA program any time soon, you will always be an algorithm away from losing your place in the search engine rankings. 

That being said, with some good training you'll understand how the Amazon search engine works and how you can get the best results.

Of course; you will also find that the amount of competition on Amazon is high. If you can sell a particular product there, chances are that others are doing it. This means that you may need to cut your margins thinner in the face of other competitors. However, this is not always the case.

To cap it all off; the customers generated through Amazon will be customers of Amazon. You can't market to them. This can cut future income potential.

List of Cons to Amazon FBA

Cons

  • Upfront investment for product
  • Chance that products won't sell
  • High competition with other sellers
  • Fees are involved with FBA

Dropshipping Pros

It takes a lot less money to start up a dropshipping business. Yes. You still have your Shopify and initial sign-up fees for the dropshipping service that you use, but you won't be buying in your initial stock. In theory, you could get started with dropshipping for just a few dollars.

Check out my article on the expenses and costs of starting a dropshipping store.

You won't have to do much work in maintaining your business either. In fact, with Shopify, you will be able to automate part of your business. You may need to answer some customer questions every now and then, but nothing too crazy.

You could easily run a dropshipping business alongside your normal full-time job.

List of Pros to Dropshipping

Pros

  • Option to run a niche or general type store
  • Customers are yours for life and can market to them via your email list.
  • Your brand is your business and will build over time
  • Similar to Amazon, you can do upsells
  • Option to sell your store for a massive profit
  • Lots of choices for suppliers for any product - room to negotiate

Dropshipping Cons

The challenge is that with dropshipping you are going to be starting from scratch. You need to work on building your brand and advertising on channels like Facebook and Google.

This could be a challenge for some if they don't have the right training. Once you find that first winning product, things do become easier..

The profit margins for dropshipping is not as high as people think. 20-30% is average. So when you see these ballers on Youtube bragging about huge Shopify sales, remember - that's not all profit. However, when you're doing really well, that 20-30% can be a life changing number!

While there are a lot of companies that offer dropshipping out there, you will also have to do a bit of research to make sure that you find the right one.

Don't forget; you also won't have control over the inventory. What happens if a customer places an order and the company you are using doesn't have it in stock? This is a rarity though if you know how to find the right supplier. The good news is that you can easily choose an alternate supplier for the same product.

Finally; it can be very difficult to run customer service with dropshipping. You have to deal with refunds and complaints. This is why it is so important that you work with a reputable dropshipping company.

List of Cons to Dropshipping

Cons

  • The need to test different products before finding a winner
  • Finding the right supplier can be tedious
  • You are responsible for 100% of the customer support

Conclusion and Final Thoughts

As you can see; dropshipping and Amazon FBA are both different business models. There is not one that is better than the other. 

Both do require some capital for investment but initially dropshipping is the cheaper way to go because you have a lot more control.

Some may prefer the Amazon FBA method because the product essentially "sells itself" which is not always true, but it definitely will get more exposure.

A dropshipping store will more than likely be more work over Amazon FBA because you need to consistently test products while simultaneously building your brand.

Whichever one you choose, just make sure you get the proper training first. 


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2 Comments

  1. Joshua January 31, 2020
  2. Drew February 6, 2020

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