Amazon FBA and Dropshipping were introduced to retailers almost simultaneously and changed the game in e-commerce. Both of these brands are now popular and new marketers are exploring them for their business journey. But how do you know which model is right for you and your business? In this article, we will explain the answers to important questions so that you can make an informed decision.
What is Amazon FBA?
Amazon is one of the largest online shopping malls with hundreds of millions of users. Sellers can list their products on Amazon and sell them for profit.
With Amazon FBA, you are sending the product to Amazon’s warehouse and not to them. Amazon FBA, or Fulfillment by Amazon, is a business model where a seller sends products to an Amazon warehouse, then lists them and waits for orders. Amazon takes care of the rest. Once the order is placed, Amazon picks up the item, packs it and ships it to the customer. In addition, arrangements with the customer, such as refunds and returns, are made by Amazon.
Pros & Cons of FBA
Some of the key points in FBA are covered above. Here are some pros and cons of using Fulfillment by Amazon.
Pros of Amazon FBA
- Fast delivery and effortless shipping
Amazon completes the entire process for you. All you have to do is track your listings, provide products for your merchandise, and let Amazon take care of it from start to finish. A big burden is on your shoulders for a small amount of money.
- Customers can get more from the Amazon brand
Amazon has millions of visitors every year. More than 110 million Prime customers will be interested in purchasing from Amazon Prime sellers to redeem Prime benefits. They can receive their orders with free and fast delivery. Also, the success of Amazon can make sellers more effective and grow their customers.
- Return and refund management
Besides the selling side, returns and refunds are part of the fulfillment process handled by Amazon. Amazon sellers who use Fulfillment by Amazon assign all returns and refunds to Amazon and will be satisfied with high-quality global service.
- Multi-channel Fulfillment
When you use FBA services, you can sell to targeted customers through the Amazon platform. Plus, new multi-channel fulfillment solutions are available for you. By choosing the Amazon Multi-Channel fulfillment or MCF service, it is possible to sell products on different platforms and channels such as eBay and BigCommerce, although Amazon still provides the service.
- Quick Delivery
The Amazon Prime badge is automatically applied to products in FBA, so they are eligible for free delivery service for the customer. Shipping time is one or two days with this service, and the price is included in the Prime service. So consumers don’t need to pay extra or pay premium shipping to get this service.
- Shipping costs and discounts
Amazon is a huge global fulfillment company, so your shipping costs go down when you work with them through the FBA platform. Even though you’re paying Amazon, it’s still less than handling shipping and fulfillment yourself. So you save money.
- Customer service management
Amazon offers exceptional customer service to sellers using the FBA service.
With Amazon services, you don’t have to worry about anything. If you want to access your customer service, you can use the Amazon platform for easy management.
- Other storage spaces
Of course, it is not easy to stock a lot without using FBA. You need to rent a warehouse or own one. But even with security preparations, managing large inventory is a bit of a problem. This is where Fulfillment by Amazon can help. As Amazon has warehouses all over the world, it can store many products and prices.
- More sustainable profit
You have your inventory. If you choose your ad carefully, you can choose your profit margin, but it doesn’t change much in conversion. Additionally, buying in bulk enables you to provide online arbitration support.
Cons of Amazon FBA
There are some ideas that people think that Amazon FBA is not good for them. Some of them are listed below.
- No control on inventory and customer
You don’t have a complete file of your customers and can’t contact them directly. Additionally, storing and shipping your items through Amazon means you have no rights to them. You can’t go into an Amazon warehouse to check out your items and trust Amazon. Sometimes your inventory is overloaded and you can’t keep track of it. Unsold products can cost you more than storage. But you don’t have this problem with Amazon FBM. Because in the FBM business model, you store your items and deliver them to customers, you can record all the necessary information.
Money is everything for people starting their business. FBA costs money, although it is very good. Maybe the newbies don’t need to use the money at first. Also, due to the way the costs are calculated for cheap items, FBA service is not a good decision for them. So it would be better for you to choose the products that you offer in FBA service and measure whether it is worth it or not.
