Amazon FBA vs Dropshipping- Which is More Profitable in 2020

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Amazon FBA vs Dropshipping, which one is better, what are the advantages and disadvantages for both? For anyone who is looking to create an e-commerce business, may have these doubts. Amazon FBA and Dropshipping are two of the popular and beneficial eCommerce business models. Here in this article, we will be discussing both in detail.

What is Amazon FBA?

Amazon FBA (FBA stands for Fulfillment by Amazon) is basically a service provided by Amazon to its third-party sellers.

Through FBA Amazon allows you to send your products to Amazon for storage in warehouses. Whenever an order is placed Amazon packs the product and ships it to the customer’s address. Amazon takes care of transactions, returns if it is placed, and also provides world-class customer service.

If any of your products got damaged during storage or packaging, Amazon will take full responsibility and reimburses the cost value of the damaged products.

Advantages:

Organic Traffic:

The biggest advantage of selling on Amazon FBA is its wide customer base. For any new business, the hardest thing is to attract new customers and establish brand recognition. Using the Amazon marketplace your brand will reach a large audience and get organic sales in a short time.

Fulfillment by Amazon:

Through FBA Amazon handles every order, from product’s packaging, shipping to returns. Amazon is known for its amazing customer service and every third party seller has an option to leverage that. Using Amazon FBA you would have enough time to spend on growing and scaling your business.

Low time requirement:

Once you build the initial infrastructure then scaling the business to multifold requires less time. The key to a successful Amazon business is finding the right product which will bring you huge profits.

Good Profit Margin:

You can sell products on Amazon at good prices. Because of Amazon’s huge popularity and brand image, if your product is able to outrank the competition.

Disadvantages:

Upfront Cost:

With Amazon FBA it is necessary to purchase inventory upfront. You can not start an Amazon FBA business if you are on a razor-thin budget.

Control: 

Amazon owns the platform and risk of suspension for ToS requirements. Amazon is strict in following its rules and policies. When any third party seller is found violating these policies, Amazon temporarily or permanently suspends the Amazon account.

High Competition:

Amazon doesn’t restrict the number of sellers who can sell their products on Amazon. With growing its popularity day by day, new sellers are also getting added. If you are a new seller, even if you have a great product with high demand on your hand, you have to face high competition there.

You Can’t Sell Everything:

As mentioned earlier getting success on Amazon is hugely dependent on the product you will be selling there. Amazon has some restrictions on products, and you can’t sell them on the marketplace.

Even if your product qualifies for selling on Amazon, not all products have a high-profit margin and do well on the platform. You have to spend quality time on research for finding it using various tools or software.

What is Dropshipping?

What dropshipping basically is connecting the buyers and sellers without actually buying any of the inventory yourself, using websites like Aliexpress.So you list the products on your website, advertise it, whenever any order is placed, you have to place the same order with your supplier who will ship it directly to your customer’s address.

This eCommerce business model is best for anyone who doesn’t want to manufacture the products but can market it right and sell them at higher prices directly from manufacturers.

Using Shopify you can create a fully functional dropshipping store in just one day. Shopify has multiple software or tools on its platforms that will make your work easy.

Highlighting the advantages and disadvantages of both business models, Amazon FBA vs Dropshipping:

Advantages:

Low Barrier to entry and learning curve

Anyone can start a dropshipping business setting from anywhere in the world. Because of the low investment and no experience needed, more and more aspiring entrepreneurs are entering the Dropshipping business.

Low initial cost (No upfront inventory costs)

With drop shipping, you don’t need to make the huge capital investments to start. You just need some money to market your products using Facebook advertising, to sign up for Shopify and other software required. For any new seller who is looking for a side hustle.

Scalable without the need for additional fulfillment

Dropshipping is selling products directly from the manufacturer or supplier to your customer. Whenever your customer places an order you will have to just place the same order with your supplier. This business model is comparatively very easy to scale and grow.

Less Risk

Since you only have to bear the cost of building a website and advertising, no inventory or other investment needed, there is less risk and less loss involved.

Disadvantages:

High Competition (Fast followers to trending products- Due to Low BARRIER to the entry)

Anyone can sell any products they want from the same or different suppliers. Whenever there are any trending products, sellers quickly grab them and start selling on their website which increases competition.

Paid Traffic- Lack of organic traffic 

With Dropshipping most or all traffic is paid. Your website and brand will be new, to introduce it to people you have to use Facebook Advertising or Google ads. It takes a considerable amount of time to gain organic sales.

Marketing Learning Curve- Necessary to Learn Marketing

You have to be a pro at marketing if you want a successful Dropshipping business, there is no other way around.

The Best Plan of Action: Amazon FBA vs Dropshipping

Start with FBA when you’ve finalized your order after due diligence of product research and are waiting for manufacturers. For those who do not have the upfront capital needed, you can earn money doing some side hustle and then when you have a sufficient amount.

Your Dropshipping business will force you to learn Facebook advertising, which you can use on Amazon FBA, and once you have mastered all three the eCom world is yours.

Amazon FBA is best for you when

  • You own small businesses who want to leverage Amazon’s huge customer base
  • You have some upfront capital ready to invest
  • You want free organic traffic

Dropshipping is best for you when

  • You are just starting out
  • You are not a manufacturer but wants to sell products
  • You have the low upfront capital

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