With the e-commerce boom across the globe in the past several years, a lot of people get encouraged to start their own business. Thanks to models like dropshipping and Amazon FBA, starting a business has never been easier.
Both of these models are great and a lot of online store owners practice them. However, they differ in the way they work. Therefore, which one you choose depends on the type of business you are interested in, your needs, and your capabilities (e.g. budget, storage place).
To help you identify which e-commerce model is the right for you, in this post, we compare dropshipping and Amazon FBA. Let’s check it out!
Dropshipping vs Amazon FBA: Basics
What Is Dropshipping?
Dropshipping is one of the greatest “inventions” for e-commerce ever! This model is basically re-selling products other major sellers sell. For instance, you find a manufacturer or a seller offering a dropshipping opportunity, list their products on your website, Shopify, AliExpress, or other e-commerce platforms for a higher price, and you earn money. No physical inventory, no need for renting a place to store physical products, no nothing. You just need an agreement between you and the seller. And, the best part, you don’t need any budget in advance for the products nor worry about the shipping as the seller (manufacturer) takes care of all that. Sounds pretty amazing, right?
What Is Amazon FBA?
On the other hand, Amazon FBA is a fulfillment center by Amazon, the world’s largest e-commerce platform. This service is the same as the “packing and shipping” feature of dropshipping when suppliers pack their products and ship them to the buyer’s address. The difference is that you actually have an inventory (you’ve bought the products you sell in advance, like regular stores work). Once you order the products you want to sell in your store, you send them to one of Amazon’s warehouses. Whenever you sell one, you send the order fulfilled to the warehouse and the staff there packs and ships it out to the buyer’s address.
In short, the only difference in the way dropshipping and Amazon FBA work is the inventory. Of course, there are other differences in their features and we’ll take a good look at them in the following section.
Dropshipping vs Amazon FBA: Setting Up a Store
A Dropshipping Store
When dropshipping, you must have an online store. It can be a classic website, Woocommerce, AliExpress, or Shopify to name a few. However, dropshippers mostly choose Shopify because it works best for them. It’s incredibly easy to use, offers a 14-day free trial period and a pretty affordable monthly price afterward, helps you with marketing, and comes with some amazing features.
The best part about opening your store is that you don’t need to have the products to list them. You can get all the product information by using product research tools. They find the products and “serve” all info about them, so you can just copy and paste the data. However, it’s best to ask the seller to send you the info and a sample so that you can take good, high-quality photos, record videos, and write the product description yourself.
Once you’ve done that, you can add the products to your store by using Oberlo. Find the products you like and simply import them to your store. Then, add the product information and description and publish them. It’s that simple!
When using Amazon FBA, obviously you must have an Amazon store. Opening one is simple and doesn’t time much time. However, if you want to run it successfully, you must do good research and find all the tools that will help your store stand out from the crowd and rank your product listings high on the results page. Tools like landing page builder, product research, and store management are a must for every Amazon seller who is serious about doing business and making it a lasting one.
Yes, being an Amazon seller is tough love, but if you are serious, your troubles will pay off… a lot! Actually, Amazon sellers earn a lot mostly because everyone shops on this marketplace.
To open your Amazon store, you must first have the products in your home/storage place to write the product listing for each of them. Once you have the information you need (specifications, product description, photos, video), you can send the products to one of Amazon’s warehouses. And, when you are done with adding all that info in the listing, you can publish the products.
Dropshipping vs Amazon FBA: Dependancy on the Platform’s Regulations
Many e-commerce entrepreneurs don’t take into account the freedom of selling wherever you want. Of course, you have the right to sell to anyone who’d buy your products, however, if the e-commerce platform you chose doesn’t allow selling in certain countries or has other restrictions, you must follow the rules. Due to often missing out on this very important aspect, we have dedicated this section to it. Let’s dive into it!
As a dropshipper, you can choose any of the platforms available for dropshipping to open your store. Since there are many of them, you can choose the one that best suits your needs and requirements in terms of terms and regulations. For instance, if one of the platforms doesn’t allow selling in a country/-ies where you want to sell, you don’t have to choose it; instead, you can opt for another platform that allows you to sell in that particular country.
Of course, you must always follow the updates in terms and conditions, policy, and other regulations. This will allow you to make changes, if necessary, to stay compliant and prevent suspension of your store.
