Amazon FBA vs. Dropshipping: A Comparison Guide for Sellers

a graphic showing the differences between amazon fba and dropshipping, factors: start up expenses, customer base, profit margin, direct customer contact.

Last updated on July 31st, 2023

Written by Ken Zhou

In the ever-evolving world of ecommerce, aspiring and seasoned sellers are constantly looking for opportunities to maximize their profits. If you’re torn between the popular Amazon FBA vs. dropshipping ecommerce business model, you’re in the right place!

In this guide, we will compare Amazon FBA and dropshipping to help you determine which will work best for your Amazon business.

a graphic showing the differences between amazon fba and dropshipping, factors: start up expenses, customer base, profit margin, direct customer contact.

Amazon FBA at a Glance

Fulfillment by Amazon (Amazon FBA) is a program that allows sellers to outsource order fulfillment to Amazon. 

If you sign up for Amazon FBA, your products will be sent to an Amazon warehouse, where they will handle the entire fulfillment process, from picking, packing, and shipping customer orders. In return, sellers pay Amazon for fulfillment and storage fees.

a graphic on how amazon fba works, from left to right: seller ships products to amazon, amazon stores products, customer orders online, amazon ships the order. 

Benefits of Amazon FBA

Aside from Amazon handling the fulfillment process for sellers who have signed up for the program, their products also become eligible for Amazon Prime’s free two-day shipping. When a store offers low to no shipping costs, it attracts customers to purchase.

Check out more significant advantages of enrolling in the Amazon FBA program:

Higher Profit Margins

Like wholesaling, you can scale your business with Amazon FBA. This method offers specialized fulfillment services such as FBA Export, Multi-Channel Fulfillment, Amazon Global Logistics, and more without new investments in capital or staffing. This helps Amazon FBA sellers save on expenses and gain a high profit margin

Exposure to an Extensive Customer Base

Unlike the dropshipping model (where you can only focus on several customers at a time), FBA exposes you to a huge customer base. Enrolling in Amazon FBA allows your listings to be displayed with the Prime logo. You can sell more specifically to millions of Prime members with high purchasing power.

Dedicated Customer Service

Say goodbye to fielding customer inquiries, complaints, and other customer service issues. With FBA, Amazon will handle customer service and will coordinate with your customers on your behalf. This gives Amazon sellers more time to focus on their online store instead of spending it on customer service tasks.

Drawbacks of Amazon FBA

While Amazon FBA offers great benefits for sellers, it also has its own set of limitations:

FBA Cost

Compared to Amazon dropshipping, selling on Amazon FBA needs an upfront investment. You’ll pay Amazon FBA fees, including your chosen selling plan, referral, and fulfillment fees.

Storage Fees

It’s good that you don’t have to invest in a warehouse for your inventory after sending them to Amazon’s fulfillment centers. However, if your products do not sell, paying long-term storage fees could hurt your business even more, especially if you’re a newbie seller.

Tips to Succeed in Amazon FBA

Whether you’re a newbie in growing your business or a seasoned seller, here are some tips to help you succeed in FBA:

  • Manage excess FBA inventory regularly to save on costs.
  • Regularly check your Inventory Performance Index (IPI) score to avoid overage fees and limits on sending more inventory.
  • Use Inventory Age tools to understand how much inventory you hold and how long they’ve been in Amazon fulfillment centers.
  • Include pricing and condition information to keep your product listings active.

An Overview of Amazon Dropshipping 

Amazon dropshipping is another business model where you sell your product on Amazon and ship customer orders yourself. You’ll need a minimal upfront investment as you still have to pay Amazon selling fees.

In dropshipping, you can sell retail or branded products purchased from a dropshipping supplier. It’s also important to note that you will be identified as the seller on external packaging, invoices, and packaging labels, not your supplier or manufacturer.

a graphic on how dropshipping works on amazon, from left to right: customer places the order, seller receives the order, seller forwards the order to dropshipper, customer receives the product.

Benefits of Dropshipping on Amazon

The key advantage of dropshipping on Amazon lies in its simplicity. It has made it easier for dropshippers to enter the ecommerce industry. Plus, the dropshipping business model doesn’t limit sellers with physical constraints such as warehouse space or manufacturing capacity.

Aside from that, dropshipping also offers the following benefits to sellers:

More Affordable Startup Costs

Unlike wholesaling and other business models, you do not need an inventory to start selling under the dropshipping model. Your dropshipping suppliers handle the inventory management. They will also be responsible for shipping the products to your customers. 

For every product you sell, a portion of your proceeds goes to the amount you paid for the product plus the shipping cost, if any.

Fast and Easy Business Set-up

The fact that you no longer have to deal with inventory and storage already relieves you of more than half the burden of setting up your online business. You only have to find a reliable supplier. After that, you must prepare your dropshipping store and devise an effective marketing strategy for your launch.

Hands-Off Operation Privilege

You will never run out of options when it comes to apps and plugins that will help you run your business. There are several dropshipping tools and software that you can use at any time. All these technological devices combined allow you to run a fully automated online business.

Drawbacks of Amazon Dropshipping

Dropshipping attracts aspiring sellers primarily because it offers low startup expenses. However, it also has disadvantages that you should also consider:

Higher Competition

Amazon dropshipping faces higher competition than Amazon FBA because it requires lower upfront investment and is more accessible to a larger number of sellers. This results in a crowded marketplace. 

Amazon FBA, on the other hand, involves a higher upfront investment and more complex logistics, which limits the number of sellers who participate. 

Lack of Quality Control

As the products you sell will be shipped directly from the manufacturer or supplier, you won’t have control over the product’s quality. If you want to ensure the products you’ll sell are high quality, order samples from your supplier before working with them. 

Customer Service Issues

Dropshipping allows you to do things on your own business. However, customer service management will be more challenging. As a seller, you are directly responsible for handling customer inquiries and issues, whereas if you’re enrolled in Amazon FBA, Amazon takes care of customer service aspects.

Strategies to Succeed on Amazon Dropshipping

Success as a dropshipper is not as elusive as beginner Amazon sellers might think. Although it comes with its own challenges, you can still earn a decent profit, which you can use to expand your business. 

As a dropshipper, you can employ a few strategies to help boost your sales while providing total customer satisfaction. Among them are:

  • Work with a respectable supplier with a proven track record of excellent customer service. Ask questions about their inventory management, how they ship orders and payment terms.
  • Actively request feedback from your customers to help improve your seller feedback ratings.
  • Use the hybrid approach, which entails stocking your best-selling products on Amazon FBA.
  • Comply with the seller agreement and Amazon’s dropshipping policy.

Make Your Amazon Business Successful With Seller Interactive

After comparing Amazon FBA with dropshipping, we hope we have helped you find a better fulfillment model for your business.

If you would still like to explore Amazon FBA rather than dropshipping, let Seller Interactive help! Our team can provide great assistance to you through our various Amazon services and help you streamline the processes of Amazon FBA selling.
Reach out, and let’s get down to business!

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