Amazon FBA or Dropshipping: Which is better

Amazon FBA and Dropshipping Which is better

Dropshipping is easy money, while Amazon FBA is Brand and Brand is always an Asset.

For the past decade, the world has witnessed a rapid boom in ecommerce. Ecommerce entrepreneurship became the most profitable field when compared to any other form of entrepreneurship.

And since the pandemic Amazon became the world’s largest ecommerce platform with billions of dollars in yearly turnover.

The one who is about to enter this ecommerce world encounters a lot of options, which can leave a newcomer confused. If you are planning to start your ecommerce journey, the two most favorable business models that you can focus on are Dropshipping and Amazon FBA.

Here, we will dig deep so you can make a more informed decision. Let’s begin then.

Amazon FBA

Amazon.com, an ecommerce platform, mainly offers two programs FBM (fulfillment by Merchant) and FBA (fulfillment by Amazon).

FBA program is specially designed to cover a larger audience, with its remarkable features to rapid scalability.

Being a seller you will send inventory to Amazon’s warehouse and for every order, it will pick, pack and ship for you. Customer Queries, returns, and refunds are also handled by Amazon.

Amazon is a huge market for popular products. And with the FBA program, these products are eligible for Amazon’s shipping promotions like free super saver shipping and Amazon Prime. These features make it even more fruitful.

Benefits and Drawbacks of Amazon FBA

Here we will dissect this model based on pros and cons, let’s start this straight away.

Benefits of Amazon FBA

Time to Focus on Business

With Amazon FBA your business is taken care of with product packaging and shipping. It also provides customer care services. Keeping this in mind you have left nothing much to do. You have plenty of time to devise new techniques, find more problem-solving products, and grab more customers than competitors. It is time-saving-saving and allows easy scaling of your business. You do not need to stress out about warehouse space and staff.

Large Customer Base

In any business, it is a difficult task to build a customer base. With FBA, you will be able to have a massive customer base and enjoy fruitful results.

Return and Refund Policies

It is not your headache anymore to manage refunds and returns, Amazon is going to do it for you. It’s the main task for Amazon to manage customer service, by this you will maintain loyal customers. If you want to avoid unnecessary hassle then you can go with Amazon FBA without any second thought.

Better profits

Amazon has a good brand image so its customers pay more for the same product compared to any other website. So you enjoy more profits while registering with the FBA model. Far more significant profits are possible.

Being a Brand is Easy

You have a unique voice and storefront, with little struggle and strategic moves you can be a brand as you already have customers flowing to you. You will get brand recognition because of Amazon’s goodwill. Get your creative juices flowing here and come up with a name and logo to help you stand out from the crowd!

Access to Global Audience

You will get easy access to Amazon’s global audience. As amazon works around the globe, you are not restricted to a single marketplace but can sell worldwide.

In a nutshell

Amazon FBA is a quickly scale-able business model with a huge customer base. You can touch the potential of global markets. Amazon takes care of all the hassle of picking, packing, and shipping products, saving you plenty of time to focus on expanding your business.

In any business customer targeting and retention is a difficult task to perform, and the Amazon FBA program already provides you enough to build your brand quickly.

Drawbacks of Amazon FBA

No Record of Inventory

Unluckily, your unsold inventory gets accumulated and the probability is it becomes this big that you cannot manage the record of your stock.

High Competition

Because of saturation, the competition is fierce in Amazon FBA products. There are a lot of Amazon FBA entrepreneurs that are selling the same products as you, it can be a little tough to compete with those experienced ones.

No Profits are Generated

Not all products bring the same profit margins, sometimes a product does not perform so for such products there are no profit margins. So be careful about the product mix that you like.

Shipping Problems

Few categories are restricted, and you cannot sell them. For example, flammable products.

No Direct Contact with Customer

Amazon has a hold of all the customer’s records, and you do not have any. If you want to sell the same product to the same customers outside the platform, unfortunately, you would not, because you are too dependent on the platform.

More Capital

You are paying major upfront costs as you have to purchase all the inventory and send it to the warehouse. Somewhat a good amount of investment is needed.

Strict Rules and Regulations

You must follow Amazon’s strict rules and regulations.

Customers Belong to Amazon

Over time Amazon gained a huge number of loyal customers because of its consumer-friendly policies. So all these customers belong to Amazon. If you start selling the same products to the same customers you would be the least successful. It is the biggest drawback that you are platform-dependent.

Upfront Stock Purchasing

To send to the warehouse you must purchase inventory upfront and that’s why you need a handsome amount of investment.

Time Consumption

Storing, preparing, labeling, and shipping goods to Amazon is time-consuming; this is the reason that getting a return on investment takes 4-6 months.

Amazon limits your Expansion

During the peak sales season, Amazon strictly monitors inventory levels, and only allows a specific amount of inventory to the warehouse. You get a limited number of sales because of the limited inventory level.

