Amazon FBA has several advantages, making it a good entry point for new business owners. However, dropshipping also has a few benefits that might align with your strengths.
Ultimately, you’ll need to compare both e-commerce business models by reading this article to make the right choice.
Key Takeaways
- Amazon FBA wins in 8 of the 13 categories against dropshipping.
- The profit margins with an Amazon FBA business are bigger, but a higher upfront investment is required.
- You can use seller software solutions to maximize the Amazon FBA business model.
What Is Amazon FBA?
Amazon FBA (Fulfillment by Amazon) is a service where Amazon handles various aspects of the selling process, such as packaging and shipping, storage, returns, and customer support, on behalf of sellers.
On their end, Amazon sellers pay a fee for this service.
These sellers send batches of stock to Amazon FBA warehouses for monitoring and management. Sellers can also monitor and manage their inventory through the Seller Central dashboard.
What Is Dropshipping?
Dropshipping is an e-commerce strategy that centers around selling products online without keeping inventory.
The seller lists a product online and orders from the manufacturer/distributor after a buyer pays for the goods. Essentially, the dropshipper acts as a middle party between the buyer and seller.
Amazon FBA vs. Dropshipping: 13 Comparisons and Talking Points
Are you wondering whether Amazon FBA or dropshipping is the suitable model for your e-commerce business? Here’s a table allowing you to compare the models at a glance:
| Amazon FBA | Dropshipping | |
|---|---|---|
| Reliability and Trust | Winner | |
| Upfront Investment Requirements | Winner | |
| Traffic | Winner | |
| Fees | Winner | |
| Order Fulfillment | Winner | |
| Competition | Winner | |
| Packaging | Winner | |
| Product Quality and Availability | Winner | |
| Customer Service | Winner | |
| Rules and Regulations | Winner | |
| Multi-Channel Fulfillment | Winner | |
| Amazon Seller Software Solutions | Winner | |
| Profit Margin | Winner |
Reliability and Trust
Amazon is a trusted brand name known worldwide. Therefore, third-party sellers operating on the platform don’t need to convince visitors to trust the website and product listings.
Also, people know Amazon is a reliable brand that delivers on time. Hence, sellers can focus on highlighting product benefits.
In comparison, part of the sales funnel for dropshippers operating from a standalone website must convey trust and reliability. This might be tricky depending on your niche, and some potential buyers might leave simply because they haven’t heard of your brand.
Upfront Investment Requirements
Amazon FBA requires a significantly bigger upfront investment compared to dropshipping. That’s because you need funds to pay for the first batch of products, and it can cost between $2,000 to $5,000.
Whereas, with dropshipping, you don’t need to invest in stock. So, the upfront investment requirement is significantly smaller. Hence, dropshipping is the better option for sellers with a small investment budget.
Traffic
Generating traffic can be one of the most challenging aspects of selling online since it requires money, which could eat into profitability. However, Amazon is the biggest e-commerce website in the world, with millions of daily users.
Hence, driving traffic to your Amazon product listings is far easier than starting from scratch with a new dropshipping website.
Fees
Amazon FBA has a long list of fees that eat into the profit margin. This includes storage fees, referral fees, a Professional account, and more.
Likewise, the fee structure changes often, so sellers need to stay informed to understand the financial impact on their business.
On the other hand, you aren’t forced to pay fees for running a dropshipping business, and there’s more control over what you pay. For example, you may need to pay website hosting fees, but you can decide what hosting company to choose and get a good deal.
Order Fulfillment
The Amazon FBA service is a well-oiled machine regarding order fulfillment.
It’s its biggest strength since the company invests heavily in reducing delivery time.
Therefore, the Amazon FBA model provides reliable and fast order fulfillment.
However, the delivery speed is significantly slower with dropshipping in most cases.
It depends on the supplier’s efficiency, and there’s no way to know what to expect.
Also, if the supplier is located in a different country, the order fulfillment time will significantly increase.
