What Is Amazon FBA?
Amazon is one of the biggest online shopping platforms that have hundreds of millions. Sellers can list their inventory on Amazon and sell them for a profit.
Amazon FBA, or Fulfillment by Amazon, is a business model that the seller sends the products to Amazon’s warehouse, then lists them and waits for an order. Amazon is responsible for the rest. Once the order is placed, Amazon picks the item and packs it, and ships it to the customer. In addition dealing with the customer, like refund and return, is done by Amazon.
Pros & Cons of FBA
Here is a short list of benefits and disadvantages of Amazon FBA:
Pros of Amazon FBA
1. Hassle-free shipping and storing inventory
Amazon has a complex network of logistics, warehouses, and shipping facilities that make shipping and inventory storage cheaper, more organized, and less time-consuming for the seller. Amazon is responsible for picking, packing, and shipping the orders. It is a headache-free business and you neither need to provide large rooms to store the items nor deal with different post services.
2. More potential customers due to Amazon brand image
Amazon has millions of visitors every year. Over 110 million Prime customers will be more eager to buy from Amazon Prime Sellers to use Prime benefits. They can receive their orders with free and quick shipping. Also, Amazon’s successful goodwill can make the sellers valid and develops their customer base.
3. Return, refund, and customer service management
Amazon offers its customer service for Amazon FBA sellers. In addition, Amazon sellers who are using Fulfilment by Amazon assign all return and refund processes to Amazon and will be happy with the global high-quality service. With Amazon services, you don’t have to worry about anything.
4. More sustainable profit
You are the owner of your inventory. If you choose your listing ingeniously, you can choose your profit margin and it doesn’t change so much with fluctuations. In addition, buying the items in bulk helps you to offer promotional deals.
Cons of Amazon FBA
For making the right decision you need to balance costs and benefits and here are the disadvantages of using Amazon FBA:
1. No control on inventory and customer
You don’t have the full record of your clients and can’t contact them directly. Also, storing and shipping your items through Amazon means that you don’t have control over them. You cannot enter Amazon’s warehouses to check your item and have to trust Amazon. Sometimes your inventory is large and you cannot keep the record. Unsold products can cost you more to store. But you don’t have this problem in Amazon FBM. Because in the FBM business model you store your items and ship them to the customers, you can record all necessary information.
2. More returns
Because Amazon’s return process is really easy, more customers will return the items.
3. Difficult shipping to Amazon
Amazon has a strict organizing system and the inventory stored in the Amazon warehouses should be packed individually with unique labels. Also, some products like flammable products never are stored in Amazon warehouses. If your products don’t meet Amazon’s standards, Amazon may reject them. Prepare centers to know the Amazon policies very well and can meet the requirements in preparing products and send them to the warehouses. The sellers usually send the products directly from the supplier to prep centers and after packing and labeling, prep centers ship the item to Amazon warehouses.
4. More risk
You should invest upfront to buy your inventory and pay Amazon fees. If you choose a bad listing it can lead to your loss. In addition, Amazon can change its policies or consider tough penalties if you break the rules. You are not allowed to sell everything and there’s the risk of account suspension.
5. Paying FBA fees
Amazon doesn’t offer its service for free! Check the Amazon website for detailed information about subscription or referral fees.
What Is Dropshipping?
Dropshipping is a common business model in the online arbitrage world. It means you list the items without holding the physical stock you are selling. When an order is placed from a customer, you order it from a supplier, and the supplier ships it to you or directly to the customer. You earn the profit without the risk of inventory, storage, and fulfillment costs. You can advertise your products on different platforms like Shopify, Amazon, or eBay store. It is one of the most trending retail businesses that have low risk and is cos effective.
Pros & Cons of Dropshipping
To make an informed decision, you need to compare the benefits and disadvantages of Dropshipping against Amazon FBA.
Pros of Dropshipping
1. Negligible investment
Dropshipping doesn’t need a hefty, upfront investment. There is no need for brick and mortar establishments too. So it saves you from the usual burdens to start a business.
2. Low risk
You don’t need an upfront investment. In addition, you don’t maintain large inventories. The risk of loss is very low.
To improve your business, you should dedicate time but the executing process of your business is what many sellers don’t like. Dropshipping doesn’t need managing inventory and in many cases, doesn’t need packing and shipping and the suppliers are responsible for all. So it is ideal for all the sellers who don’t like repetitive executing responsibilities.
Cons of Dropshipping
1. Low-profit margin
You are not the only one who is selling a product. The market is competitive so reselling a $5 item for $20 makes no sense. The customer can look for a better price. You don’t have inventory so changes in supplier price can lead to fluctuations in profits.
2. Inadequate information
There is the possibility of scant or insufficient information from your supplier. So you may not be able to answer the customers’’ queries or the customer receive an item that is different from what he/she has ordered.
3. Customer service issues
You rely on the supplier to ship the item to your customer. So any broken or mismatched item is possible. When it comes to answering customer concerns you have to rely on the provider.
What Is the Difference Between Amazon FBA & Dropshipping?
Amazon FBA and Dropshipping are similar business models that are different in few things. Both offer a time and location independent job based on online platforms.
In Dropshipping you are not worried about unsold products because you don’t store the inventory. Shipping, refund, and return are not your responsibilities. But low and varying profit margins can be not satisfying. In addition, broken or mismatched items are possible because you don’t have control over the shipped item. It can make your customer angry and gives you negative feedback.
Amazon FBA handles the customers’ issues, but first, you need to send your inventory to Amazon warehouses. So you should buy the items and it needs analyzing and knowledge. Because wrong decisions can cost you much.
Amazon FBA or Dropshipping; Which One Is Better Choice For Your Business?
Both methods have pros and cons and they are similar in many options. But choosing one of them depends on your situation and your business.
If you are a beginner seller and don’t have capital and looking for a low-risk job, Dropshipping can be attractive. There are different platforms like Shopify or eBay that you can advertise your product and start your Dropshipping business.
If you want to dedicate more time and money and earn more profit, Amazon FBA can give you proper tools and a massive audience. Amazon FBA requires a fair amount of capital and you can scale your business up.
Choosing between Amazon FBA and Dropshipping can be tricky for beginner sellers. Both have advantages and disadvantages that you need to consider while you want to choose your business. Many sellers use several business models but we suggest if you are not a professional don’t work on several businesses and postpone it to when you are skilled enough.