Which is better dropshipping or Amazon FBA
Amazon FBA or Dropshipping - Which is the Better Choice?
Whether Amazon FBA or dropshipping - these hypes are on everyone's lips. Have you also been convinced of one of these shipping methods? Are you considering starting an ecommerce business to at least try it out? Or do you want to expand or operate your existing business with one of the methods? However, can't you decide between the two most profitable measures of online trading? Find out the advantages and disadvantages of each shipping option here so that you can form your own opinion.
What is Fulfillment by Amazon?
Fulfillment by Amazon (FBA) is an Amazon service in which the shipping processes are completely transferred to the marketplace. Amazon provides the storage capacities, takes care of the packaging and shipping, provides first-class customer service and the expertise relating to the time-consuming processes of online trading.
The icing on the cake of the service is access to the target group with the greatest purchasing power on Amazon - Prime customers. Only in Germany do 19.1 million customers use the Prime subscription, which is an estimated 34.4 million potential Prime buyers. Of these, 70% of primer users buy several times a month from Amazon.
34.4 million users! You have to let the number sink in first. But is that enough to choose Amazon FBA or dropshipping? Just take a look.
What is dropshipping?
Dropshipping is a special form of trade. The orders go to the online retailer's online shop, for example, but the product manufacturer or wholesaler takes care of shipping the goods to the end customer. The dropshipper who takes care of the distribution and marketing of the goods does not own the items and has no physical contact with them. But he can determine the product prices. The manufacturer or wholesaler assumes responsibility for inventory management, storage, packaging and dispatch of goods. Put simply, your job as a dropshipper is only to get in touch with the supplier as soon as you place an order for the product. The supplier then does the rest.
Now, of course, the crucial question arises - which of the sales options mentioned above generates higher sales and profits. Amazon FBA or dropshipping? First, let's consider the advantages and disadvantages of the two models.
Amazon FBA: advantages and disadvantages explained
Benefits of FBA
- With FBA, you move the essential and cost-intensive processes of shipping to Amazon. Concentrating on the core business is crucial at FBA. Amazon packages your products, delivers them and offers the best customer service. That means you have plenty of time to focus on selling your items.
- Shipping, returns and customer service come from a single source. Once your products have reached the Amazon fulfillment center, everything goes its automated way.
- One of the biggest advantages is offering the goods via Prime - each of your products gets a Prime logo. This gives you access to a large and affluent customer base of around 34.4 million people in Germany only.
- More sales can be generated with FBA. When comparing the offers, the Amazon algorithm prefers the products of the FBA dealers. This is not least due to the fact that shipping in the FBA program is free, which entices the buyer to click on the buy button.
- Internationalization is easier with FBA, as many processes are covered directly by the program.
Cons of FBA and How to Fix Them
- FBA is not the cheapest offer. However, each interaction is calculated and reported separately for better cost control. Above all, check your items for weight and units of measurement, higher costs can hide here.
- FBA is not suitable for every item to be sold - the weight and size of the parcels play a decisive role. You should therefore read the terms of the contract more closely and use a healthy mixed calculation.
- Certain goods (such as flammable materials, some groceries or luxury goods) are not shipped by Amazon. You can send some of these goods via FBM (Fulfillment by Merchant) or Prime through sellers. With the second model, as with the FBA, you have better cards when it comes to placement in the Buy Box.
- You have no direct contact with the buyers. When it comes to returns, Amazon is more likely to decide for the customer than for you. The same applies to Amazon FBA or dropshipping: You can counteract this for goods that require explanation by providing all information on the product page. If you fear missing up-selling opportunities, there is the option of offering bundles - “Buy this camera with the XY lens and shoulder bag”.
- Not only is shipping free of charge for the end customer, but also returns. The returns are quicker and cost you additional fees. If you sell goods that are often in return (e.g. clothing or shoes), take this into account when calculating costs.
- The FBA error rate can become a significant cost factor - however well the system works, the online giant also makes mistakes. The goods are lost, damaged or not even included in inventory. A manual check would take too much time, and the online retailer often lacks the know-how to analyze the data from the 10 reports. Many errors often go undetected and are rarely communicated by Amazon. However, there are tools for this that carry out the FBA analysis and completely prepare communication with Amazon for you. The cases can then be forwarded to Amazon via copy-paste.
- Regardless of whether you choose Amazon FBA or dropshipping, expect strong competition. To stay competitive on Amazon, you have to take care of your own presence, run ads or fight for a place in the Buy Box. If you are a retailer, the Buy Box is your holy grail on Amazon - up to 90% of all purchases take place here. When it comes to placing in the Buy Box, the battle is often about price. But don't be too hasty to sell your items at a ridiculously low price. When placing the offers, Amazon Algorithm looks for a combination of competitive prices, stable performance and excellent customer service. For price optimization, it is worth using a repricer, which calculates the best possible price and thus wins the Buy Box.
