If you intend to start an ecommerce business, you may already be working on your business plan and trying to figure out which ecommerce model will work best for you. You may have stumbled on two top-rated ecommerce business models - dropshipping and Amazon FBA.                     

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Both models have become very successful in the world of ecommerce and are now considered the most preferred, especially for startups. With both models, sellers can transfer the responsibility of storing goods and fulfilling orders while focusing on other aspects of their business. 

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But as a startup how do you choose between dropshipping and Amazon FBA? Which will work best for your business? 

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To make the right decision, it is important to know what both models are and how they work. 

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In this article, we will explore dropshipping vs Amazon FBA differences as well as their pros and cons to help you decide which will work best for your ecommerce business in 2024. 

What is Dropshipping? 

Dropshipping is an ecommerce business model where the business owner does not keep physical inventory or purchase stock in bulk. As an ecommerce business owner, you buy products from a wholesale company or manufacturer and have them send the products directly to your customer. All you have to do is advertise your products on an online marketplace like Shopify, eBay, and other suitable platforms. This ecommerce model allows you to operate without the need for a physical warehouse or inventory management system. You can focus on other aspects of your business such as marketing, customer service, online store management, and so on.

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When a customer places an order, the retailer forwards the order details to a third-party supplier, who then ships the product directly to the customer. You charge your customer while the wholesale company charges you. You won’t have direct contact with the products you sell. This means you only get to pay for the product when you get paid. 

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Over the years, dropshipping has been seen as a fast and easy way to make money. However, just like any ecommerce business model, you need to devise strategies on how to generate more income for your business. 

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What is Amazon FBA?

Amazon FBA has built quite a reputation for being one of the best fulfillment networks. 

FBA, which stands for Fulfillment by Amazon, is a service that allows online retailers selling on Amazon to simply send their products to an Amazon FBA warehouse and have Amazon handle the rest. All you need to do is enroll your products in the FBA program and have your products stored in Amazon's fulfillment centers.

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When your customer places an order on Amazon, Amazon picks, packs, and ships the product from the FBA warehouse directly to your customer. In addition, they handle customer service and even returns. This model is perfect for business owners looking to cater to a large audience. It is also known for being incredibly scalable.  

Dropshipping vs Amazon FBA: What are the differences? 

There are a few differences between dropshipping and Amazon FBA. 

With Amazon FBA, you do not have to handle customer service or product returns. On the other hand, with dropshipping, you may have to deal with returns and customer queries yourself. 

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One major difference between dropshipping and Amazon FBA is in the sourcing and payment of inventory. With FBA, you have to source and pay for your inventory (which will be sent to Amazon fulfillment centers) ahead of time. On the other hand, with dropshipping, you never have to take ownership of your inventory. Payment is made to your supplier after accepting confirmed orders. 

With both dropshipping and Amazon FBA, you are exempted from the responsibility of order fulfillment. However, you are responsible for marketing your products and taking customer orders. 

Pros and cons: Dropshipping vs Amazon FBA 

To help you choose the right business model for your ecommerce business, let’s look at some of the pros and cons of dropshipping vs Amazon FBA. 

Pros and cons of dropshipping 

Pros 

• Dropshipping is very pocket-friendly. You don’t need to put in a large amount of capital or make a large investment at the initial stage of your business. 
• There is little to no risk with this model, as you don’t have to put in capital. 
• With the dropshipping model, you only have to handle placing orders with your supplier. Your supplier handles everything from packaging, shipping, and returns. 
• Another benefit of dropshipping is that you can run your ecommerce business from any part of the world. All you need to do is maintain good communication with your supplier and your customers. 
• With dropshipping, you can diversify your product range with less investment. You can offer a wide variety of products without being constrained by inventory limitations.
• Since you won’t be handling storage or packaging, dropshipping saves you a lot of time. 
• Dropshipping is highly scalable, as it allows you to sell virtually any product and ship it worldwide. 

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Cons 

• Your profit margin may be very low. Since you don’t sell the products directly, there is little flexibility to sell at a higher price. 
• You may not have adequate or accurate information from your suppliers. Chances are you may find it difficult to handle customer complaints related to the product. 
• You're relying on third-party suppliers for product availability and quality, which can lead to issues beyond your control. 
• There is fierce competition in dropshipping, making it difficult to stand out. 
• You may not be able to offer deals and promotions since your profit margin is slim and you don’t purchase products in bulk. 
• You may encounter difficulties with attending to customer complaints promptly since you have to rely on your supplier for information

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Pros and cons of Amazon FBA 

Pros 

• You can focus on other aspects of your business, increase sales, and grow revenue with Amazon while Amazon handles the picking, packaging, shipping, and customer service. 
• Leveraging Amazon's reputation for its reliability and customer service can significantly influence buyers' confidence in your products.
• Amazon has a large customer base which gives you access to millions of customers including Amazon Prime members. 
• With Amazon’s sophisticated tools, you can build your brand and boost your brand recognition. 
• Being an FBA seller can increase your product's visibility and ranking within Amazon's search algorithm. 
• Amazon's infrastructure allows for faster shipping times, improving overall customer experience. 
• With Amazon’s mass customer base and sophisticated features, you can sell more products and increase your profits.
• Amazon provides 24/7 customer support, reducing the burden of handling customer inquiries and issues. 
• Amazon handles returns and replacements, making it a stress-free process for you

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Cons 

• Millions of sellers sign up for the FBA program every year making it very competitive. For new sellers, it may be difficult to scale your business
• The FBA program comes with storage and shipping fees which can eat into your profit.
• Items stored in Amazon's warehouses for extended periods incur additional fees, affecting profitability for slow-moving products.
• Amazon has strict rules and regulations you need to follow or run the risk of getting your account suspended. 
• While Amazon handles most aspects of fulfillment, You can lose control over certain elements of the customer experience and inventory management. For example, Amazon handles customer service and this may not give you direct access to customer details, making it difficult to build your own customer base. 
• You need a decent amount of capital to start selling on Amazon FBA. 

