Are you confused, which one should you choose in Amazon FBA and Dropshipping? Well, in this article, I will clear all your doubts about both the online selling methods. This is an ultimate comparison between Amazon FBA vs Dropshipping.
eCommerce has evolved after the 2020 COVID-19 pandemic. More and more people are coming online for their daily needs.
So, becoming an online seller is a good business option. When it comes to the different online selling business methods, dropshipping and Amazon FBA or fulfillment by Amazon are the most common.
Well, choosing between both of them is not so easy. Amazon FBA and Dropshipping, both have their own advantages and disadvantages.
In this ultimate comparison, you’ll learn all about Amazon FBA and dropshipping that will help you to make a better decision.
Now, let me first give you a quick introduction to both the eCommerce methods.
What is Amazon FBA or Fulfilment by Amazon
The full form of Amazon FBA is “fulfillment by Amazon”, which is a fulfillment service provided to the existing Amazon sellers who want to opt for it.
In FBA service, Amazon provides its warehouses to store your products there and ships your orders on your behalf as well.
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You have to ship your products in bulk to their warehouses located in various cities throughout the world. After then they manage the inventory, process, and ship your products as per the orders and update you about the stocks.
This is an add-on service that is provided to the sellers who are already selling on Amazon’s platform.
So the bottom line is, once you have shipped the consignment to the warehouse, you don’t need to worry about processing and shipping the products. All things will be done by Amazon.
Here is the workflow of Amazon FBA which will help you understand how Amazon FBA works.
What is Dropshipping
Dropshipping is an eCommerce method in which sellers do not own the product physically. They pass on the order to the dropshipping suppliers. Supplier processes and ships the product on behalf of the seller.
So, you just need a website to sell the products. Once you receive an order, you pass on the order to the supplier and they process and ship the order on your behalf.
The basic difference between both of them is, in Amazon FBA you have to own the products physically to send to the Amazon warehouse wherein dropshipping you don’t need to own the product physically.
Here is the workflow of dropshipping which will help you understand how dropshipping works.
Amazon FBA vs Dropshipping – Comparison Chart
Here is a quick comparison table between Amazon FBA and Dropshipping on various factors.
Features of Amazon FBA
In this section, you will read about the basic features of Amazon FBA so that you could evaluate this with dropshipping side by side.
Amazon Warehouse and inventory management – Amazon FBA is Amazon’s in-house facility in which they provide their warehouse to store your products there. They also manage your inventory and update you about it on your seller dashboard.
Global selling opportunity – Amazon has a wide global presence with its country-specific domain and services. They offer their seller to sell all over the world from any country. Such as if you are from India and you want to sell your products to USA customers then you can easily do it by opting for their international selling platform.
Processing and shipping by Amazon – Amazon FBA takes care of processing and shipping of orders for you. That’s a cool thing for those who don’t want to indulge in packaging and shipping yet want to start an online selling business. You just need to process and ship the consignment to the Amazon warehouse. The rest Amazon will do for you.
Amazon Marketplace – Amazon FBA opens your door to the largest online marketplace in the world. Amazon is operating in most countries and allows you to sell your products all over the world from anywhere.
Inbound Pickup service – Another cool advantage of Amazon FBA is they pick up the consignment directly from your address so you don’t need to worry about the shipping of consignment. The only thing you have to do is to check and count the products and pack them again for the Amazon warehouse.
Customer care service – Amazon has the best customer care service for both customers and sellers. You can contact their customer care service in any doubts and when your customers have any problem they also do the same. Amazon representatives help them out directly on your behalf.
Pros and Cons of Amazon FBA
Well, every product or service has its own advantages and disadvantages. It’s my duty to show them to you.
In this section, you will learn about the pros and cons of opting for Amazon FBA service. This will clear your doubts about it if any.
Leverage of Amazon Branding – Amazon is an established brand image that you can leverage with Amazon FBA. It has its own marketplace which is the largest online marketplace in the world. Listing your product on the Amazon marketplace gets more eyeballs to it. Which increases the sell rate.
Lightning-fast Operations – Amazon FBA provides lighting fast operations directly from their warehouse. Most of the Amazon warehouses deliver the items within 1-2 days. SO, by opting for Amazon FBA you can ensure that your products will deliver to the customer within the delivery date.
Free Shipping option – Amazon FBA allows you to add a free shipping option for your products. People love to buy products with free shipping. That increases the chance of selling more products.
Low Operating Costs – As you are holding your products in Amazon warehouses, the cost of storing, processing, and shipping become lower compared to other options.
