Dropshipping VS Amazon FBA is often confused to be the same type of online business model. However, they are very different. Dropshipping doesn’t require buying any inventory upfront and Amazon FBA requires buying inventory to ship to an Amazon warehouse to be fulfilled when a sale is made.
I’ll go into more detail about each of these business models. They are both quite popular and people with no prior experience are having great success with each business model. Dropshipping is a low-cost way to start an online retail business. Amazon FBA provides a way to sell your private label products to a huge customer base.
How Dropshipping Works
The dropship model has been in use for many years. It has picked up a lot of steam and gained in popularity thanks to eCommerce platforms such as Shopify and the Oberlo app, as well as WordPress dropshipping plugins such as AliDropship.
With the success of many dropshippers sharing their experience on YouTube, it has shown the potential of dropshipping and how anyone can take advantage of this online business model.
The dropship model is one of the lowest-cost online businesses that you can start. The reason being that you do not have to buy any of your inventory upfront.
You rely on your dropshipping suppliers to ship items directly to your customers. Here is a graphic representation of how the process works:
You can list your dropshipping supplier’s products in your store. Then when a customer orders an item from your store, you pass along the payment and customer’s shipping details to your supplier.
The dropshipping supplier then ships the item directly to your customer for you. You do not have to deal with storing products or any shipping and handling.
Your profit is the difference in price between what you’ve charged the customer and what your dropshipping supplier has charged you.
Where to Find Dropshipping Suppliers
Searching for dropshipping suppliers on your own is time-consuming. You have to search for various wholesalers that stock products that you want to sell. You must then ensure that they do offer dropshipping.
Some suppliers will require registration fees and may even have a fee for each item that you sell. There may also be limitations on which products you are allowed to dropship.
A much easier solution is to source products from AliExpress. Many dropshippers use AliExpress due to its large amount of products as well as their low pricing.
Most of the merchants that make up AliExpress are based in China. However, there are many items that also ship from the United States.
Don’t let shipping times from China deter you. Thanks to ePacket shipping, the time it takes to ship many items are much shorter.
Using AliExpress as a dropshipping supplier also includes these benefits:
- 200,000 exporters
- Over 100 million items
- No entry or participation fees
- No limits on your profit margins
- No limits on the amount of products you sell
- Works with individuals and registered companies
- Free shipping on most items
- Ships to over 200 countries worldwide
- Online shipping tracking
- Wide range of shipping methods
- Buyer protection system with full money back guarantee
How to Get Your Own Dropshipping Store
To begin selling, you will need to seek out an eCommerce platform that specializes in dropshipping. There are various platforms out there such as Shopify.
However, I prefer to retain full ownership of any website that I own so I prefer to use WordPress and choose to use the AliDropship plugin. Not only that, you save money on software fees as WordPress is free to use.
There are tons of eCommerce platforms available that also handle dropshipping, particularly using AliExpress for sourcing products.
Be sure to ask questions when doing your own research. Find out which suppliers they support, which payment gateways they use (for credit card processing), if they host your store, and whether you have full ownership of your store.
Things to Keep in Mind About Dropshipping
Although dropshipping is low-cost and easy to learn, there are some things you’ll want to keep in mind before jumping in.
You’ll Need an Advertising Budget
- In order to promote your store and the products you are selling, you will need to do some paid advertising. That may mean using Facebook Ads, Google Adwords, Bing Ads, Instagram sponsored posts, and more. Having a budget set aside for this type of advertising helps. You can still stake advantage of free promotion using social media channels such as Instagram, Facebook groups, and Pinterest.
You Will Be Dealing with Customer Service Issues
- Every retail business (whether online or offline) deals with customer service issues. You can expect to deal with shipping issues, returns, refunds, complaints, and more. The key is to always provide the best customer service. As your store grows, you can definitely outsource customer service tasks to save you the time and headaches.
How Amazon FBA Works
The big difference between Dropshipping and Amazon FBA is that you do have to buy the inventory that you plan on selling.
The most common method that Amazon FBA sellers use is to private label a product. They do market research and create a private label product with manufacturers.
For example, you could contact a manufacturer of a product that you want to sell on a website such as Alibaba.com. You work out the logistics for private labeling as well as shipping your products to an Amazon warehouse.
Once Amazon receives your inventory, they store it and ship your items out whenever a customer on Amazon.com buys your product.
Having access to Amazon’s huge customer base is a big advantage. With the right product, it isn’t unheard of to earn anywhere from $10k plus per month in revenue.
You do have options in terms of where you source your products. Many Amazon FBA sellers take advantage of retail arbitrage.
They will shop at discount department stores such as Ross, TJ Maxx, Walmart, and more to find clearance items.
They will then package up those items and ship them to an Amazon warehouse. Once the items are listed, Amazon will fulfill the orders and ship them to customers.
There are some things to keep in mind before getting started:
You Will Need Start-up Cash to Begin Using Amazon FBA
- Unlike the dropship model, you will need a bit of start-up cash to begin selling on Amazon. The amount ranges from $1,500 to $3,000 or more. That money is primarily used to buy and ship your inventory to an Amazon warehouse, storage fees, plus other fees for private labeling, selling fees, and more.
Competition is Tough
- Even if you think you’ve found a great product to private label, chances are high that there are other sellers already selling the same thing. That means you would need to pay for sponsored ads on Amazon to boost sales and get more user reviews. One way to boost sales using free organic traffic is to have your own Amazon FBA website.
Retail Arbitrage is Not Any Easier
- If you decide to do retail arbitrage instead of private labeling a product, you can expect to do A LOT of shopping. It takes a lot of time and money to seek out clearance items and marked down products. You have to get good at judging which products will offer you a good ROI (return on investment) as well as not having a ton of competition. Otherwise, you will need to list your products at a lower price to beat out competitors. It is a lot of work to source products this way.
Our Experience Using Amazon FBA
I used fulfillment by Amazon years ago when we decided to sell books. We’d source books from thrift stores and package them up to ship to an Amazon warehouse.
We invested in a Dymo Label Writer printer to print the special labels that had to go on each book. Then we packed them up in boxes and printed the shipping labels to send them off to Amazon.
It was not a cheap process and you must account for all of those costs. Many of the books we sent in did not sell and we had to pay storage fees to Amazon.
After a while, we paid to have the books shipped back. This is why having the ability to choose the right products is a valuable skill. You want to sell items that have a track record of sales.
I hope this post has helped to clarify the differences between dropshipping vs Amazon FBA. In short, if you are on a budget, dropshipping is less expensive to start up and still has huge profit margins.
Amazon has a huge customer base but with the competition, you’ll still likely need to invest in sponsored Amazon ads. It is also more expensive to get started.
As far as experience goes, you don’t need any for either business model. Dropshipping is far easier to learn. Amazon FBA has a lot more moving parts and will take time to learn their processes.
What are your thoughts on these two business models? Leave your feedback in the comments below.