Amazon FBA vs Dropshipping: Which One is Right for Your Business?
There are two popular fulfillment methods for businesses venturing into ecommerce: Amazon FBA vs Dropshipping.
Each offers distinct advantages and drawbacks, and the right choice depends on your specific business goals and resources.
According to a 2023 survey by Jungle Scout, 89% of sellers use Amazon FBA, whilst it is estimated that only between 10-20% of dropshipping businesses succeed according to various dropshippers around the internet.
What is Amazon FBA?
Amazon FBA is a comprehensive fulfillment service offered by Amazon that takes the burden of warehousing, picking, packing, shipping, and customer service off your shoulders.
Sellers simply send their inventory to Amazon fulfillment centers strategically located around the world. This ensures fast and reliable delivery to customers, often with Prime benefits like free two-day shipping.
When a customer places an order on Amazon, Amazon’s sophisticated fulfillment network efficiently selects, packages, and ships the product directly to the customer.
FBA sellers also benefit from Amazon’s customer service infrastructure, which can handle inquiries and returns, freeing them to focus on other aspects of their business.
Pros and Cons of FBA
Pros of FBA
FBA vs dropshipping listings often receive a boost in search rankings on Amazon, potentially leading to increased sales. Amazon’s search algorithms favor FBA products due to factors like faster fulfillment times and higher customer satisfaction rates.
Prime badges on FBA listings can further enhance product visibility and customer trust, driving more sales.
Fast and reliable fulfillment through Amazon can enhance customer satisfaction. FBA offers multiple shipping options, including free two-day shipping for Prime members, which can significantly improve conversion rates and customer loyalty.
Additionally, Amazon’s efficient fulfillment process minimizes errors and ensures timely delivery, reducing customer frustration.
Sellers are free to focus on marketing and business growth while Amazon handles fulfillment. FBA eliminates the need for sellers to invest in warehouse space, manage inventory levels, or handle packaging and shipping.
This frees up valuable time and resources that can be channeled into product development, marketing initiatives, and customer service.
Cons of FBA
FBA offers a suite of advantages for Amazon sellers however, it’s important to note some drawbacks such as:
FBA comes with a variety of fees, including storage fees, fulfillment fees, and referral fees. These may impact your profit margins significantly, especially following the Amazon FBA Fee changes in 2024.
Since Amazon fulfills orders, their packaging replaces yours, hindering your brand identity and customer connections.
Inaccurate forecasting can result in stockouts, lost sales, or incurring long-term storage fees due to excess inventory held by Amazon.
Failure to comply with Amazon guidelines for product preparation and labeling may cause delays, product returns, or even account suspension.
Amazon also has complete control over customer experience, meaning that it handles packaging, picking, shipping, and most customer service inquiries.
What is Dropshipping?
Dropshipping vs Amazon FBA is a fulfillment method where the seller doesn’t keep any inventory. Instead, the seller acts as a middleman between the customer and a third-party supplier.
When a customer places an order on the seller’s online store, the seller transmits the order details and customer shipping information to the dropshipping supplier.
The supplier then packages and ships the product directly to the customer under the seller’s brand.
This creates the illusion that the seller is fulfilling the order themselves, when in fact the supplier is handling the entire fulfillment process.
Pros and Cons of Dropshipping
Pros of Dropshipping
Dropshipping eliminates the need for upfront investment in inventory, a significant barrier to entry for many aspiring ecommerce entrepreneurs.
This allows sellers to test the waters with a wider range of products without the financial risk of purchasing large quantities of inventory that may not sell.
Sellers are not limited by storage space or financial constraints when it comes to product offerings. Dropshipping suppliers often carry a large range of products enabling sellers to offer a diverse selection to their customers without the burden of managing their own inventory.
This flexibility allows sellers to experiment with different product categories and identity profitable niches.
Dropshipping businesses can scale quickly and easily without worrying about managing inventory levels, who handle the fulfillment process. This eliminates the need for sellers to invest in additional warehouse space or staff to accommodate increased order volume.
Cons of Dropshipping
When it comes to dropshipping, the cons or challenges you need to be aware of are:
Buying from a supplier at wholesale and then marking up for retail sale results in slim profit margins.
You also tend to rely on your supplier’s stock availability. If they run out, you would be unable to fulfill orders, leading to disappointed customers and lost sales.
You’re responsible for handling customer services inquiries and returns, even though you don’t have the products physically.
Building brand loyalty might be difficult and challenging since you’re unlikely to have custom packaging or control over product presentation, not only that but, you have limited control over shipping times and fulfillment processes.
Scaling your overall business may also be complex due to inventory management and supplier relationships becoming more complicated with increasing sales volumes.