- A major drawback in contrast to dropshipping - the goods must be purchased beforehand. The capital tied up in this way may be missing for the acquisition of affluent customers. In addition, there is always the risk that the product will be left lying around. In your sales strategy, you can use SellerLogic Repricer to rely on sales in order to avoid the high storage costs.
- FBA leads to a certain dependency on Amazon. For many retailers, the marketplace is already the sales channel with the highest turnover. But what is still valid today can be completely reversed tomorrow. You must therefore be aware that another channel should be available for the distribution of your goods.
FBA is not only suitable for online retailers who are reaching their capacity limits with their existing Amazon shop. But also for beginners and experienced online retailers who want to take advantage of advantages such as access to prime customers and prioritization of the articles for the Buy Box. It is obvious and legitimate that Amazon is pursuing its own interests with the service and (OMG!) Costs money. But here one hand washes the other.
The fact is - the broad and affluent Prime customer group should not even be able to welcome many Amazon sellers as customers without FBA.
Dropshipping: advantages and disadvantages explained
In order to be able to decide for Amazon FBA or dropshipping, let's now look at the advantages and disadvantages of the second shipping option.
Benefits of dropshipping
- As with FBA, one of the biggest advantages of dropshipping is that you don't need a specific branch to start your business. This saves you huge investments in the establishment and construction of your business premises, which is a great burden for every new entrepreneur.
- With dropshipping, the goods do not have to be purchased beforehand from the online retailer. This leaves more money for the actual customer acquisition.
- The supplier assumes full responsibility - including the guarantee. After you have received an order for a specific product, everything is very simple. Pass the order on to a third party acting as your wholesaler or supplier. The latter packs the products, sends them and handles the returns.
- Dropshipping not only saves your money, but also your valuable time. You don't have to pack or ship the products, or take care of the inventory. It is emerging that it is the most suitable form of business for those who want to invest their valuable time in other areas of the business.
- You can invest the time gained in building your business in order to find the most attractive offers for your customers.
Disadvantages of dropshipping and how to get rid of them
- One of the biggest drawbacks to dropshipping is poor quality control of the goods you sell on your own behalf. You don't own the items, so you won't know all of the product info and errors either. You have to rely on the statements of the seller. You will only find out whether the product was actually functional and intact when the customer (k) files a complaint. If possible, you can find out about the products directly on site, carry out blind test orders and regular quality controls or trust your supplier. If the supplier is no longer delivering the expected quality, you must either request rework or start looking for a new manufacturer.
- The delivery times for many products are usually longer. Nowadays, many dropshippers use the offer of Aliexpress and Co. So if you don't have a supplier who ships directly from Germany or Europe, the delivery times vary between two and six weeks. To keep the number of customer inquiries lower, share this information with your buyers and keep them informed. This is the only way you can wg your customers. soothe the longer waiting times.
- Since you have no control over product quality and delivery times with dropshipping, you will most likely have to invest a lot of time in customer service. This is how you stop your customers from leaving a bad review. Probably the easiest way to speed up customer service is to formulate ready-made answers. Once written, they serve as a template for your customer support.
- There is little or no prospect of discounts and offers. Since you cannot generate bulk purchases with your orders, but rather individual orders, you usually do not reach the necessary order limits in order to achieve better conditions. To do this, you would have to keep your own inventory.
- You have to invest a lot of time in the sales and marketing of the offers in order to draw the customers' attention to the offer. Although you have the option of offering your goods on eBay, Amazon and Co., you do not have the advantages of how retailers e.g. send out fulfillment offers on the platforms. In addition, caution is advised with Amazon. According to Amazon guidelines, all documents such as invoices and delivery notes must come from the seller or look like this.
- The trends are very fast moving, the competition is very high, as in every segment. You have to invest a lot of time researching new sales products. Always be on your guard when it comes to trends and be creative when it comes to selling your products.
Dropshipping certainly offers advantages for everyone who wants to try their hand at online trading - the start-up capital is minimal. The most important prerequisite for successful dropshipping is nevertheless a trusting cooperation with the supplier, which is not there from now on. The supplier is responsible for the quality and a fast and safe dispatch of the goods to the end customer.
The rest is up to you. The time that is not to be underestimated is spent on your new online shop, customer service, product research, as well as marketing and selling your items. To believe that from now on you will be lying on the beach with the money flowing into your pocket ... well. Maybe. Sometime. Later.
Conclusion: Amazon FBA or dropshipping - which fits better?
So that you now have all the advantages and disadvantages of the shipping options at a glance, we have summarized them for you in a table.
Amazon FBA vs. dropshipping - there is no general answer to which model is the right choice for your e-commerce company. It is just as individual as your ideas about your business. Dropshipping can be started with little start-up capital and little experience in online trading, but it requires large capacities in marketing, sales and customer service. Fulfillment by Amazon offers clear advantages such as a large customer base, fast delivery and the best customer service, but if you want to be successful you have to hold your own against the growing competition (dropshippers are no less affected by it).
Picture credits in the order of the pictures: © madedee - stock.adobe.com / © Hor - stock.adobe.com / © olezzo - stock.adobe.com / © Jacob Lund - stock.adobe.com
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