When we talk about e-commerce, the usual thing that comes to mind is to have your own product. This is not true anymore. Over the years, the e-commerce industry has changed, and there are now many ways to start your own business.
Examples of these are dropshipping and Amazon FBA. With dropshipping, you can sell products even if you do not make one. For Amazon FBA, you make your own products but you do not need a website.
But what are the differences between the two? Is dropshipping better than Amazon FBA or is it the other way around?
Today, you will learn how these two things work, what their pros and cons are, and you can decide which e-commerce platform is the best one for you.
What is dropshipping?
Dropshipping is an e-commerce strategy where you, the dropshipper, sell products that you do not make. To do this, you need to create your own store, and then charge your customers from this store.
Your e-commerce website must have photos and product descriptions, and also a payment processor so you can charge credit card or other types of payments online.
Once a customer buys an item from you, you need to order that item from your supplier, and that supplier will ship that item to your customer’s shipping address.
Since your customer thinks that you are the product developer, you are in charge of taking care of the customer’s concerns.
In a snapshot, here is how dropshipping works:
- You choose a supplier and products
- You launch these products on your online dropshipping store
- Customers buy them from you and you receive the payment
- You order the product from your supplier
- Supplier ships the item to your customer
As you can see, you do not have to keep an inventory. What this means is that you do not need a large capital to start a dropshipping business. The only money you would spend is the money you need to pay for a website, which you can build on your own.
Next, you only spend money once an order has come in. In fact, you do not spend your own money once the order comes in because the customer already paid for it. You just have to front it to your supplier from your own pocket because it can take days before you can withdraw your customer’s payment to you.
Dropshipping is an easy business to build, provided that you choose to sell great products with a huge market, and if you know how to market your own store. It is the preferred choice of many entrepreneurs because it is also affordable to build.
What is Amazon FBA?
Amazon FBA means Fulfilment by Amazon. In this business model, you have to create or have your own inventory of products. What you have to do is to ship these products to the Amazon warehouse, where they would catalog it.
If you want, you can buy products from a supplier in bulk, and then have it shipped to Amazon. You do not really have to create something on your own, unless you want to.
Once they have received the properly and properly marked them as yours, you can now post them on Amazon. Once a customer orders, it is Amazon who would ship the item to the consumer. This is the reason why it is called a fulfilment service—it is Amazon that fulfills the order, not you.
In a nutshell, this is how it works:
- Register to the Amazon FBA program and get approved
- Create your own products
- Mark or name them
- Ship them to the Amazon Warehouse
- Wait for confirmation that your products are ready
- Post the products on Amazon
- Wait for orders to come
As you can see, the big difference between Amazon FBA and dropshipping is that you need an inventory. What this means is that you have to spend money up front to have products to sell.
You also need to get approved on the Amazon FBA program, but you do not have to build your own store because Amazon already has a huge platform. If you were not approved, you cannot do Amazon FBA.
In Amazon FBA, you do not have to worry about shipping rates and the process of shipping. They take care of it. The same goes for dropshipping, but your store must have different shipment pricing depending on the product’s origin country and the customer’s destination country.
Pros and Cons of Dropshipping
While dropshipping is easy to build, it has its downsides, too.
Small investment is required
With dropshipping, you can start a business for as little as $29. If you build your store in Shopify, you can get a plan that costs only $29 per month. You do not even have to pay this annually, as Shopify would charge you on a monthly basis. If you do want to continue anymore, then you just have to cancel the subscription.
Also, getting started does not require an inventory. All you have to do is to find a dropshipping supplier and list their products on your store like as if they are your own. Plus, you only have to pay for the product once an order is placed in your store.
No hassle in shipping
With dropshipping, you do not need to worry about packaging and shipping. All of these are taken care of by the dropship supplier. In some cases, you can even ask them to remove their brand name from the product and replace them with yours.
With dropshipping, all you have to do is to find out which countries your supplier ships to, and then know how much they charge. Once you have this info, you just need to use that in your own store so you can also charge your customers the right amount of shipping fee.
Easy to scale up
Once a dropshipping store has lots of traffic and you start getting sales, you can easily add more products to sell. Once you add these products, you can create bundles, coupons, discounts, and even send free items in exchange for a higher order value.
On top of this, you can also start a new store if you want to, but on a different niche. Since you already succeeded on the first one, you should have learned a lot from your previous mistakes by this time. You would find it easier to market your new store, as you are just duplicating your success in the first one.
Product quality and shipping time
In a dropshipping business, you have no control over the quality of the products you sell. Since you are not the product designer and manufacturer, you can only rely on what the supplier does. If the product you chose is bad, your customers would ask for a refund and you lose money.
Shipping is also not in your control. Some suppliers take days to look for the item from a warehouse, and they can also ship the wrong items. If you are dropshipping from China, your package can take two months to reach the customer.
