Navigating the world of e-commerce can take time and effort, especially when deciding on the best business model. Here’s a fact: Dropshipping and FBA are two popular models among online sellers that significantly impact how they operate and profit.
This article will help clarify the difference between Amazon FBA and dropshipping models by comparing their advantages and disadvantages for selling on Amazon and other models, providing an in-depth look at each strategy to make an informed choice. Let’s compare Amazon FBA and dropshipping model for your dropshipping company.
What is Dropshipping?
Dropshipping is a business model in which sellers don’t hold inventory but partner with suppliers who handle product storage, packaging, and shipping directly to customers.
Pros and Cons of Dropshipping
The dropshipping business model has proven successful and beneficial for the merchants. However, it has its pros and cons. Let’s come and take a look.
Pros of Dropshipping
The dropshipping business has many good points. You don’t need a lot of money to start. It is easy to begin with the help of an online store. Plus, you can avoid dealing with giant boxes in your home or office because inventory is unnecessary.
Also, dropshipping lets you sell many items without holding them yourself. This way, you can explore more product markets!
Cons of Dropshipping
Dropshipping – an ecommerce business model – can have some downsides. One big issue is that you need to control the product quality. Products come from your dropshipping suppliers, not you. So, if there’s a problem with an item, it’s hard to fix.
Another downside of dropshipping is the need for more stock ownership. It means you rely on others for product supply. If your supplier runs out of items or closes down, your business will suffer, too.
What is Amazon FBA?
Amazon FBA stands for Fulfillment by Amazon, is a service offered by Amazon that allows sellers to store their products in Amazon’s fulfillment centers.
Pros and Cons of Amazon FBA
Even though Amazon’s FBA is amazing for Amazon sellers, it still has pros and cons. Let’s take a look at them for eCommerce businesses using FBA.
Pros of Amazon FBA
Amazon FBA lets you reach more people. The reason is that you can sell to Amazon Prime customers. They pay for fast shipping and often buy a lot. You also use Amazon’s strong name when you sell on their site along with Amazon warehouse, which gives you the benefit of storing your products.
The company does the hard work of packing and shipping items for you. Plus, their ad programs help your store show up in more places online.
Cons of Amazon FBA
One downside of dropshipping on Amazon is the high fulfillment costs, especially during busy times like the holidays. It can eat into your profits and make it more challenging to run a profitable business.
Another drawback is that you must ship your products in bulk to Amazon’s warehouses, which may not be ideal if you have limited storage space or prefer to control your inventory.
Additionally, there may be limitations regarding Amazon Marketplace on the types of products that can be fulfilled through Amazon FBA, so you’ll need to check if your items are eligible. Finally, sellers using Amazon FBA may have less control over packaging and branding than dropshipping, impacting the overall customer experience.
Dropshipping vs Amazon FBA
Dropshipping and Amazon FBA differ in stock ownership, control over product quality and delivery times, and capital requirements.
Differences in stock ownership
For the products on Amazon, sellers have to purchase and own their inventory upfront. It means they must invest in stock and store it in Amazon’s warehouses until it sells. On the other hand, dropshipping sellers do not need to own any merchandise.
They work with suppliers who handle the product storage and shipping for them. So, if you choose Amazon FBA, you’ll have more control over your inventory but will also require more capital upfront. If you want to start an Amazon FBA business without holding inventory, check out this complete guide.
In contrast, dropshipping allows you to start selling without owning any stock, which could be advantageous if you have limited funds or prefer a more flexible approach.
Control over product quality and delivery times
When deciding between dropshipping and Amazon FBA, one crucial factor is your control over product quality and delivery times. With dropshipping, you have less control over the quality of products because you rely on suppliers to fulfill orders.
It can lead to potential issues with product consistency and customer satisfaction. On the other hand, with Amazon FBA, sellers have more control over product quality as they can inspect and prepare their inventory before sending it to Amazon’s warehouses.
Regarding delivery times, dropshipping tends to have slower shipping than Amazon FBA, which offers faster delivery options through its fulfillment network. If having more control over these aspects is essential for your dropshipping store, then considering Amazon FBA is a better choice for you.
Capital requirements
Dropshipping is a business model that requires very little upfront investment, making it ideal for entrepreneurs with limited funds. With dropshipping, you don’t need to own any inventory or buy products in bulk.
Instead, when a customer orders on your online store, you forward the order details to a supplier, who will then ship the product directly to the customer. It means you don’t have to worry about buying and storing inventory or dealing with shipping logistics.
In contrast, Amazon FBA (Fulfillment by Amazon) requires merchants to own the inventory upfront before sending it to Amazon’s warehouses for storage and fulfillment. It can require significant capital as you need to purchase products in advance.
Which Business Model is Right for You? Amazon FBA vs Dropshipping
Considerations for beginners or sellers who want to sell products on Amazon with limited capital and reviews for sellers looking for greater control and scalability will help determine the suitable business model.
Considerations for beginners or sellers with limited capital
Dropshipping can be a good option if you are a beginner or have limited capital. With dropshipping, you don’t need to buy inventory upfront. You can open an online store and start marketing the products without worrying about storing or shipping them.
It eliminates the need for significant upfront investment in inventory and storage fees that Amazon FBA may require. Dropshipping allows you to test different products with minimal risk and cost, making it a more affordable option for owners with limited capital.
