We’re about to dive into the online shopping world where big players like Amazon and a growing trend called drop shipping are trying to outdo each other. Each has its own ways of doing things and its own pros and cons.
If you’re thinking of starting an online business, our guide ‘Amazon Vs. Drop shipping: Understanding The Key Differences,’ can help you decide what’s best for you.
Whether you already have a business, are thinking of starting one, or are just curious about online shopping, come join us. We’ll explore what makes these two different and how that can impact your business.
We’ll go over the basics of how they work, and look at some tips on selecting the right solution for your particular situation. By understanding these distinctions, you can ensure that you are making the most out of either platform and maximizing your profits.
1. What is the Difference Between Amazon FBA and Drop shipping?
Amazon has two options for sellers to sell their products. One is FBA (Fulfillment by Amazon ), and the other is FBM (Fulfillment by Merchant).
Amazon FBA allows sellers to have their products stored, packed, and shipped by Amazon. It offers sellers several benefits, such as prime eligibility, lower shipping rates, and automatic order tracking. To register in Amazon FBA, sellers must create an Amazon selling account and log in to seller central to set up FBA. The next step is to create product listings and specify the inventory for FBA.
Registration is free, and there are no monthly or annual fees. Sellers must ship their products to one of Amazon’s fulfillment centers, where they will be stored until they are shipped to customers.
When a customer orders a product from any FBA seller, Amazon will pick, pack and ship the product for customers. The seller is responsible for the cost of shipping their products to Amazon’s fulfillment centers. Amazon will also provide customer services like return and exchange.
Drop shipping is a business model in which e-commerce sellers sell products without carrying any inventory. When a store owner receives an order from a customer, they simply contact the supplier, who will ship the products directly to the customer’s door.
This is an effective way to start a business with minimum investment and inventory risk. You can quickly sell specific products stored at the supplier’s place to a different location.
It is a very simple process without any complications of managing inventory at the warehouse. You simply contact your dropship vendor to deliver the product whenever a customer places an order.
This is the quickest way to make money by selling products online. You need to make a strategy and find the right vendor to sell your products effectively.
2. The Pros of Selling on Drop shipping
When comparing Amazon vs. Drop shipping, there are many differences to consider before deciding which option is the best for your business.
● Low Setup Cost: Drop shipping does not require a large amount of investment to start a business. In most cases, you only need an e-commerce platform, a domain name and hosting service, and a payment gateway. This makes starting a drop shipping business much cheaper than traditional retail businesses requiring hefty stock and equipment investments.
● No Inventory Management: This is the best benefit of drop shipping; you do not have to worry about inventory and stock. As orders are placed on your website, they will simply be sent to the supplier, who will do the whole packaging and delivery process. He will ship the product to the customer on your behalf.
● No Minimum Order Requirements: One of the significant advantages of drop shipping is that there are often no minimum order requirements imposed by suppliers, which makes it easier for sellers who want to sell only one item at a time rather than large bulk orders. It is usually required by wholesalers when purchasing stock in bulk amounts upfront for resale purposes later down the line. This makes drop shipping an ideal choice for small businesses just getting their start in e-commerce.
● Easy to Scale: Drop shipping offers incredible scalability as it does not require sellers to invest heavily in inventory or equipment as their business grows. As you scale up operations, you can grow your business quickly by adding new items to your online store without worrying about physical limitations like space constraints or limited staff resources. It makes it easy for sellers to achieve success with their online store over time.
● Flexible Location: You can operate your business exclusively online with drop shipping. This form of e-commerce provides excellent flexibility regarding where you run operations. Whether at home or abroad, this business model doesn’t restrict you geographically so long as you have access to reliable internet services wherever you are.
3. The Cons of Selling on Drop shipping
● Less Margin: One of the major cons of drop shipping is the low margins in selling. Many sellers are locked into a competitive pricing structure with other sellers, meaning there is little room for profit due to low-profit margins. Customers often look for sellers who offer products at lower prices. It is difficult to increase the cost of products as competition is high in drop shipping. As we discussed, investment is less, so the profit margin is also less.
● Lack of Control Over Product Quality: Another downside of relying on third-party manufacturers for product sourcing is that you have less control over product quality and inventory availability. If a manufacturer produces low-quality products or does not have a reliable track record for fulfilling orders quickly, your business may suffer from customer dissatisfaction and negative reviews.
● Customer Service Challenges: While many drop shipping companies offer customer service support, they need to gain the specialized knowledge and experience to solve more complicated technical issues related to their products effectively. This can leave customers frustrated with long wait times or unsatisfactory answers when they reach out for assistance regarding their order because employees may need to be fully knowledgeable about every detail of their products or services.
