Amazon FBA vs Dropshipping: Pros & Cons of eCommerce Business Models
In this article, we’ll share the pros and cons of eCommerce business models: Amazon FBA vs Dropshipping.
Both can be super profitable business models which are based on the traditional buy & sell method: i.e. you source a product and sell it for more.
However, there are a few fundamental differences between Amazon and Dropshipping. Hopefully, this article will clear a few things up and help you to make an informed decision between what to go for.
We’ll start with Dropshipping…
Firstly – what is Dropshipping?
Dropshipping is a way of selling online where you (the retailer) place an order with your vendor AFTER your customer has bought it. How does this happen? Well, you advertise the product – and then once it’s sold, you place the order with your supplier and they ship it directly to your customer.
This is how dropshipping works:
- You find products that you want to sell on sites like AliExpress
- Make a website (the most common platform is Shopify)
- Run Facebook ads to your Shopify store
- When a customer buys your product, you then place the order with the supplier
- The supplier directly ships to your customer
And what is Amazon FBA?
FBA stands for “Fulfillment by Amazon”. By using Amazon’s fulfillment service, you send your stock into Amazon’s warehouse and Amazon will sort all the logistics around fulfillment. Once your listing is live, anyone can buy it on Amazon. Plus, Amazon handles all the shipping logistics.
So now you know a bit about each of these business models… How do you choose which one to go for? Which is a better choice for increasing sales and most importantly, making more money?
To help you make an informed decision, we have compiled the Pros and Cons of both in a nutshell. Let’s take a look!
So here are the pros and cons of Dropshipping vs Amazon broken down…
1. Initial Investment Costs
This typically requires less upfront investment, because you don’t have to invest in any stock. The only initial costs required are:
- Shopify website ($29 base plan per month – but don’t forget any app costs)
- And then the cost of ads (most commonly, these are Facebook ads)
You need to invest in stock however, this doesn’t have to be a big initial cost. You can choose a low-cost first product and you don’t need to a big quantity either – if you want to start small, you can start with an order of around 100 or 200 units and see how you go.
It’s likely that you’ll want to give away a few units to friends for free (to help kickstart orders and get a few initial reviews), so make sure you allow for this when you’re placing your first order. You’ll want to buy enough to allow for all the freebies and then the organic sales which should come shortly after.
There’s no risk involved in buying inventory. However, the biggest risk is in your budget for Facebook ads. You will most likely need to create a variety of different ads for testing different products and audiences. If you don’t target the right audience or make the right creative, then it’s easy to waste money as your ads won’t perform or convert into sales.
The risk is in investing in stock – but as we mentioned earlier, this doesn’t have to be a big risk. You can start small. And if you validate your products using tools like Jungle Scout, there’s really little risk involved because you can see what products are selling and what people want to buy.
3. Customer Base
You have to find your customer base yourself and most Dropshippers do this via Facebook ads. It can be quite challenging to create the best audiences here – you’ll likely need to create a few ads and test a few audiences to see what works.
Once you’ve created your listing, you will automatically appear in the Amazon catalog and can get seen by millions of shoppers every day.
The key benefit here is that these people go to Amazon with the intent to buy. You’re getting your product listing in front of people who are already in the browsing, or even better, the buying mindset.
There’s also the added benefit that buyers on Amazon are often willing to pay more for the convenience of Amazon Prime and the security around returns or refunds than any other platform.
4. Direct Customer Contact
You own all your data yourself (whether this is their name, email address, physical address, and maybe phone number too). This means that you can email them whenever you like to update them with new products, promotions, or anything else.
The con to this is that you have to manage all customer service and returns.
If you want to communicate with your customers, it has to be done within the Amazon platform. This means you can’t send any follow-up offers or emails after, and it all has to adhere to their rules.
However, Amazon sort all returns seamlessly. You don’t have to worry about anything relating to customer logistics. From packaging, shipping or returns – all customer services are handled by Amazon.
5. Product Quality / Customer Experience
You don’t have very much control of your product. When you place an order on a site like Aliexpress, you have little control of the quality.
You will have better control of your product (especially the quality) because you will most likely have done your due diligence by checking a sample before you order your stock.
Competition can be quite fierce. The main issue is that you are selling exactly the same product as everyone else; what you find online and put on your store… Well, Joe Bloggs, Richard Smith and probably hundreds of other sellers have also all uploaded and started selling too.
The beauty of Amazon is that you can use Jungle Scout to find products which have high demand and low competition. So while competition can be high, Jungle Scout will tell you what’s worth going for and what’s not.
It is worth mentioning that when you find a hot trending product on Jungle Scout, a lot of other sellers might also have jumped on the same bandwagon… But if you launch a product with a unique point of difference, then you’re in a good place.
The difference in customer shipping methods between Dropshipping and Amazon is huge!
Most Dropshippers buy their products on Amazon with the 12-20 day ePacket shipping. This is a cheap international shipping method but is not hugely reliable; lots of orders get lost with ePacket.
Shipping is super fast, reliable and is tracked too. And your products will be available to purchase on Amazon Prime too (Amazon’s lightning-speed delivery service which delivers free next day). With over 100 million Amazon Prime members around the world, this means a lot of customers can benefit from these super fast delivery services. This creates a much better brand experience and often results in happier customers.
And if you’re selling in Europe, you can easily sell to people in multiple European countries by using the Pan-European-FBA service – without having to fill out any complicated shipping or logistical forms (Amazon do it all!).
[For more advice on How to Selling Across Europe with Amazon, check out our webinar on this topic in the Media Lounge]
8. Freedom to Customize
When you order single products off Aliexpress, there is little room for customization. This means that your product is exactly the same as everyone else who is dropshipping the same product… So it’s much harder to charge a premium price for products which have no point of difference.
You can customize your products easily before you ship your stock into the Amazon warehouse. Whether you add a logo, design custom packaging, or print an insert card too – these small things make a big difference in increasing brand perception.
9. Location Independent
Both Dropshipping and Amazon FBA are eCommerce models that are very hands-off in terms of logistics.
Neither business models require you to indulge in product packing or shipping process or managing your inventory. It is an ideal solution for entrepreneurs who desire to save their precious time.
And both are ideal solutions for people who want the freedom to work anywhere in the world – all you need is a laptop with stable wifi so you can communicate with your suppliers, login to Amazon or Facebook, and you can run either.
So I hope this has helped you weigh up the difference between Dropshipping and Amazon by highlighting the pros and cons of both eCommerce business models. Both can be very fruitful businesses with a lot of money to be made by doing either.
Our personal preference (especially for people who are new to eCommerce) is to start with Amazon. In our opinion, it’s easier to start and there’s a lower risk. If you do your product research, you can easily find a product that people are looking to buy – and if you customize your product, you can make sure there is a great point of difference.
If you’re looking for any advice on starting your eCommerce journey and want to apply to join ImportXperts, just click on the following link:Apply now