Dropshipping or Fulfillment By Amazon: Explained
Are you just starting out with your business and confused between the two most profitable measures: Dropshipping and Amazon FBA? Well, then you’ve come to the right place. Today, I’ll share everything about Amazon FBA and Dropshipping which will help you decide the best for your ecommerce business.
Amazon FBA or Fulfillment by Amazon: What does it really mean?
It is the sum total of advanced fulfillment networks created by Amazon and the expertise provided. In simple words, it is a kind of service where ‘we sell it and they ship it‘. We can just store the products we want to sell with Amazon fulfillment centers and the rest is done by them.
They pick, pack, deliver our products and even manage the returns. This business technique can help you enhance your sales by giving you access to the world-class expertise of Amazon and the trusted customer services.
Dropshipping: Sell AliExpress products to international customers from your home
It is a retail method in which the seller does not maintain the inventory stock. When the seller sells the products, he just purchases the products from a third-party (like AliExpress) and gets it shipped directly to the customer.
You do not need to maintain a brick and mortar store or a warehouse. All you have to do is just contact the supplier when you get an order for the product and the supplier does the rest of the work.
Now, the question that arises is that which one of the above-mentioned modes is the better option for raising your sales level- Dropshipping or Amazon FBA
Dropshipping vs Amazon FBA: Let us consider the pros and cons in both the cases.
Amazon FBA: Pros and Cons Explained
- Focus On Business Is Pivotal
Amazon packs our products, delivers them and provides customer care services. That means we have enough time to focus on our business.
- Inherited Goodwill
You don’t need to establish a brand name for yourself. Thanks to the acclaimed goodwill of Amazon.
- Wider Customer Base
For a new entrepreneur, attracting customers is a really hard task but the well-recognized services of Amazon provide us with a really good customer base. This is a low-cost method to reach a larger audience in a short time.
- Shipping, Returns And Customer Services-All Sorted
Did your products reach the Amazon fulfillment centers? Don’t worry about the rest. Shipping, returns and providing world-class customer services is all their task now.
- Surprisingly, Your Customers Will Pay More For The Same Products
Yes, that is true. The same products which you were not able to sell profitably can be sold at even higher prices on Amazon. Again, the credit goes to the goodwill Amazon has earned.
- Account Protection
All the tasks accomplished. The most awaited thing is money, obviously. With this service, don’t just worry about your account, your profits or your payment. But remember, this will happen only if you don’t get your products returned with a label of ‘Defective’ or ‘Not as described’.
- No Record Of Your Inventory
Suppose, you have hundreds of products on Amazon. It is obvious that you are not going to sell them all at once. Thus, the unsold stale stock would get accumulated and once it will become so large that you will not be able to maintain a proper record of your inventory.
- High Copmetition
You can never be the only one taking advantage of the FBA service. There may be many others selling the same products that you are selling and that too at lower prices sometimes. So, it is not that easy. It’s like winning a lottery ticket that you may win or lose.
- Not Every Item Is Profitable
The FBA service is not for free so you need to spend and you have to be really careful regarding the selection of the products you are selling because every item will not provide profits. The items with low margin will not be profitable.
- Shipping Constraints
Amazon has strict prohibition regarding the delivery of certain goods like flammable goods so if you are willing to sell such commodities which fall within the restricted category, you should better take the charge yourself.
- Over Dependence
I think so far the biggest downside to FBA is that you completely rely on Amazon. What if Amazon suddenly changes its algorithm or removes your store or changes its rules? You can do nothing to make it right.
- No Direct Contact With The Customers
Amazon has all your customer information and you have nothing. What if a day comes when you have to sell the same products to the same customers down the road? Even if you want to, you can’t because you don’t possess any personal information about your customers.
- Initial Requirements
You can’t just start your business using FBA without any initial capital. You need to pay a fixed amount to Amazon in return for the service they provide and you may have to bear huge costs sometimes.
Dropshipping: Pros and Cons Explained
- No Brick And Mortar Store
The biggest advantage of dropshipping is that you don’t require a concrete establishment for beginning your business. That saves you from making huge capital investments for beginning your business which is a tiresome burden for any new entrepreneur.