In a nutshell

Amazon FBA is a good-to-go, business model if you already have an idea of how it works and a good investment to start with.

Though a few cons are here like you rely on a platform for your sales and they change their policies anytime and you are bound to agree.

You do not have your customers, you are using the platform’s customers, if any worse happens,  you are left with nothing in sales.

Upfront Stock purchasing in bulk can be your loss as well, so carry out proper research before choosing a product. You would have to win the intense competition to get your fair share.

Dropshipping

Dropshipping is a beginner-friendly business model. In this method, the ecommerce store owner places direct orders to a vendor, supplier, or wholesaler whenever an order is dropped by a customer. The vendor ships the order to the customer’s place directly.

No need to hold inventory in advance or make bulk purchases, it is a cost-effective and low-risk business model. You need to advertise your product through different media. The main dropshipping channels are Shopify, Amazon, Woocommerce, and Magento.

Benefits and Drawbacks of Dropshipping

Let’s break down this model based on its pros and cons.

Benefits of Dropshipping

Lesser Investments

For dropshipping, one does not need a hefty amount of investment. This business can be started with lower initial capital. The vendor will dispatch and ship orders on your behalf, so it saves you from maintenance costs, storage fees,  and a lot more overheads.

Less Responsibility

When the customer will order from your store and you place the order with the vendor. And the supplier will prepare and ship it to your customer’s doorstep. It involves less work from you.

Negligible Risks

As a dropshipping business owner, it is not your headache to manage such a gigantic inventory. If some inventory didn’t turn out great you simply can skip it, remove listings and move on with another fantastic product. In conclusion, we can say dropshipping minimizes the risk of upfront purchase.

Multiplicity

You can offer dozens of different products and tests which sell great. You can add multiple numbers of products. There is no limitation to adding a huge number of products.

Time-Saving

This is something considerable about dropshipping, the store owner can save a lot of precious time, and one does not need to pack, label, ship, or manage an inventory.

Location Independence

Another benefit of dropshipping is that you do not have to freeze your location, you can run a dropshipping business from anywhere super smoothly. The only thing you should ensure is to keep in touch with suppliers and customers. You literally can run a dropshipping store from anywhere in the world.

In a nutshell

Dropshipping is a risk-free low investment business model that can be a good start for those who are planning to enter the e-commerce world. You can save time, offer a great diversity of products and sell from anywhere in the world.

Your supplier is doing all the pick, pack, and ship for you. If a product is not doing great it is very simple to remove it and move on with another good-performing-performing product. No need to purchase inventory upfront, making it a beginner-friendly and low-risk business.

Drawbacks of Dropshipping

Thin Profit Margin

With dropshipping profit margins are thin because you purchased it from a vendor, not the manufacturer. Competition is intense and customers can go elsewhere if he finds it slightly expensive from someone else. You cannot sell a $10 product for $50. You will have to compromise on a minimalist profit margin. Profit margins will be small as compared to Amazon FBA.

Scant Information

You may not have all the information about the product, the suppliers couldn’t provide all the adequate information. You cannot check the product quality and it is a major concern when it comes to the reputation of the store. Because of this, you may not answer all the queries if a customer shows interest in your product. Then there is a risk of losing a customer as well.

Customer Services Issues

You have to manage customers’ concerns like returns, refunds, and product information. If a customer feels a sense of ambiguity you may lose your image.

Lack of Good Promotion Deals

As you are left with thin profit margins so you cannot offer extra benefits or deals or discounts to them.

Intense Competition

In dropshipping market competition is intense. A lot of business owners offer the same products you are also selling at a way less price than you, compensating their profits from somewhere else. So be prepared to face huge competition if you are planning to enter.

Late Shipments

As a dropshipper, you cannot control this thing. There is a risk of late shipments. Dropshipping vendors may not give a fast service as Amazon FBA gives.

In a nutshell

Dropshipping is a risk-free alternative to Amazon FBA but it has a few shortcomings like thin profit margins are negligible as compared to Amazon FBA. You do not get complete information about the product and an inspection cannot be carried out until the order is shipped.

You have to manage customer service, and to retain customers you cannot offer lucrative deals and promotions. Competition is tough and late shipments can be bad for your thriving business. Marketing the product can be budget-sucking, and there is no chance that you can build your brand.

Final Thoughts

It is not easy to jump to a conclusion so quickly, either dropshipping is best or Amazon FBA. Here in this blog post, I have mentioned all the points that can help you make a decision.

You have to check whether you have a good investment to start Amazon FBA or if you want to go with Dropshipping because of less investment. You have to pick accordingly whether you can handle all the responsibility of customer services or let Amazon do it for you.

Do you want to establish a brand for yourself or not?

These are all the questions that you should answer before deciding so you can enjoy a smooth venture in your ecommerce journey.

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