No need to process and ship the products yourself – With Amazon FBA you get more freedom. You don’t need to process and ship the products. Amazon will do all this on your behalf.
Amazon handles the customer service for you – And last but not least, Amazon handles the customer service for you. This means you don’t need to check your emails frequently and answer your customer’s queries.
Higher Initial Capital – As you don’t handle the inventory you need a big consignment to ship to Amazon’s warehouse. That means you have to buy more items at once. This increases the initial capital requirement. If you could sell the products yourself, you can manage your inventory as per the requirement but it’s not possible with Amazon FBA.
Storage Fee – Amazon FBA charges you a product storage fee which varies as per the size of the item. So, you can’t sell bigger but cheap products. You have to choose costly but smaller products to make the storage cost low.
Disposal fee (in case of no product sell) – Sometimes, some of the items don’t sell. There are multiple reasons behind this. But in this situation, when you want Amazon to dispose of the rest of the items, they will charge a disposal fee.
Less freedom to sell (Limited to Amazon’s marketplace) – Amazon FBA allows you to sell only on their marketplace. You can’t sell the items stored in the Amazon FBA warehouse anywhere else.
5 reasons to choose Amazon FBA
Reason 1 (Brand Image) – Amazon is the largest online marketplace in the world. If you become an Amazon FBA partner then you will get the benefit of their existing brand image which helps you in your advertisement and other marketing efforts.
Reason 2 (Concentrated Approach) – Amazon only allows you to sell on their marketplace so you don’t need to try your marketing efforts here and there. You can just concentrate on the Amazon marketplace to sell more and more items.
Reason 3 (No inventory management, processing, and shipping efforts) – Amazon will take care of all inventory management, processing, and shipping of your products. You are just responsible to ship the consignment to their warehouse.
Reason 4 (Low advertisement cost) – Amazon has already billions of customers in their database so you don’t have to worry more about the marketing. As an Amazon FBA partner, you are displaying your items to those customers without any extra cost.
Reason 5 (In House Customer care service) – Amazon FBA will answer all the customer queries on your behalf so you don’t need to set up customer care service for your business.
Features of Dropshipping
Above we have learned all about Amazon FBA which includes the features, pros and cons, and the reasons why should you opt for Amazon FBA.
Now it’s time to discuss the features, advantages, and disadvantages of dropshipping so that we could evaluate it with Amazon FBA and make a better decision that which one we should choose.
Well, first off…let’s discuss the features of dropshipping.
Easy to start – Dropshipping is an easy-to-start online business. Anybody who has basic knowledge of eCommerce business can start dropshipping.
The best thing is, there is less paperwork in dropshipping compared to Amazon FBA. Also you don’t need to buy the consignment and ship it further to Amazon FBA facilities.
Even you don’t need to touch the original product. Processing and shipping of the product are managed by your supplier.
Low costing – Any business leads costing to buy the consignments. But dropshipping does not. In dropshipping you get the order then you contact the supplier to ship the product to the customer.
That’s why there is no upfront cost to storing, managing, processing, and shipping products.
You can imagine, how much capital you can save with dropshipping by avoiding; storing, managing, processing, and shipping products.
Freedom to customize store – Another great feature of dropshipping is you can build, manage, and customize your own eCommerce store under your branded domain name. However, there are dropshipping suppliers available for Amazon and eBay also.
Some dropshipping suppliers provide you with the white page website features so you don’t need to host your website. You can customize the domain name as your branded top-level domain. Spocket is one of them which is the biggest dropshipping supplier for US-made products.
While, some suppliers provide tools that work side by side with the leading eCommerce website makers such as Shopify, Bigcommerce, and Woocommerce.
All of them allow you to customize your website, run your website under your own domain name, etc.
Inventory management – In dropshipping, there are two types of inventory management. The first one is when your supplier provides you the white page website then inventory is managed by the supplier on the website backend.
The second one is, when you are hosting your own website then either you have to manage the inventory on your own or you can use the supplier’s dropshipping tool to manage the inventory.
Virtually there is no inventory management in dropshipping as you don’t know or need to know the quantity of the product. The supplier has to do it on their side.
Processing and shipping by the supplier – The processing and shipping of the product are all done by your supplier. when you receive an order, you pass the order to the supplier. Then the supplier process and ships the product on your behalf.
This makes dropshipping different than other eCommerce business methods.
Online tools are available – There are several online tools available to manage your dropshipping business automatically. These tools make dropshipping more automated and a time saver. You can then utilize that time to do digital marketing for your website.
Multiple sales channels – Apart from Amazon FBA, dropshipping opens your door to multiple sales channels. You can do dropshipping on your own website, on your Facebook page, and through other channels.
