Amazon FBA vs Dropshipping (Which is Best in 2020)

Updated

amazon fba vs dropshipping

It’s pretty damn easy to get stuck in the trap of simply not being able to decide.

I’m an indecisive person so I struggle to decide what I want for breakfast most days.

But trying to decide whether you should pursue and Amazon FBA business or a Dropshipping business, well, that’s a whole different ball-game.

Which is best for you? Amazon FBA vs Dropshipping- you want to get this right.

So let’s see if I can help shed a bit of light on the problem for you.

What Even Is Amazon FBA?

Fulfillment By Amazon is an Amazon owned and run product warehousing and fulfillment network.

“You sell it. We ship it”, as they say!

Sellers (this could be you someday soon) source, ship and store products in Amazon fulfillment centres.

When a customer on Amazon then selects and buys one of your products, Amazon picks, packs and ships it to the customer.

Pretty simple, pretty neat.

If you want a bit more detail about how the whole FBA thing works take a read of this post covering exactly that.

What Even Is Dropshipping?

With dropshipping, sellers do not themselves own the product at any point.

The seller (this too, could be you) tends to act more as a middleman.

The seller advertises the product, and when a customer makes a purchase, only then does the seller place the order with their supplier.

The sellers supplier then ships the product directly to the customer.

Sounds a bit weird doesn’t it?

Try this little run-down of how it works:

  • You search for and find products, on say AliExpress, that you want to sell
  • You build a website on a platform like Shopify
  • You then run ad campaigns to drive traffic to your Shopify store
  • When a customer buys your product, you place the order with your supplier
  • Your supplier then ships the product to your customer

Again, pretty simple and pretty neat.

Is One Better Than The Other?

This is a difficult question to answer.

Here’s a short comparison table of a handful of factors that FBA and dropshipping have in common:

Amazon FBA vs Dropshipping

AmazonFBA

Dropshipping

Upfront Business Investment Medium              Low
Access to Customer Base Easy to Reach   More Difficult to Reach
Risk Medium Low / Medium
Product Quality / Customer Satisfaction Easy to Control Difficult to Control
Competition Medium/High Medium/High
Shipping to Customer Excellent Variable
Customer Contact No Yes
Returns Handling and Customer Service No Yes
Customisable Products Yes No
Location Flexibility Yes Yes

There’s more to it than the ten points listed above but, that said, these are some of the major factors.

If you can start to figure out which of the above factors are more important to you, then you will start to get a decent idea of which is the best business path to pursue.

With that in mind, let’s look at them in a bit more detail.

1. Upfront Business Investment

Amazon FBA:

You are going to need to pay for your stock upfront, plus you will be covering shipping and Amazon warehousing fees.

My advise here, for what it’s worth would be to start with a low-cost product and place an order of only about 100.

You can then build up your product value and order number over time.

Dropshipping:

A small monthly outlay for your shopify website, most likely in the region of $30 per month.

Advertising costs – tread very carefully here…

It’s easy to overlook this one because the cost per click is probably going to be pretty small, unless you’ve chosen a hyper competitive niche.

An advertising budget of $1o per day, $20 pr day, $30 per day doesn’t sound like much….until you spend that every day for month with hardly any sales.

2. Access to Customer Base

Amazon FBA:

Mind-blowing really.

Get your product into the warehouse, put your product listing live, and you are in the biggest storefront on the planet.

People go to Amazon with pure buying intent and Amazon is a finely tuned conversion machine.

As an Amazon FBA seller your products will qualify for Amazon Prime.

Amazon shoppers are often willing to pay a price premium for the quick order processing and bullet-proof refund policy of Prime.

Dropshipping:

You will be finding your own customer base via whichever advertising channel you wish to use.

Facebook is the most popular route and your challenge will be to find and target the right audience with your ad campaigns.

This will likely take some trial and error but the upside is that once you have found tour audience, you can start to gain some loyalty.

3. Risk

Amazon FBA:

Your risk here is in making no sales when you have already covered the cost of your stock and the shipping/warehousing fees.

As mentioned earlier however, you can mitigate these risks by starting with low value items and placing small orders.

You can further reduce this risk by having a sound product selection and screening strategy.

Dropshipping:

You’re not going to have to buy stock upfront so that risk is off the table.