Now, when choosing Amazon as a platform, you don’t have another option but to obey their regulations. This is because it’s the only platform you can use for this e-commerce model. You don’t have any flexibility in choosing the terms and conditions, rules, and any other regulations. You can only accept them no matter if they suit you.
Amazon doesn’t support that country where you want to sell your products? There’s nothing you can do! You can’t ship products to buyers from that country and that’s it.
The only good thing about this rigidity is that you don’t have a lot for learning. It’s only one platform and you need to keep up with the latest updates about the regulations only for that one.
Dropshipping vs Amazon FBA: Product Research
Dropshipping allows you to look across different marketplaces, such as Oberlo and AliExpress, to find the right products for your store. Since you don’t have any upfront costs, you can check out products from different categories and niches.
However, if you want to find the best possible products that will bring you money, you must use a product research tool. Some of the best-known product research tools available on the market are Dropship Spy, Ecomhunt, Sell the Trend, Niche Scraper, AliExpress Dropshipping Center, and Pexda.
These tools help you find “winning” products, i.e. products that sell and bring good profit. What I like about these tools is that they show you everything there is about any product you choose. There’s info like the number of sales in the past week or month, the number of sellers, suggested price and profitability, trends, Facebook ads, and much more. It’s like you’re a detective who finds out everything there is about every product. How amazing is that?
Doing product research on Amazon is also easy because there are many amazing tools that do that for you. Some of the best-known are Jungle Scout, Helium 10, AMZScout, Viral Launch, SellerApp, and Unicorn Smasher. Some of them are free and some are paid, and some of the paid ones have free-forever Chrome extensions.
You must choose the tool that best works for you and do a throughout market research to find the best products. The importance of product research is very high because you will buy the products. So, you must find products that are trending, bring good profit, but aren’t too saturated. If you choose products that don’t sell, you will end up paying long-term storage fees towards Amazon and you don’t want that, do you?
Dropshipping vs Amazon FBA: Order Fulfillment
While product research dropshipping tools usually offer automated order fulfillment, the process of preparing the products ordered by the suppliers is quite tricky. Of course, as a dropshipper, you always strive to choose the most reliable suppliers possible. However, if you dropship products from AliExpress or other not-so-reliable marketplaces, you will find out that the order fulfillment process and shipping are very long. Depending on the supplier, it can last from several days to a few months.
One way is to choose suppliers that are closer to you. Hence, if you are from Europe, choose Europan manufacturers/suppliers not Chinese. The same goes for any continent. Another option is to find a direct connection/contact between you and the supplier who will ensure a quick fulfillment and shipping process.
We can immediately say that Amazon FBA wins in this aspect. It’s because they ensure quick order fulfillment and fast shipping times. Unlike with dropshipping, when using Amazon FBA, you only have to order the products you plan to sell, send them to one of Amazon’s warehouses, and then take care of marketing your store. Amazon FBA takes care of picking, packing, and shipping the product.
Another, very impressive feature of Amazon FBA that dropshipping suppliers don’t have is customer support. You don’t have to deal with clients’ questions, issues, and returns.
The only downside with Amazon FBA’s order fulfillment is that you have to pay fees for storing your products long-term. This happens if you don’t sell all the products in your store.
Dropshipping vs Amazon FBA: Marketing
Since you are independent in terms of the platform, not part of a large marketplace like Amazon, you have to put a lot of effort to market your business. Having in mind that digital marketing is what works best today, you have either learn it yourself or hire a digital marketing expert to work for you.
Most dropshippers use Google Ads, Facebook Ads, and Instagram Ads to raise brand awareness, find their target audience, and promote their products. Of course, if you don’t like spending a lot of your budget is limited, you can also go for SEO as a way to drive organic traffic. And, there’s also YouTube, which is great for dropshippers because they can post videos of the products they sell so the audience can see how they actually look.
All in all, you can choose whatever marketing method works best for you. But be prepared to work hard on this if you want to get noticed, drive customers to your store (website), and get sales.
On the other hand, by using Amazon FBA you are part of the largest e-commerce marketplace in the world. I mean, no introduction is needed for Amazon, right?
This increases the chances to get discovered among the hundreds of thousands of stores selling the same products as you (your competitors). However, you can pretty easily stand out from the crowd by using some Amazon marketing tools like land page builder, SEO tools, product research tools, and similar.