- Supplier Takes All The Responsibility
You received an order for some product. It is quite easy now; what you have to do now is just that place the order with the third party that is the wholesaler or supplier whatever the case may be and your responsibility gets over.
The supplier will pack the products, ship them and handle the returns for you.
- Negligible Risk
While dropshipping, you don’t maintain a huge inventory stock. So, if your venture did not turn up so good, the loss is not that big. You only incurred the expenses to start your website. Think what would have been in case you had started up a concrete business store and were not able to run it well, a huge loss.
As it is said, “Variety is the spice of life”. The more the diversity of anything, the better it becomes. Same is the case with dropshipping. Had you started your business with the task of purchasing your own inventory, it was not possible for you to sell a variety of products as you had to purchase a few products in large quantities.
But, thanks to dropshipping as you can sell a number of products thus, increasing the diversity.
- Saves Time
Dropshipping not only saves your money but also your time. You don’t need to pack the products, ship the products, look after your inventory. It is very clear that it is the most suitable form of business for those who want to save their valuable time.
- Flexible Business Location
As long you have a good internet connection and are able to communicate with the supplier and your customers, you don’t need to be in and around a particular area to keep your business operations smooth going. A lawn, your room or any other place can be your suitable business location.
- Explore! Explore! Explore!
Dropshipping enables you to explore new products. You can give a try to a new product, it is not so risky as you are not purchasing any new product in bulk.
- Less Profit Margins
Though dropshipping is an easy way to start your business as you don’t require much capital but in case of revenue also, the returns would be less because you are not the one actually who sold the goods. This form of business is good only if you are prepared to bear fluctuations in profits.
- Inadequate Information
You don’t possess the goods so you will not know each and everything about them. The supplier may not have provided you with detailed information about the product. Therefore, you might not be able to answer the general queries of your customers.
- Customer Service Issues
‘A coin has two sides’. right?
Similarly, dropshipping may relieve you of many burdens but when it comes to answering customer’s queries, you again depend on the supplier as you don’t really know whether the product was as described or if it reached on time. You will only come to know all this when the customer will make a complaint regarding that.
- No Good Deals
We can’t expect to get good deals and discounts as we are not making any bulk purchases while dropshipping. It is only possible in case of bulk purchases when we have to maintain our own inventory.
Open up your own business store, use dropshipping or any other business technique, competition is unavoidable. There may be number of sellers selling the same products that you are trying to sell.
Dropshipping vs Amazon FBA: In Favor?
In favor of Dropshipping
Anton Kraly, a well known personality now. His first e-commerce business was a huge success that took him on a journey from $0 to $1.8 million. He has built an empire for himself following the dropshipping path and has also started an online training course named Drop Ship Lifestyle where he has mentored and initiated many students to build up successful dropshipping sites.
In favor of Amazon FBA
Mark Brenwall started with dropshipping but swapped to Fulfillment by Amazon as he launched a product and wanted to put his own branding and label on WOD nation. Know more about Mark.
Thus, both of them have different perspectives and opted different platforms for success. After knowing both the sides of the above-mentioned business models, it is up to you now to consider the better one.
Dropshipping vs Amazon FBA: Conclusion
If I was asked for my personal opinion that which mode of e-commerce I would follow, I would surely go with dropshipping. The reason I think is quite simple. It does not require much investment and if I am a beginner and don’t possess much initial capital and I am still not ready to bear greater risks, I think dropshipping would be the better option for me.
No doubt, Amazon is a big name and Fulfillment by Amazon can render huge returns on your investment but you need to make huge investments before that. You will have to find a suitable supplier who can make your products available at the Amazon fulfillment centers and then pay him huge sums.
So, if you want to save your money and are not prepared for greater risks, in the beginning, go on with dropshipping. I hope now the dilemma that you should choose Dropshipping or Fulfillment by Amazon became a bit clearer for you.
In case you have any questions, feel free to drop in a comment below.
Keep Reading and Happy Dropshipping!