Amazon FBA vs Dropshipping Compare - Which Is Better For You?

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EComposer Team

Dec 2, 2024

Amazon FBA vs Dropshipping Compare - Which Is Better For You?

In the fast-paced world of eCommerce, two business models stand out as favorites for entrepreneurs looking to build a profitable online store: Fulfillment by Amazon (FBA) and Dropshipping. Both offer exciting opportunities to start your own business with relatively low overhead, but they work in fundamentally different ways.

So, how do you decide which one is right for you?

This blog will break down the ins and outs of Amazon FBA and dropshipping, comparing their pros, cons, costs, and processes. Let’s dive in and uncover the path to your eCommerce success!

Overview

What Is Amazon FBA?

Amazon FBA (Fulfillment by Amazon) is a service that simplifies the warehousing, order fulfillment, and shipping processes for eCommerce businesses. Instead of managing storage and logistics on their own, sellers send their products to Amazon's fulfillment centers, where Amazon handles everything from packaging to delivery.

As a global eCommerce giant, Amazon provides access to an extensive fulfillment network. In 2022, 68% of Amazon sellers leveraged this service for its efficiency and seamless order fulfillment. Additionally, Amazon offers tools like the Inventory Performance Dashboard, which helps sellers monitor stock, manage inventory age, and improve their Inventory Performance Index (IPI) score.

FBA also includes features like seller toolkits for product listings, stock management, and shipping promotions, allowing sellers to optimize their operations and boost profitability.

Pros

Cons

Easy to Start: Setting up is straightforward—list products, send them to Amazon, and you're ready.
No Customer Support Needed: Amazon handles all buyer inquiries and customer service tasks.
Instant Global Reach: Access to international audiences, including programs like FBA Pan-EU and FBA Export.
Hassle-Free Returns: Amazon manages customer returns, refunds, and replacements seamlessly.

High Competition: Amazon's popularity means it competes with numerous sellers, some more experienced.
Profits Not Guaranteed: Competitive pricing and marketing strategies are crucial for success.
Restricted to Amazon: Sellers are limited to Amazon’s platform, making policy changes impactful.
Customer Ownership: Buyers are part of Amazon’s ecosystem, limiting direct marketing opportunities.

How Does It Work?

Amazon FBA operates in three simple steps:

Send Your Inventory: Sellers ship their products to Amazon's fulfillment centers.

Amazon Manages Storage and Shipping: Amazon employees store the items, handle orders, and ship products whenever a customer makes a purchase.

End-to-End Support: Amazon takes care of customer service, returns, and even storage-related tasks, making it an excellent option for sellers without warehousing capabilities.

FBA offers a comprehensive solution for scaling eCommerce businesses, whether you're a beginner seller or competing with industry veterans. By outsourcing logistics to Amazon, you can focus on finding high-demand products and growing your brand.

What Is Dropshipping?

Dropshipping is a fulfillment-based eCommerce model where retailers or manufacturers handle inventory management and shipping on behalf of the seller. This allows entrepreneurs to start an online store without upfront stock purchases or warehouse storage.

In this model, the seller lists and advertises products online. When a customer places an order, the seller forwards it to the supplier, who then handles packing and shipping directly to the customer. By 2027, the dropshipping market is expected to reach $26 billion, underscoring its growing popularity.

Dropshipping is ideal for entrepreneurs focused on building a brand without worrying about logistics. However, success in this field requires careful consideration of competition, niche selection, supplier reliability, and compliance with business regulations.

Pros	Cons
Low Startup Cost: No need to invest in inventory or manufacturing upfront. Less Responsibility: Suppliers handle logistics, letting sellers focus on their business. Independent Location: Run your store from anywhere as long as suppliers are reliable. No Upfront Investment: No large-scale partnerships or operational hassles are required.	Slim Profit Margins: Dependency on suppliers often results in lower profit margins. Fierce Competition: Many sellers offer similar products, often leading to price wars. Dependency on Suppliers: Errors or misinformation from suppliers can hurt your business. No Quality Control: Sellers rely on suppliers for product quality, which can be risky.

How Does It Work?

The dropshipping process typically follows these steps:

Sign an Agreement with a Supplier: Establish a partnership with a reliable dropshipping provider.
Customer Places an Order: Shoppers purchase products through your online store.
Seller Receives and Forwards the Order: You forward the customer order details to the supplier.
Supplier Handles Logistics: The supplier processes, packs, and ships the product directly to the customer.
Customer Receives the Product: The shipment reaches the buyer, completing the transaction.