We could say that, if you have a limited budget, using Amazon SEO is the best way to get noticed and rank high. On the other hand, if you have enough money to spend on paid marketing, you can use the Amazon PPC platform. In this case, you have to do good research to learn how it works or hire a pro to do that for you.
Dropshipping vs Amazon FBA: Brand Building
If you want to become a successful e-commerce entrepreneur and have a recognizable and trustworthy brand, you have to build your brand first. With dropshipping, you have all the freedom you need for that. You can get as creative as you want and brand your business through your website or Shopify (or another platform) design, thank you cards, logo, ads design, and storytelling. You can tell your business’ story any way you want. Also, you can share the story through videos showing the product and how to use it or why it’s helpful, ads unique to your business, product descriptions, and even customer support.
Since you work independently, i.e. don’t rely on the rules assigned to you by the e-commerce platform/marketplace you use, you can do the trading in any way you want. If you do it right, you can build a small e-commerce empire!
Although Amazon has many benefits, freedom in branding isn’t one of them. Your creativity is very limited due to platforms’ regulations offering a standardized customer experience. This means that your store looks the same as all others on the platform. You can’t create ads and campaigns as you want, and you can’t brand your business in any way except through the product descriptions photos, and videos.
However, there’s an option to go around this branding issue. It’s by filling a registration request to Amazon’s Brand Registry. By being a registered brand, you will get a branded storefront and marketing elements for your products. The downside of this solution is that you have to do a lot: from providing trademarks to patents, to registry documents, and more.
Dropshipping vs Amazon FBA: Costs
The costs of dropshipping vs Amazon FBA depend on the e-commerce model, platform, tools, and marketing method(s) chosen.
E-Commerce Model and Platform
Dropshipping doesn’t have a lot of costs. The only cost associated with this e-commerce model the fee paid for the platform used. Most dropshippers choose Shopify as an e-commerce platform. This is because it’s very easy to use, comes with a 14-day trial period, and is affordable. Taking Shopify as the platform chosen, the dropshipper pays 29/month for the lowest plan. And this is the only cost this e-commerce model shares with Amazon FBA.
On the other hand, Amazon FBA comes with more costs, including:
- Seller’s account – $39.99/month
- Referral fees – 8% – 15%
- FBA fulfillment fees- from $1.97 and up to $137.32 + additional cost per exceeded weight
- Storage fees – from $0.48 to $2.40 per cubic foot; more for long-term storage; additional fees for exceeding storage limited per month
Other FBA associated fees include:
- Order removal fees
- Return processing fees
- Unplanned service fees
Additional Amazon-related rees:
- Rental book service fees
- High-volume listing fees
- Refund administration fees
And there’s the cost of ordering products. As an Amazon FBA seller, you must have the products to send to one of Amazon’s warehouses. The cost for products varies depending on which products you sell and the number of items ordered. If you sell common products like phone accessories, home decor, women accessories, and similar smaller and less expensive products, it’s best to order around 500 items in total. And, if we choose Alibaba as a supplier, the cost per item goes from $1 to $2 per less quantity. The cost per item multiplied by the amount is equal to $500-$1,000. SO, that’s how much you will spend in advance, even before you open your store.
When using the Dropshipping model, you’d need great dropshipping automation software and a product research tool. The software will help you in managing your business as it partially automates running the same. For example, some software automates the order fulfillment or inventory management (tracking the items left and restocking new ones), so you don’t have to bother with that. Some software has free plans but with limited features. Of course, if you choose their paid plans, you’ll get all features offered. Some of this free software is:
- Spocket – free, with 3 other plans going from $19/month to $99/month
- Zendrop – free, with 2 other plans: $49/month for one, for the other, you have to contact the company
- Oberlo – free for Shopify users
On the other hand, the paid software comes with many advanced impressive features and usually acceptable price. For example, Dropified offers a lifetime plan of $147 one-time payment or $47/month for their plan with unlimited features. Likewise, AliDropship costs $89.
With Amazon FBA as your e-commerce model, the costs for automation software are higher. This is simply because you’ll need tools for several tasks, including listing optimization, inventory management, PPC management, payouts, and bookkeeping. And, unfortunately, there’s no all-in-one software that can deal with all these tasks. Hence, you’ll have to buy separate tools for each task which will cost you more than $100. Again, the exact cost depends on the software chosen.
Using a product research tool is a must for both e-commerce models to help you find winning products. The cost varies according to the product chosen. It can be free or go up to around $100/month.