You can use Google ads, Facebook ads, and other social media ads to sell your products. Even, you can hire influencers to promote your products.
In dropshipping, you can sell abroad by targeting any country but in Amazon FBA you have to register to the native Amazon marketplace to specific countries. Which is time-consuming and sometimes not possible due to lots of paperwork.
Automated system – There are several dropshipping tools available in the market to automate the process such as passing on the order to the supplier, inventory management, and money transfer. So you can focus on marketing without worrying about these tasks.
Pros and Cons of Dropshipping
Well, dropshipping has also some drawbacks that you should take into account before starting your dropshipping business.
In this section, I will show you some pros and cons of dropshipping.
Low cost – As you don’t need to buy the product so you don’t need much working capital. You just pass on the order to the supplier and he will process and ship on your behalf. You only need the cost to create the website and marketing the products.
Multiple sales channels – You can use multiple sales channels to sell your products. Such as, you can create an eCommerce website and promote the products through Google ads. You can also sell your products on Facebook and Instagram.
More freedom – As you can sell the products on multiple platforms, dropshipping gives you more freedom than Amazon FBA. With Amazon FBA you can only sell on their marketplace but with dropshipping, you can sell anywhere on the internet.
Chances of default – Sometimes, people mistakenly tie up with fraud dropshipping suppliers. In that case, you can lose your customer’s money. Or even the supplier tries to acquire your customer by shipping the products with their personal branding.
So the default probability is higher than Amazon FBA.
Needs to create a selling platform – In dropshipping, you need to create a selling platform such as an eCommerce website where you take orders. In Amazon FBA you will get a readymade selling platform but in dropshipping, you have to create it which attracts costs.
More marketing capital required – Apart from Amazon FBA, you need more marketing capital to compete with the established players. As you don’t have an established platform at the start so you have to spend money on marketing and promotion.
5 Reasons to choose Dropshipping
Reason 1 (Simplicity) – Dropshipping is simple to start and run. You need a supplier who processes and ships the product on your behalf and a website where you can sell your products. That’s it. All the processes, even the money transfer can be automated.
That’s why, once the system is set up, it takes much less daily work to run.
Reason 2 (Low costing) – As there is no inventory, your starting capital will be cut up to 80%. You only need capital to create the eCommerce website and promotion.
Reason 3 (Freedom) – Apart from Amazon FBA, you can sell the products anywhere without bounding with anyone. That’s why dropshipping gives you more freedom.
Reason 4 (Scalable) – You can scale the dropshipping business with time. However, Amazon FBA is also scalable but here is a limitation to sell under their brand and marketplace which bounds your scalability. But, in dropshipping, you can scale your business to cross-border and cross-platform and deal with a large audience.
Reason 5 (Automate the process) – There are several dropshipping automation tools available to automate the process. After setting up the automation, you just have to keep your eyes on sales and transactions and work on the marketing.
Frequently Asked Questions
Which is better between Dropshipping and Amazon FBA?
Both have their advantages and drawbacks. You should first evaluate both as per your need and expectations then choose one of them.
What is the basic difference between Dropshipping and Amazon FBA?
Amazon FBA is a program run by Amazon in which, Amazon will store, process, and ship your products. But you have to send the consignment to their warehouses. However, in dropshipping, you even don’t see the product physically. You pass on the order to the dropshipping supplier and the rest will do by them.
Which one should you choose between Amazon FBA and Dropshipping in 2022?
In 2022, both platforms are good to start on. But I always prefer dropshipping as it gives you more freedom, much less capital required, and is also scalable.
How much can you earn with Amazon FBA?
You can earn millions literally, but if your product selection is not good or it’s too competitive then you can lose your money.
How much can you earn with Dropshipping?
The sky is the limit. If you choose a good supplier and you are good at marketing and promotion.
Is there any third option available?
Yes, you can start affiliate marketing which is a very lucrative online business option these days.
Is affiliate marketing better than dropshipping or Amazon FBA?
Maybe, it all depends on your efforts and smartness. If you play well then you can earn millions. either way, you choose.
Wrapping Up: Amazon FBA vs Dropshipping
Well, above you have learned the comparison of Amazon FBA Vs dropshipping. Now it’s time to choose one of them.
However, you can choose the third option (affiliate marketing) also which I am already doing and making a five-figure income on monthly basis. If you want to learn more about affiliate marketing you can read my article ” How to Start a Successful Amazon Affiliate Niche Site .
Let me know in the comments which one you are choosing. And don’t forget to share this article on social media. Sharing makes me more than happy and encourages me to write more valuable content in the future.
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