While dropshipping is an accessible entry into eCommerce, its reliance on suppliers for quality and shipping can limit brand control and differentiation. Success often hinges on finding a unique niche and establishing strong supplier relationships to mitigate risks and boost customer satisfaction.

Main Differences and Similarities between Dropshipping and Amazon FBA

When it comes to selling products online, both Amazon FBA (Fulfillment by Amazon) and dropshipping offer appealing opportunities. However, they come with distinct approaches, each with its own set of advantages and challenges. Let’s break down the similarities and differences to help you understand which model might be the best fit for your business.

The Difference Between Amazon FBA and Dropshipping

Inventory Ownership:

Amazon FBA: You purchase and own your inventory upfront and send it to Amazon’s warehouses. They store it, pack it, and ship it to customers.
Dropshipping: You don’t own any inventory. Instead, when a customer places an order, you forward the order details to your supplier, who then ships the product directly to the customer.

Shipping:

Amazon FBA: Amazon handles all the shipping and fulfillment processes. Once the products are in Amazon’s warehouses, they take care of the rest, from packing to delivery.
Dropshipping: Your supplier takes care of shipping the products to your customers, which means you don’t have to manage logistics, but you also have less control over the shipping times and quality.

Platform Control:

Amazon FBA: You only need to create product listings on Amazon. Everything happens within Amazon’s ecosystem, and Amazon handles a significant portion of the customer interaction.
Dropshipping: You have to create and maintain your website or select an eCommerce platform to sell your products. You are in charge of customer service, website design, and overall branding.

Customer Interaction:

Amazon FBA: Amazon manages all the customer interactions, including returns and complaints. While this reduces your workload, it also means you have less personal contact with your customers.
Dropshipping: With dropshipping, you maintain direct communication with your customers, including handling returns and refunds and addressing any issues they may have with your products.

The Similarities Between Amazon FBA and Dropshipping

Selling Online: Both Amazon FBA and dropshipping allow you to sell products online, making them accessible options for starting an eCommerce business without the need for a physical storefront.
Scalability: With both business models, you have the potential to scale your operations. Whether it’s expanding your product range or reaching more customers, both options can grow as your business gains traction.
Product Research: Regardless of the model, successful businesses require solid research. You’ll need to find the right products to sell, whether it’s sourcing inventory for Amazon FBA or finding reliable suppliers for your dropshipping store.
Paid Ads for Sales: To generate interest and sales, both models often require running paid ads. Be it through Amazon’s own advertising system or through Facebook, Instagram, or Google ads, paid campaigns are a crucial component to getting your products in front of your audience.

Different Types of Dropshipping & Amazon FBA

When it comes to making money online, both Amazon FBA and dropshipping offer opportunities, but the way they function and the platforms they use can vary quite a bit. Here's a breakdown of the different types of dropshipping and Amazon FBA options you might consider:

Amazon Dropshipping

Although it's not always recommended, you can dropship on Amazon. The process is similar to selling products on your e-commerce site, but instead of creating your website, you list dropshipping products directly on Amazon. Automation tools can help you manage order fulfillment, just like when using Shopify.

The key advantage of Amazon dropshipping is access to Amazon’s massive customer base. Amazon’s reputation for customer trust can help generate sales for your store. However, the catch is that you're subject to Amazon's rules and listing restrictions, meaning you don’t have the same level of control over your store as you would on your site.

Additionally, Amazon FBA sellers are often prioritized over dropshipping sellers. Since shipping times can be longer with dropshipping, it can take a lot of work to meet Amazon's customer expectations.

Amazon Private Label

Private labeling on Amazon is when you take a product manufactured by another company, add your branding, and sell it as your own on Amazon. This can be done using either Amazon FBA or FBM (Fulfilled by Merchant).

Private labeling can be a profitable avenue, especially if you have a unique selling proposition or a strong brand. You can find more resources on private labeling, including guides on finding private label manufacturers and products.

Dropshipping with AliExpress and Shopify

One of the most popular dropshipping setups involves sourcing products from reliable suppliers and selling them through a Shopify store. Shopify is a platform that enables you to build your own online store, process payments, and manage customer interactions.

eBay Dropshipping

If you want to skip building your website, eBay dropshipping is another option. Just like on Amazon, eBay offers an established audience, which makes it easier to reach customers. However, eBay has strict dropshipping criteria: you need to have a legitimate agreement with your supplier to list and sell their products, and you must follow eBay's terms of service.

While dropshipping on eBay can be profitable, it also requires a careful understanding of eBay’s policies to avoid penalties.