How to Dropship on Amazon
The quick answer to the question, “Can you dropship on Amazon” is No. Amazon prohibits dropshipping to ensure a high level of customer service and control over the fulfillment process.
Dropshipping on Amazon can lead to fulfillment delays, inconsistencies, and potential quality products, which could negatively impact customer experience. Violators of the Seller Agreement risk account suspension and loss of selling privileges.
Amazon has sophisticated systems to detect dropshipping activity. These include identifying inconsistencies in shipping origin information or packaging not matching the seller’s branding. If caught dropshipping, your Amazon seller account could be suspended, jeopardizing your entire business on the platform.
Drop shipping on Amazon, leads to limited control over fulfillment, resulting in issues like slow shipping times, incorrect orders, or damaged products arriving at the customer.
These issues can severely damage your reputation and lead to negative reviews that can hurt your business.
Dropshipping Suppliers for Amazon
Once you have identified a high-quality product that aligns with your brand, you can create a listing on Amazon.
You don’t need to hold large quantities of inventory upfront. Instead, when a customer places an order through your listings, you can seamlessly fulfill it through a trusted supplier partner such as Forceget.
This partner will handle order fulfillment, including picking, packing, and shipping directly to your customer. They offer flexibility in packaging, allowing for either unbranded or customized options to maintain your brand identity.
Essentially, this approach allows you to operate as a virtual wholesaler on Amazon.
What Is the Difference Between Amazon FBA and Dropshipping?
The key differences between Amazon dropshipping vs FBA boils down to inventory management and fulfillment responsibility:
Inventory Management
With FBA, you purchase inventory in bulk upfront and store it in Amazon fulfillment centers around the world. You’re responsible for managing stock levels and ensuring enough inventory to meet customer demand.
You don’t hold any inventory yourself. The dropshipping supplier manages their stock and ensures they have products available to fulfill your orders.
Fulfillment Responsibility
Once a customer orders from your FBA listing, Amazon handles the entire fulfillment process. This includes picking and packing the product, shipping it to the customer, and managing customer service inquiries like returns.
When a customer orders from your online store (not Amazon), you forward the order details and customer information to the dropshipping supplier. The supplier then fulfills the order directly, including packaging and shipping the product to the customer. You may also handle customer service inquiries related to the order.
Amazon FBA vs Dropshipping: Which One to Choose
| Feature | Amazon FBA | Dropshipping |
| Inventory Management | Seller’s responsibility | Supplier responsibility |
| Inventory Storage | Amazon fulfillment centers | No storage required |
| Fulfillment Process | Handled by Amazon | Handled by dropshipping supplier |
| Upfront Costs | Higher (bulk inventory) | Lower (no inventory) |
| Profit Margins | Potentially higher | Potentially lower (due to supplier markups) |
| Control Over Quality | More control | Less control |
| Shipping Speed | Generally faster (Prime) | Variable, depends on supplier |
| Scalability | Easier to scale | Easy to scale |
The difference between dropshipping and Amazon FBA depends on your specific business goals, resources, and risk tolerance.
Choose FBA if:
- You have the capital to invest in upfront inventory.
- You prioritize fast and reliable fulfillment with Prime benefits.
- You have the ambition to build a strong brand presence on Amazon.
- You are comfortable with Amazon’s fees associated with FBA.
Choose Dropshipping if:
- You are a new business with limited startup capital.
- You want to experiment with a wide variety of products.
- You prioritize flexibility and scalability.
- You are comfortable with potentially lower profit margins due to dropshipping supplier markups.
Amazon FBA vs Dropshipping FAQ
How Profitable Is Amazon FBA?
Profitability with FBA depends on several factors such as the difference between your wholesale cost and your selling price. Higher margins lead to higher profits.
These include storage fees, fulfillment fees, and pick and pack fees. You can calculate your estimated FBA fees using Amazon’s fee calculator tool.
Factor in the cost of advertising on Amazon to increase product visibility and sales.
Carefully calculate all your costs to ensure your products are priced competitively and generate healthy profits after accounting for FBA fees.
Is Dropshipping Better Than Amazon FBA?
There’s no single “better”option when choosing between Amazon and dropshipping:
Dropshipping Advantages:
- Lower startup costs (no upfront inventory)
- Easier to test a wider variety of products
- More scalable (accommodate order growth easily)
FBA Advantages:
- Faster fulfillment and Prime benefits (can boost sales)
- Improved customer experience (potentially higher satisfaction)
- Increased control over branding and product presentation
Is It Possible to Dropship on Amazon?
It is possible to use dropshipping Amazon FBA, however, keep in mind that Amazon has measures to detect dropshipping activity, and violators risk account suspension.
If dropshipping is your preferred method, consider alternative ecommerce platforms that allow it.