Difficult to market
As a dropshipper, you are responsible for your own marketing strategy. You can do blogs, YouTube channels, and advertisements. Some of these may work, and some may not. If you are not an expert in digital marketing, you will do this by trial and error.
You will also have to face serious competition. You are not the only person selling the same products that you get from your supplier. For all you know, the supplier may have a dozen dropshippers like you. In this case, you should know how to market your store better than your competition.
Pros and Cons of Amazon FBA
Amazon FBA is the preferred business model of manufacturers and artists because they can sell the products in a huge platform and now worry about shipping. But are there cons to it, too?
No need to market
If you sell on Amazon, you are like a fly sitting on a cow. You are secured as far as marketing efforts are concerned. Amazon spends so much money in advertising the goods, which means you do not have to spend money yourself.
On top of this, the Amazon website itself has a great marketing strategy. They show users several product suggestions based on their search terms. Your products can appear in these search terms, and you would get sales without lifting a finger.
No hassle for shipping
Amazon’s shipping time is the best. No one can beat it. It offers 24-hour shipping and no one in the world can do it better. With Amazon shipping, you do not even have to worry about setting our own shipping rates. Since your products are in the Amazon warehouse, they would take care of it.
Even if you sell internationally, it is Amazon that would determine how much to charge an international buyer. All you have to do, really, is to sit back and wait until a sale is made.
While it is true that you have tough competition on Amazon, you are in full control of your pricing. Amazon does not really care because you pay them fees if a sale is made, plus you have to pay them for the warehousing fee.
Since Amazon is credible, you can price your products at the higher end of the product price range. It is just up to you how you write your product description to convince the reader that yours is the best.
Huge capital is required
One of the biggest setbacks in the Amazon FBA business model is you need a huge amount of money to get started. If you are manufacturing your own products, then you need to buy equipment, and that means you need capital. You also need money to buy raw materials, and money to ship the items to the Amazon warehouse.
The alternative to this is to buy ready-made products, mostly from Chinese suppliers where you can buy them in bulk at a low price. But again, buying in bulk means you need money. If each item costs $10 and you need a minimum of 100 to buy in bulk at that price, then that is already worth $1,000, and you have not even shipped that to Amazon yet.
High fees to pay
Amazon FBA is not a free business just because you shipped the item to Amazon. As a professional seller, you have to pay a referral fee of 15% after the product is sold. You also have to pay a flat fee of 1$ for every item you sell.
On top of that, you must pay $39 per month as a subscription fee if you are selling more than 40 items on the platform. If you are paying for this, the individual fee of $1 per item is waived. You also have to pay a storage fee, the price of which depends to the size of your product.
Frequently Asked Questions
What are the differences between Amazon FBA and Dropshipping?
The main differences are the following:
- You do not need an inventory in dropshipping
- You have no control on the product quality in dropshipping
- Dropshipping does not have a lot of fees
- Amazon FBA does better in shipping times
On both business models, you have no control over the shipping because you do not have the products anymore. But with Amazon, they do a better job because they have their own shipping partners and employees in the warehouse.
Is affiliate marketing better than dropshipping?
If what you want is a passive income, then you have to do affiliate marketing. In it, all you need to do is to endorse other people’s products, and then you get a commission if they buy.
In dropshipping, you are taking a more active role. You have to post products, process orders, answer customer inquiries, and fix customer complaints. You also need to keep up with the trend if the products you are selling are no longer popular.
Affiliate marketing, however, can take years to make money. You have to work hard to create content, and you will only earn a lot of money once you have gained traffic.
If you want to earn quickly, then dropshipping is better than affiliate marketing because you can make a sale in as little as a few weeks.
What’s better: Dropshipping or Amazon FBA?
This depends on your conditions and preferences. Amazon FBA is better if you do not know how to market your products and if you do not mind the fees. It is also much better if you want your products to be sold to the whole world, without you having to worry about shipping costs and customer issues.
But if you know how to market, and you like to get followers and repeat customers, then dropshipping is the right choice for you. It is also better for you if you do not have a huge budget to start an online business.
If you are just starting out on the online business world, you have to take care of your money. Amazon has a huge risk because you need a huge amount of capital up front. With dropshipping, you can start a business with as little as $50.
The difference between dropshipping and Amazon FBA is that with dropshipping, you will work harder. You have to upload your own products, fulfill orders manually, and also create marketing strategies to be able to sell.
If dropshipping fails, then you would have lost only a few bucks. But if Amazon FBA fails, then you have a huge inventory that will get stuck in your house.
Before you choose, list down all the expenses and the activities that you need to do and pay. Weigh the pros and cons carefully, and ask yourself which one works best for you in your current situation.