Are you weighing up the pros and cons of Amazon FBA vs. dropshipping as money-making tools? Have a look at the guidelines and see for yourself!
In the US alone, e-commerce managed to account for 21.3% of total retail sales in 2020. So, there is no denying that online marketplaces have developed significantly and are presenting many golden opportunities for potential merchants. Among these, dropshipping and Amazon FBA are the two most popular approaches.
If you wish to start your business in e-commerce, you might want to consider the options mentioned above. The real question is: Amazon FBA vs. dropshipping, which is better?
Let’s find out in the article today!
What Are Amazon FBA & Dropshipping?
Dropshipping
Dropshipping refers to a business practice when the retailer does not have to own any warehouse or physical products. Instead, once the retailer receives an order from customers, all they need to do is to place an exact order with the wholesale company. From there, the wholesale company is in charge of shipping the purchase to the previously provided address.
As dropshipping does not require much initial investment and can be done literally anywhere, it is a perfect solution for small businesses with limited customers. In recent years, dropshipping has witnessed a steady rise in popularity, with roughly 33% of online stores in America choosing this model.
Amazon FBA (Fulfillment by Amazon)
Amazon FBA is part of Amazon business programs, which provides shipping services and a depository for any store registered. If a retailer chooses to join Amazon FBA, they will have access to the extensive customer base built up by the brand for years.
Furthermore, Amazon will handle the ins and outs of product storage and delivery, leaving little room for error. An Amazon FBA’s participant is also entitled to special shipping codes, which make their products more appealing to potential consumers.
If your business has been established for quite some time and you want to expand it further, Amazon FBA is the way to go. Mixing your store’s products with the reputation of such a well-known e-commerce platform like Amazon enables businesses to thrive noticeably.
Comparing Amazon FBA Vs. Dropshipping
However tempting these two business models may sound, whether you succeed in applying them or not depends on their compatibility with what you have to offer. Before sticking to one single approach, you should understand the advantages and disadvantages of them both in the following categories.
Investment
Amazon FBA demands a generous amount of money to maintain the functions of your store. On the one hand, Amazon will charge you anywhere from $2.41 to over $137.32 for each delivered package, not to mention the storage and removal fee of the inventory. Furthermore, millions of Amazon users are now introduced to your store, so your stockpile needs to be replenished soon enough before anything runs out of stock. Without a solid amount of capital, this task is impossible.
Meanwhile, the only expense required with dropshipping is to set up your online store and run ads to reach potential customers. If tech-savvy enough, you can even take advantage of social media platforms and seal the deal without spending a single dime. There is no need for manufacturing, warehousing, or inventory stock at all.
Profit margin
The brand name Amazon alone is enough to guarantee the products’ quality in your listings, and customers are willing to pay more for better services. Therefore, Amazon FBA allows you to reap better profits since you can flexibly adjust the price range to widen the margin.
With dropshipping, the situation is not that optimistic. With multiple competitors vying for customers’ attention with the same products provided (possibly) by the same manufacturers, you need to create an edge by keeping the price tags relatively low. Thus, how much you earn is rather limited.
Customer base
Amazon FBA grants merchants access to more than 300 million users – ideal for any business. Your store is even prioritized if the listings include high-demand products like medical supplies or household staples. Moreover, if you are willing to outsource an Amazon marketing agency for better advertising tactics, your chances of increasing conversion rate are much higher.
On the other hand, getting a larger audience using dropshipping methods can be a challenge. You start out with virtually no customer, and you need to manually expand it. Without effective marketing campaigns, compelling listings, and competitive prices, the number of customers aware of your store’s existence is meager.
Responsibility
Amazon FBA and dropshipping share one similarity: the owners do not have to be deeply involved with the delivery procedure. Amazon FBA will take care of everything, including packaging, shipping, and handling returns. The wholesale company responsible for a dropshipping order will do the same, sparing businesses from the time-consuming task.
Customer inquiry
Since an Amazon FBA store has its own inventory stock, details regarding the products are more precise. If the buyers have any questions regarding their listings, an Amazon FBA retailer can answer right away.
However, if you are a dropshipping retailer, chances are you only have as much information as the wholesale company provides. And sometimes, it can be slightly outdated or incorrect. As a result, you run the risk of misinforming your customers.
Dependency
Amazon FBA has their total say in the management of your store, and it can instantly remove your listings should it change regulations regarding the program.
Meanwhile, dropshipping allows you to be completely in charge of your store. To maintain this level of independence, make sure you stay connected with both the suppliers and the customer base. If you want to be extra careful, prepare a list of backup suppliers.
Conclusion
If you are an e-commerce newbie with a small amount of capital, dropshipping is your best option to earn money without much risk. Vice versa, if your goals are to expand the already-established business and you have money to spare, let’s opt for Amazon FBA. Feel free to visit this website for further advice on utilizing your store and getting the best out of this business model.