● Difficult Returns Processes: Your products are shipped directly from the supplier warehouses, and returns processes can become very complicated. There are multiple parties involved in return requests made by customers. It is successfully processed without any additional risks caused by any party involved in the transaction (i.,e., retailer & supplier). This makes the return process very difficult. This may lower your customers from making purchases altogether if they feel unsure whether they’ll be able to return items without going through long processes beforehand.
● Complex Payment Processing: Many payment processors require special accounts to accept payments online from customers who want to purchase items through a drop shipper’s website. The extra steps required can be complicated for some customers, resulting in lost sales due to abandoned carts during checkout because of confusion around payment options or difficulty setting up an account with the payment processor used by the drop shipper.
4. The Pros of Selling on FBA
● Fast Delivery: Amazon FBA is responsible for the whole process of receiving inventory and shipping orders. This will save you time, and Amazon handles the delivery of products to customers. It can ensure that orders are shipped quickly and efficiently without additional labor costs and inventory management.
● More Visibility of Products: If you’re looking for increased product visibility, then selling on Amazon FBA may be the answer you need. Your product listings can appear in multiple places across the platform, such as search results, product pages, and even Prime-eligible items, which increases exposure to potential buyers significantly.
● Powerful Marketing: Selling on Amazon FBA also allows sellers access to powerful marketing tools such as sponsored ads which will enable them to target specific audiences based on their interests or demographics, which opens up entirely new opportunities for increased sales conversion rates. This makes it easier than ever before for sellers to reach potential buyers at an optimal cost-per-click rate compared to other sources, such as PPC campaigns or paid search engine advertising platforms like Google Ads.
● More Customers: By selling through FBA, sellers can also take advantage of Amazon’s world-class customer service network. Since customers are shopping with one of the largest online retailers in the world, they can be reassured that their orders will be taken care of promptly if any issues arise during or after their purchase. Additionally, Amazon’s reputation as a trusted e-commerce platform encourages buyers to make purchases knowing that their money is safe.
● Control over Inventory: Selling through Amazon’s Fulfillment program, there are many options available regarding how much control you would like over your inventory. From basic managed services where stock levels are monitored daily, weekly, or monthly, customized solutions where individual items are tracked down. It allows maximum flexibility throughout every stage in life cycle management (LCM).
5. The Cons of Selling on Amazon FBA
● Limited Control Over Your Branding: When selling on Amazon FBA, you have less control over your branding than if you sold directly through your own website or other sales channels. You can not customize your storefront or product pages with specific design elements or messaging that aligns with your brand identity. Customers are automatically redirected to the Amazon checkout page when they purchase from your store, which means there is limited opportunity for users to learn more about your company before they complete the transaction.
● High Upfront and Ongoing Costs: One of the major cons to consider when selling on Amazon FBA is the cost. It involves a significant upfront cost, including setting up the product listing, creating packaging, shipping costs to send your products to Amazon warehouses, and potentially investing in additional services such as advertising. On top of this, you will be responsible for ongoing costs such as subscription and referral fees, storage fees charged by Amazon for storing inventory in their warehouses, returns processing fees, and more.
● Heavily Competitive Marketplace: Another disadvantage of selling on Amazon FBA is that competition within specific categories can be extremely high due to its immense popularity between consumers and businesses. This means that even if you have a great product at a great price point, but the odds are that someone else may have an even better deal listed. So, customers could end up choosing them instead of you. Thus, it is important for businesses looking to sell on FBA to make sure they have competitive pricing strategies in place to protect against competitors undercutting them at any given time.
● Complex Setup Process: Setting up an account on Amazon FBA is complex and time-consuming due to its various components, such as tax settings, payment gateways, and shipping rates. This all needs to be configured correctly before you can start selling products online. This is even worse if you have multiple products requiring different setup processes. It could take days or even weeks before you are ready to start taking orders from customers online.
● Strict Requirements For Sellers: To sell items through Amazon FBA, companies must follow the strict requirements of Amazon. It includes product shipment time, returns policies, and inventory management, among many others. It is difficult for sellers to remain compliant with the Amazon terms of service agreement.
Wrapping Up :
Everything is explained briefly in this blog post. In conclusion, drop shipping is a great business model for online sellers looking to set up their e-commerce store with little overhead cost.
Although there are some disadvantages to this business model, such as the lack of control over inventory and customer service, these can be easily overcome by using a fulfillment partner like Amazon FBA.
With Amazon FBA, online sellers have the advantage of using Amazon’s massive customer base and infrastructure while still keeping complete control over their business and brand.
Which option is right for you? Drop shipping or Amazon FBA? It really depends on your nature of business and what you’re hoping to achieve with your online business.
If you’re still undecided, we suggest trying both models to see which works best for you.