Considerations for sellers looking for greater control and scalability
If you’re a merchant or retailer who wants more control and the ability to grow your business, there are a few things to consider. With Amazon dropshipping in 2023, you can transfer responsibility for storing inventory and fulfilling orders to Amazon.
It gives you greater control over your products and allows for scalability as Amazon handles the logistics. On the other hand, dropshipping gives you more control over showcasing your products but less control over storage and fulfillment.
It’s essential to weigh Dropshipping vs Amazon FBA pros and cons to determine which will give you the level of control and scalability that aligns with your business goals.
Other Options for Sellers Amazon FBA and Dropshipping
Sellers can also use Amazon FBM (Fulfillment by Merchant) with third-party logistics (3PL) services or set up a Shopify store and utilize 3PL services for order fulfillment.
Amazon FBM using 3PL Services
FBM stands for Fulfillment by Merchant, an option on Amazon where retailers handle storing and delivering their products to customers. With FBM, merchants can use third-party logistics (3PL) services for warehousing, shipping, and customer service.
One benefit of using 3PL services with FBM is that it can make operations more efficient for sellers. It can help streamline tasks like inventory management, order fulfillment, and customer support.
Plus, compared to using Amazon FBA (Fulfillment by Amazon), FBM usually has lower fees, which means higher profit margins for sellers. Overall, using 3PL services with FBM gives sellers more control over the fulfillment process while still benefiting from selling on Amazon’s platform.
Shopify using 3PL Services
Shopify is taking advantage of third-party logistics (3PL) services in 2023. Shopify dropshipping services give entrepreneurs more time and flexibility to manage their ecommerce operations. Instead of solely relying on dropshipping or Amazon FBA, sellers can consider using 3PL as an alternative or addition.
There may be some overlap and integration between Shopify and Amazon FBA. Ultimately, the choice between 3PL services, dropshipping, and Amazon FBA depends on individual business needs and preferences.
Benefits of Third-Party Logistics Providers
Third-party logistics providers offer a range of benefits, including efficient procurement and receiving of products, streamlined order fulfillment, secure storage solutions, and reliable transport services.
Procurement and Receiving Products
With third-party logistics providers (3PLs), entrepreneurs can rely on their expertise to procure and receive products. It means that the 3PL will take care of sourcing products from suppliers and ensuring delivery to the correct location.
Entrepreneurs can benefit from the convenience of not personally managing supplier relationships or worrying about inventory availability. Instead, they can focus on other aspects of their business, such as marketing and customer service.
Additionally, by partnering with a 3PL, entrepreneurs can tap into their network of suppliers, which may result in better pricing and quality control for the products being sold.
Order Fulfillment
Order fulfillment is a crucial aspect of running an online business. It refers to receiving and processing customer orders, picking and packing the products, and getting them delivered to customers.
In the context of dropshipping vs Amazon FBA, order fulfillment works differently.
In dropshipping, as a seller, you would outsource your order fulfillment to suppliers or manufacturers. When a customer places an order on your online store, you will forward that order to your supplier, who will then handle packaging and shipping directly to the customer.
It means you don’t have to worry about storing inventory or dealing with shipping logistics.
On the other hand, with Amazon FBA, once you send your products to an Amazon fulfillment center, they take care of picking, packing, and shipping when orders come in. It allows for faster delivery times since Amazon has a vast network of warehouses strategically located across different regions.
Storage
Both Amazon FBA and dropshipping save sellers the hassle of storing inventory themselves. Instead, third-party providers handle the storage aspect. With dropshipping, sellers don’t need to invest in storage space or worry about managing inventory.
The supplier or manufacturer stores the products until they are shipped directly to customers. On the other hand, with Amazon FBA, sellers send their products to an Amazon fulfillment center, where they are stored until a customer places an order.
Both methods free up valuable space for entrepreneurs and allow them to focus on other aspects of their business, like marketing and sales.
Transport
Transportation is essential to consider when choosing between Amazon FBA and dropshipping. With dropshipping, products are often shipped directly from suppliers or manufacturers, which can result in longer shipping times.
On the other hand, Amazon FBA offers faster shipping times and reliable delivery. Customers can receive their orders more quickly, leading to better customer satisfaction.
So, if you prioritize fast and reliable shipping, Amazon FBA might be your better option.
Conclusion
In conclusion, deciding between dropshipping and Amazon FBA business in 2023 requires considering your goals and resources. Dropshipping is a low-cost option for beginners or those with limited capital, but it comes with slower delivery times and less control.
On the other hand, Amazon FBA requires upfront investment in inventory but provides more control over the fulfillment process. Ultimately, your choice should align with your business model and objectives.
FAQs about dropshipping vs Amazon FBA
What is the difference between dropshipping vs Amazon FBA?
Dropshipping involves selling products without holding inventory, while Amazon FBA (Fulfillment by Amazon) allows sellers to store their products in Amazon’s warehouses for fast shipping.
What are the pros of dropshipping as a seller?
The pros of dropshipping include the following:
- Low startup costs.
- No need for inventory storage.
- The flexibility to sell a wide range of products from different suppliers without handling shipping.
What are the cons of dropshipping as a seller?
The cons of dropshipping include lower profit margins due to higher product costs, potential issues with product quality or supplier reliability, and less control over shipping and customer experience.
What are the pros and cons of using Amazon FBA as a seller?
Pros of using Amazon FBA include access to Prime customers, efficient order fulfillment, customer trust in Amazon’s brand, and easy scalability. However, it also comes with fees for warehousing and fulfillment services and increased competition on the platform.