Amazon Affiliate Marketing

Another way to make money on Amazon, without dealing with inventory, is through Amazon’s affiliate program—Amazon Associates. With this program, you create referral links for products listed on Amazon, and when someone buys the product using your link, you earn a commission (up to 12%).

This option is ideal if you already have an established audience, such as a blog or social media following. It’s also a great, low-risk way to earn money without the need to handle products or manage customer service.

Amazon FBA vs Dropshipping: Quick Comparison

Feature	Fulfillment by Amazon (FBA)	Dropshipping
Inventory	You buy and store inventory in Amazon's warehouses.	You don’t hold inventory; suppliers ship directly to customers.
Fulfillment	Amazon handles packing, shipping, and customer service.	Suppliers manage packing, shipping, and customer service.
Branding	More control over branding and packaging.	Less control over branding and packaging.
Costs	Higher upfront costs for inventory and storage fees.	Lower upfront costs; you only pay when you make a sale.

Frequently Asked Questions

1. Is FBA or Dropshipping Better for Amazon?

If you want to sell solely on Amazon, FBA is the better option. Amazon tends to prioritize FBA sellers over FBM sellers due to faster shipping times and guaranteed service, which can lead to a better customer experience and more visibility on the platform.

However, if you're already dropshipping on your website or other marketplaces and want to expand to Amazon, you can use the FBM option. This allows you to continue dropshipping, but keep in mind that you may get a different level of visibility or benefits than FBA sellers.

2. Do I need a lot of money to start Amazon FBA or dropshipping?

Amazon FBA requires a significant investment for inventory, storage fees, and initial setup. Dropshipping has a lower barrier to entry—you only pay for the product after a customer orders it, but you’ll need funds for website creation and marketing.

3. Can I Dropship on Amazon?

Yes, you can dropship on Amazon using the Fulfillment by Merchant (FBM) option. This allows you to list your products on Amazon and fulfill orders through your dropshipping supplier rather than handling the packing and shipping yourself. Just keep in mind that you must comply with Amazon’s dropshipping policies to ensure a smooth experience.

4. How Profitable Is Amazon FBA?

Around 50% of Amazon sellers earn between $1,000 and $25,000 per month, primarily through Amazon FBA. However, reaching this level of sales can take some time and investment. Additionally, eCommerce businesses with a larger customer base and plans for global expansion can benefit more from the features offered by Amazon FBA.

5. Is Dropshipping Better Than Amazon FBA?

For online business starters, dropshipping may be the better option. It requires lower initial investment and startup costs, making it more accessible for beginners. Additionally, working with experienced suppliers allows you to focus on marketing and growing your store without worrying about inventory management or fulfillment.

6. Is It Possible to Dropship on Amazon?

Yes, it is possible to dropship on Amazon, but there are specific requirements you must follow. You must be the seller of record for the products, meaning your name should appear on all packing slips, invoices, and external packaging. Additionally, you are responsible for handling product returns from your customers.

However, it’s important to note that Amazon has strict dropshipping policies. To avoid any issues, it’s recommended that Amazon thoroughly review its latest dropshipping guidelines before using the service to ensure compliance.

7. Which business model has fewer risks?

Dropshipping generally has fewer financial risks since you don’t need to invest in inventory upfront. However, it’s more dependent on reliable suppliers and faces higher competition. Amazon FBA has higher risks due to upfront costs, but you control inventory quality.

8. Can I do both Amazon FBA and dropshipping at the same time?

Yes, you can! Some sellers use dropshipping to test products before committing to bulk inventory with Amazon FBA. It’s a great way to combine the strengths of both models.

Amazon FBA vs Dropshipping Compare - Our Verdict

If you’re looking for low upfront costs and want to minimize your involvement in fulfillment, dropshipping could be a great fit. However, be prepared for slower delivery times and less control over product quality. On the other hand, if you're ready to invest in inventory and want Amazon to handle all fulfillment and customer service, FBA offers a powerful solution. Plus, with the Prime Shipping badge, your products can reach customers faster, boosting sales potential.

The best choice is up to you—whether you prefer the flexibility of dropshipping or the comprehensive support of Amazon FBA, each option has its own set of advantages. Take the time to evaluate your business needs and goals to decide which model works best for you!

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EComposer Team

Hi friend, we're Shopify gurus from EComposer. A team of 10-year experienced and certified experts. Additionally, our expertise has been recognized and highlighted in esteemed publications such as TechCrunch, Shopify Expert, Entrepreneur, and Forbes. We want to share our experience and knowledge about Technology, AI, Shopify, Marketing and E-commerce.