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Best products for Dropshipping vs. Amazon FBA

What products are better for dropshipping or Amazon FBA? Well, this depends on various factors, including your budget, your desired level of control, market access, and the nature of the products you intend to sell. However, let’s look generally at products that are best suited for dropshipping and Amazon FBA. 

Best products for dropshipping

1. Niche markets: If you have products that cater to niche markets with specific needs or preferences, dropshipping might benefit you. You can quickly adapt to changing trends without large inventory investments.
2. Seasonal products: Seasonal items, such as holiday decorations or summer clothing, can be easily added or removed from your catalog without the risk of holding unsold inventory. 
3. Highly competitive markets: In markets where competition is fierce and profit margins are thin, dropshipping allows you to start with minimal investment and scale up as you need to without the upfront costs associated with inventory
4. Market changes: For products that experience rapid changes in popularity or technology, dropshipping can offer the flexibility to pivot quickly without being locked into inventory that becomes obsolete. 

Best product for Amazon FBA 

1. Popular and established products: If you have products that are already popular and have a proven track record of sales on Amazon, you could benefit from the increased visibility and credibility offered by the FBA program. In addition, you can increase your sales volumes through Amazon's vast customer base. 
2. Branded products: If you're selling branded products, FBA can enhance your brand's visibility and trustworthiness among consumers, thanks to Amazon's reputation for quality and customer service. 
3. Products requiring high-quality control: For products where quality control is important, FBA allows you to inspect and approve products before they are shipped to Amazon's fulfillment centers, ensuring consistency and meeting consumer expectations. 

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Dropshipping vs Amazon FBA: Which is better in 2024? 

Now to the question, you've been waiting for. Which is better in 2024? Which is right for your business? Dropshipping or Amazon FBA? 

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As we've explained earlier, Amazon FBA is a fulfillment service where sellers can hand over the responsibility of picking, packing, and shipping orders to Amazon. With this service, you can focus on other aspects of your business while Amazon handles order fulfillment and even customer service. You can monitor your orders on your Amazon Seller Central account and know when you need to restock at the FBA warehouse. 

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What's more, you can leverage Amazon’s large customer base to get your products in front of millions of customers across the globe, increase sales, and grow revenue with Amazon. However, it is important to note that all these benefits come at a price. 

You will need to pay Amazon tons of FBA fees to enjoy this convenience. If you have enough capital and want to expand your ecommerce business, Amazon FBA may work best for you. It is also important to calculate how much Amazon will be getting on each sale and ensure your profit margin is positive. 

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On the other hand, dropshipping is a low-risk, low-capital business model that allows you to start your ecommerce business even without capital. 

You can run your business from any part of the world and diversify your products with little investment. If you are just testing the waters, perhaps you just started your ecommerce business, you may want to play it safe with dropshipping.

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While dropshipping may seem like the cheapest and easiest business model, it requires strategic planning. You need to put in the work to pick the right products to sell and find reliable partners that can deliver the goods to your customers promptly and with few mistakes. Dropshipping takes away the responsibility of handling or even seeing your products. However, the downside to dropshipping is the high competition and low profit margin. 

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With both business models, you don't get full control of your business. If you are using the FBA service, you will need to comply with Amazon's rules and regulations. 

With dropshipping, a large part of your business will be controlled by your supplier or partner, coupled with little flexibility and low profit margins. 

In choosing between dropshipping and Amazon FBA, it all comes down to how much capital you have and the risk you are willing to take. 

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Can sellers use Amazon FBA for dropshipping?

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While Amazon FBA has similar benefits to dropshipping, Amazon will not be responsible for purchasing inventory. You cannot directly use Amazon FBA for dropshipping in the traditional sense because Amazon FBA requires sellers to purchase and send inventory to Amazon's fulfillment centers, whereas dropshipping involves ordering products from a supplier as they are sold to customers, without the seller ever holding the inventory. Amazon only stores already purchased inventory in their FBA warehouse. 

However, you can dropship on the Amazon platform. In Amazon dropshipping, the seller lists products on Amazon and works with a supplier who agrees to fulfill orders directly to customers. When a customer places an order, the seller forwards the order details to the supplier, who then ships the product directly to the customer. However, you will need to abide by the following rules: 

• You need to be the seller on record of your stock and identify that you are the seller on all packing slips and other materials. 
• You will need to accept and process customer returns
• You need to comply with all of Amazon's selling policies
• You are not permitted to have another online retailer ship products to customers

You can check out Amazon's dropshipping policy here. 

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Conclusion 

So that's it! The decision is now up to you. If you are looking to grow and expand your business, considering the high cost and risk, you can use the Amazon FBA model. On the other hand, if you want to play it safe, dropshipping could be just the right model. However, you need to consider several other factors in your business. You can go through the pros and cons of each model as listed above and make an informed decision. 

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