Your most significant risk is the cost of running your ad campaigns.

If you’re going to go down the Facebook route, you should seriously consider getting some decent FB ads training so that you can minimise your chances of losses.

4. Product Quality / Customer Satisfaction

Amazon FBA:

As an FBA seller you have good control  of product quality.

Assuming you’ve stuck to good business practice and ordered samples before placing your order, you should be confident of a good quality product.

Dropshipping:

As a dropshipping business you will not have much control over product quality.

5. Competition

Amazon FBA:

There is a lot of competition on Amazon.

But an awful lot of sellers on Amazon are also bricks and mortar shop owners who are simply making available on Amazon what they have in their store.

You can be different. You will be in a position to search for and screen products that fit a strategy of maximising Amazon sales.

There are a few different ways you can develop a winning strategy.

You may have chosen a comprehensive route for setting up and growing your Amazon FBA business with someone like MarketPlace SuperHeroes,

or;

You may have chosen to simply use a product selection tool like that offered by JungleScout.

Dropshipping:

Competition is Pretty high again.

There a fair chance that a ton of other sellers have found exactly the same products as you have, and are targeting similar audiences.

So get ahead by targeting more intelligently and writing better ad copy.

6. Shipping to Customer

Amazon FBA:

Your products will be available on Amazon Prime, so they will be picked and shipped same day.

Amazon also have tracking on all shipments so the chances of lost items is low.

If you’re going to be selling in Europe, you can sell across most European countries with Amazon’s Pan-European-FBA service.

Sounds like a logistical nightmare doesn’t it?

It isn’t, Amazon have all the complicated stuff covered, so that you don’t have to even think about it.

Dropshipping:

ePackets…somewhere on earth there is a whole new continent made up of lost ePackets.

ePackets are the packaging and shipping method of choice for the majority of Dropshippers, and it just isn’t that great.

7. Customer Contact

Amazon FBA:

All the messy stuff is sorted by Amazon via the Amazon platform.

That’s great.

The only downside is that all of your customer communication also has to take place within Amazon, so it is more difficult to build longstanding cutsomer relationships.

Dropshipping:

As a dropshipper you have the advantage that once you have gained a customer, you have all of their contact data and are open to emailing them with future offers etc.

You can build a relationship.

This also means that it will be you who has to scrabble about sorting any complaints, queries, refunds and returns.

8. Returns Handling and Customer Service

Amazon FBA:

All dealt with by Amazon.

Dropshipping:

All dealt with by you.

9. Advertising Requirements

Amazon FBA:

Yes, you might eventually want to add a logo, change colours, packaging etc. This is all possible with your FBA business.

Dropshipping:

No, what you see is what you get with this one. This is because the products you are selling on your site are bought one at a time, rather than in much larger quantities as with FBA.

10. Location Flexibility

Both Amazon FBA and Dropshipping are businesses that outsource all of the physical product handling.

This has the huge advantage that you are free to run these businesses from just about anywhere.

As long as you have a decent laptop and reasonable wi-fi access you are pretty much good to go.

Amazon FBA vs Dropshipping Which is the Best Fit For You?

I can’t tell you which of these two business models is best for you.

But what I can say is this…

If you don’t have much initial capital to lay down, and you can’t bare much financial risk, Dropshipping could your best bet right now.

With Dropshipping you can get out of the gates really fast with  only a tiny amount of  capital.

If on the other hand, if you have some investment capital…

You might want to take the opportunity to plug into Amazon’s huge customer base by setting up your own FBA business.

Amazon is a customer acquisition and conversion machine, the two biggest problems facing online business owners – done for you!

Wrapping It Up

Both Amazon FBA and Dropshipping are great 21st Century, internet based business models.

Both can open the door to you running your own successful, profitable e-commerce business.

If you are in a position where you are seriously considering which one to get into, you are lucky, the economy has never been so open and the opportunities to prosper never so great.

Don’t get stuck in state of Amazon FBA vs Dropshipping indecision, take what you know now and pick one…and then fully commit yourself to it.

Best of luck.

P.S. 

If you really want to maximise your chances of success, I would absolutely recommend investing in some top quality training.

For Amazon FBA here is a post about some top training programs available right now.

 

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