Competition
Amazon is becoming a more competitive marketplace. But with so many product categories, you can find ones with low competition.
However, dropshipping tends to be a more competitive business model.
That’s because the low-risk nature of the business model means many other sellers are focusing on the same products.
Packaging
You need to use Amazon’s packaging when using its FBA service, so you don’t have as much control over branding. However, dropshipping allows you to customize your packing so that your brand name is used.
That way, you can start building a brand that scales later with dropshipping.
Product Quality and Availability
Most Amazon FBA sellers source products from the same manufacturers where the quality is more reliable. That’s because quality inspection services can assess if a batch meets minimum quality standards.
There’s also no limit to how many products you can order from a manufacturer, and alternatives are available if the primary manufacturer fails to deliver a good product.
In comparison, dropshipping limits you to what the distributor has available.
If they run out of stock, then you must wait. Also, if the quality standards drop, you’ll only find out when customers complain.
Customer Service
Customer returns are inevitable in an e-commerce business. Amazon handles such returns and customer service for FBA sellers, which can be a costly part of doing business.
However, when managing a dropshipping business, you’ll need to handle the customer service for returns.
Rules and Regulations
Amazon FBA has strict rules and regulations to sell on its platform. This includes what products you can sell and how to create a listing. This results in significant limitations on your business, which might be problematic if you want to pursue a specific vision.
In comparison, dropshipping lets you create your website with far fewer rules.
The only rules you’ll need to abide by are the laws of the land where you’re selling.
Multi-Channel Fulfillment
Amazon FBA supports multi-channel fulfillment, so you can allocate part of your Amazon FBA inventory for fulfillment when selling on your website.
However, you’re limited by the geographical location where you can sell.
But with dropshipping, you can potentially sell worldwide. Hence, more sales channels are available.
Seller Software Solutions
The Amazon FBA business model is supported by software solutions like Helium 10 and Jungle Scout. Therefore, you’ll have support with every aspect of running an Amazon business, including product and keyword research, listing optimization, Amazon PPC, review requests, and more.
Conversely, dropshipping lacks robust comparable software solutions to help you stitch different pieces of the business together. So, you’re usually left to figure the business out without reliable software input.
Check out my guide to Helium 10 pricing plans to learn how it can help you grow the business.
Profit Margin
There’s no control over what prices dropshipping services charge, and many people have access to the same products. Therefore, the profit margins are razor thin – especially if a niche is experiencing price wars.
On the other hand, the Amazon FBA model allows you to go down the third-party seller route. This means you source products from a manufacturer where you can strike a great deal for the per-unit cost. Also, you can increase your profit margin by ordering products in higher quantities.
How to Pick the Right e-Commerce Business Model?
Amazon FBA and dropshipping are viable e-commerce business models with substantial upside potentials. However, look at the winners in each comparison category above to determine what better aligns with your strengths.
Do you possess a big investment budget, don’t want to worry about generating traffic, and want to take advantage of an established brand name? Then Amazon FBA is the right option.
But if you’d prefer setting your own rules and don’t mind dealing with customer returns, dropshipping might be a viable choice.
However, the Amazon FBA e-commerce model wins 8 of the 13 categories, so it has the advantage. It might be one of the reasons why it has an increasingly higher appeal for new business owners looking to sell products.
Frequently Asked Questions
What Are the Similarities of Amazon FBA and Dropshipping?
Amazon FBA and dropshipping both handle the logistics on your behalf.
This means orders are packaged and shipped to your customer without manual input. Hence, you can scale with both business models without hiring commercial real estate.
Amazon FBA vs. Dropshipping - Don’t Make the Wrong Choice
Amazon FBA and dropshipping have multiple positive aspects for most online business owners. However, if you’re struggling to make the right choice, consider the help you can receive with Amazon FBA seller’s software.
Check out the level of assistance offered by premium tools like Helium 10 or Jungle Scout to see how they can positively impact your Amazon FBA business if you swing that way.
