By Garen Hurley
Do you want to start an online business but are still deciding between Amazon FBA and dropshipping? Before deciding, you should understand the differences and advantages between the two models. Let’s start by defining each of these business models.
- Amazon FBA (Fulfillment by Amazon) – Amazon provides this service to businesses to outsource their inventory storage, order fulfilment, and customer service. With FBA, you send your inventory to Amazon’s warehouses, and when a customer places an order, Amazon takes care of picking, packing, shipping, and handling any customer inquiries or returns.
- Dropshipping – As a retail fulfilment method, dropshipping involves a store not stocking the products it sells. It is more common for a store to purchase a product from third parties and ship it directly to customers. This means the retailer never handles the product directly and doesn’t need to manage inventory or shipping.
Startup costs and overhead expenses
With Amazon FBA, you must purchase inventory upfront, which is a substantial cost, mainly if you sell large or expensive items. You must also factor in shipping costs to get your products to Amazon’s warehouses. Amazon has various fees associated with its FBA service, including storage fees, fulfilment fees, and optional fees for additional services like product preparation or labelling.
On the other hand, dropshipping typically has lower startup costs. Since you don’t purchase inventory upfront, your initial expenses are usually limited to setting up your online store and marketing your products. With drop shipping, you only pay for the goods you sell, so there’s no need to worry about significant upfront investments or storage fees. You may still incur some costs, such as monthly fees for using a dropshipping platform or app, and you will likely need to spend money on marketing and advertising to drive traffic to your store.
Shipping processes and customer experience
- When you use FBA, your products are eligible for Amazon Prime shipping, which means free two-day shipping for Prime members. This is a significant advantage as it increases sales and improves customer satisfaction. Amazon also handles customer service inquiries and returns for FBA orders, providing your customers with a seamless and professional experience. Your products reach customers quickly with Amazon’s vast distribution network and efficient shipping process.
- With dropshipping, you are responsible for setting up shipping rates and policies, and you need to ensure that your suppliers ship products promptly. Since you work with third-party suppliers, shipping times and quality vary, and you may need more control over the overall customer experience. While some dropshipping suppliers offer fast shipping, others may take longer, and you might need to communicate potential delays to your customers. It’s also important to carefully select suppliers who can provide accurate order fulfilment and high-quality packaging to ensure a positive unboxing experience for your customers.
If you choose to go with the Amazon FBA route, consider enlisting the help of a full-service Amazon agency. These agencies are experts in navigating the complex world of Amazon selling and can provide valuable insights and services to help your business succeed. From optimizing product listings and managing inventory to handling marketing and advertising campaigns, a full service amazon agency takes care of all the critical aspects of running an FBA business. This leaves you free to focus on product sourcing, strategic planning, and scaling your business efficiently.
