Dropshipping vs FBA

Nowadays, China has become an enormous marketplace worldwide due to its population. Many people are venturing into various business models. But you might want to know, what is dropshipping?

Dropshipping happens in an eCommerce business. It is to outsource procuring, storing, and shipping products in the business. Among all, Amazon FBA is a popular platform for dropshipping.  

Based on a decade of shipping experience, we have dealt with many cases where people failed their eCommerce business. You will have enough information about the online eCommerce platforms.

In this article, we will talk about dropshipping vs FBA. Let’s get started!

What is Amazon FBA?

The word FBA stands for Fulfillment by Amazon. Amazon is an online store where you can carry on your online business. Amazon FBA sellers control their profit margins as they decide the selling price.

For Amazon FBA business, Amazon acts as a dropshipping store. Dropshipping suppliers will ship their inventory to Amazon. The Amazon warehouse will store the products before shipping. 

The Amazon marketplace is vast, and it is easy to set up an Amazon account at the Amazon fulfillment center. It is a good choice for businesses to expand online.

Pros & cons of Amazon FBA

Pros

1. Large Customer Base: In the Amazon FBA businesses, an Amazon seller can access Amazon’s massive customer base. Amazon FBA has more than 300 million active customers.
2. Brand Recognition: Amazon FBA sellers can boost brand identity with Amazon tools. For instance, the A+ content and brand analytics from Amazon FBA.
3. Higher profit margins: Amazon FBA sellers will get higher profit margins. It is because sellers are controlling their products’ selling price.

Cons

1. High Competition: Many sellers turn online or start online businesses on Amazon FBA. It is challenging to scale in the Amazon FBA business model. 
2. High Dependency: Amazon FBA sellers need to follow strict rules and regulations. Otherwise, Amazon may suspend or remove their accounts from the platform.
3. Low Customer Relation: Amazon is the dropshipping store that handles customer service. Thus, Amazon FBA sellers have no control over customers’ bases and detail. It discourages future customer orders, especially if they have a terrible customer service experience.

What is dropshipping?

Dropshipping is an order fulfillment method. The sellers buy goods from a wholesaler when there are orders from customers. 

This dropshipping model does not need massive initial investments. Sellers only have to advertise their products through an eCommerce store. The products are stored with different dropshipping suppliers at different places.

The dropshipping model is a friendly business model, especially for beginners. Sellers have to plan and work with the right dropship supplier. Suppliers are in charge of the warehousing, fulfillment, and shipping processes.

Pros & cons of dropshipping

Pros

1. Lesser Investments: Dropshipping is best for sellers who are not ready to invest huge capital.
2. Low to No Risk: Dropshipping sellers will not lose money since they only maintain the eCommerce business.
3. Lesser Managements: Sellers do not have to store products. The dropshipping supplier will be handling the fulfillment process, packaging, shipping, and returns.

Cons

1. Fewer Profit Margins: Sellers usually are not able to increase the price from the retail price. It is because customers would always seek the cheaper price offering.
2. Customer Service Issue: It may be hard to handle the customer’s complaints as they need to rely on the supplier to get things done.
3. High Competition: Many sellers are using the same business model to sell their products. Some of the sellers might compromise their profits to sell their products.

Alternatives: 3PL services, Shopify fulfillment

3PL Services

Many fast-growing stores connect with a 3PL to save time and money. Most of the 3PLs offer several fulfillment centers. It leads technology to automate and hurry inventory management. Their data and analytics help sellers make smarter supply chain decisions too. 

3PLs work with shipping partners to negotiate lower shipping prices. It allows sellers to provide more delivery options to their customers. Sellers can use a 3PL’s technology, distribution network, and expertise. Hence, you do not have to pack orders on your own.

Shopify Fulfillment

It is a fulfillment service for sellers to store their stocks and fulfill orders. The Shopify fulfillment center will pick up and pack the items when you have an order. They also help ship the products to your customers. 

Shopify allows sellers to customize their fulfillment method to improve their supply chain. With this eCommerce fulfillment service, your buyers can expect to receive their orders in 2 days.

What is the difference between Amazon FBA vs. Dropshipping?

Amazon FBA and dropshipping are pretty similar. Both business models provide eCommerce platforms for sellers to scale their business. But, there are significant differences when comparing Amazon FBA vs. dropshipping.

1. Customer Base 

Amazon FBA has a large customer base. Hence it is suitable for beginners. But, sellers with FBA Amazon can only rely on one platform for sales. 

While for drop shipping, sellers usually have to build their own website to be recognized. Yet, it allows a seller to run an e-Commerce business from anywhere.

2. Costs 

Amazon’s FBA program requires huge capital to start the business. You’ll need to stock inventory which incurs high capital and overhead costs.

In comparison, dropshipping sellers do not have to invest as much. This model allows you to sell products without stocking your own products. You can also start and run your business quickly.  

3. Customer Service

In FBA Amazon, all the customers belong to Amazon. Customer service is build-in into the FBA Amazon business model. So, sellers cannot be in charge of customer relationship management.

In dropshipping, sellers need to handle customer service. The advantage is that drop shipping sellers can build a customer base and rapport over time. 

4. Effort 

Sellers on Amazon FBA need to spend time managing their inventory. They need to ensure the information on the website matches their stock. For instance, the product color, size, and quantity available. 

Dropshipping sellers can save time maintaining their product inventory. They also have plenty of product options available in dropshipping eCommerce businesses.

5. Rules and Regulations

Sellers have to adhere to Amazon FBA’s strict rules and regulations. Amazon might suspend their account if they are not following the rules. 

In contrast, you get more flexibility in the dropshipping model. Dropshipping sellers can make multi-channel selling for their e-Commerce business.

FAQs about dropshipping vs FBA

What’s Next

In conclusion, both dropshipping and Amazon FBA have their advantages and disadvantages. Sellers have to consider their alternatives and objectives in choosing the eCommerce platform. From there, you can decide whether dropshipping is suitable for your business.

I hope this article has all you need to know about dropshipping vs. Amazon FBA. Want to learn more about online business models to start your eCommerce business? Check us out in our posts!