- Long-Term Storage Fees
If your product stays in stock for a long time, you will pay Amazon more because they don’t like to stay in stock. That’s why it’s important to put long-term savings into your current budget. Then you can have a good plan if FBA service is still useful for your business. Plus, if your products aren’t selling well, Amazon hates them again. So, because you have to charge. Also, your size will change dramatically. However, you can review your vendor’s controls and restore these to your own settings.
- Amazon FBA Fee Payment
In general, you can’t transfer payments of Amazon FBA fees. This means that you cannot pay your first payment with the proceeds of the next sale. Before paying you, Amazon will withdraw all of its funds. You must provide a credit card to pay the bills if you do not have enough money in your account.
- Increased Returns
Another disadvantage of Amazon FBA is that many customers will return items because Amazon’s return policy is really easy. Amazon’s latest innovation allows you to return products directly to your property.
- Product Prep Requirements
When a new product needs to enter the Amazon warehouse, there is a list of requirements to be fulfilled by FBA. Before sending your products to Amazon, you must ensure that they are prepared according to these requirements, including proper labeling, careful packaging, and compliance with FBA packaging standards for shipping. Also, some products such as fire products are not stored in Amazon warehouses. If your products do not meet Amazon’s standards, Amazon may reject them. Some details are hard to follow.
- Sales tax
The state is responsible for sales tax. When your business is in one state and your warehouse is in another state, it can be difficult to determine the applicable tax rate. You can use specific tools to modify different tax rules and conditions. With these tools, you decide how much you charge and Amazon manages it for you.
- More risk
Amazon is constantly changing its policies. Also, it considers severe punishment if you break the law. Also, you are not allowed to sell everything first because of the closed script. You also have the risk of account suspension.
What is dropshipping?
Dropshipping is a very common type of business in the online shopping world. This means that you are listing items that do not hold the physical goods you are selling. When an order is placed with a customer, you place the order through a supplier, and the supplier delivers it directly to you or to the customer.
With Dropshipping, you don’t have to pay fulfillment, storage, logistics and other fees. You get the benefit without the risk of inventory, security and fulfillment costs. You can advertise your products on different platforms like Shopify, Amazon or eBay stores. It is one of the most popular, low risk and profitable business.
Pros & Cons of Dropshipping
As dropshipping is gaining popularity, it is known as a great business model for beginners. Before starting your business, it is important to know the advantages and disadvantages of this type of business.
Pros of Dropshipping
- It’s easy to get started
Since you don’t need to physically handle the product, doing your business is much easier. You can start your business quickly if you take the time to learn the basics. When working with dropshipping, you should consider the following factors:
- Inventory for accounting purposes
- Paid warehouse
- Returns and Refunds Management
- Importing and shipping your order
- Product marketing and continuous product level management
- Required small capital
In fact, the best advantage of liquid shipping is the ability to start your business without investing thousands of dollars. In the past, traditional retailers had to pay a lot of money to buy products. But, in dropshipping, you first sell your product, the customer pays you, and then buys the product. So it is possible to start sourcing products for your shipping business without requiring a large inventory investment. This advantage reduces your business risk.
- Flexible location
With an internet connection, you can do your shipping business anywhere. You don’t need a chair because it is possible to work from your laptop and communicate with customers and suppliers easily.
- Scalable business
When you’re running and managing your business with a drop shipping system, you need to focus your efforts on sales and marketing. Advertising will be a big expense. Compared to traditional business financing, your fees will be significantly lower as your business grows.
- It’s easy to manage
The main advantage of liquid shipping is that you don’t need to rent a warehouse and hire workers. So you can do your business safely. You can set everything up when you find the suppliers. Your job is simply to organize an online store for popular products.
- Saving time
Getting your business up and running takes time, but the process of running your business is something that many sellers don’t like. Dropshipping does not need to handle the goods and in most cases does not need packaging and shipping, and the supplier takes care of everything. So it’s good for all customers who don’t like repetitive tasks.
- The risk is low
You don’t need to make an initial investment. Unlike wholesalers, you can sell your products to customers without paying a lot of money. Also, you don’t save a lot of money. The risk of loss is low and you will get profit easily and quickly than other types of business.
Cons of Dropshipping
- Profit margins are small
The biggest drawback of water shipping is land limitations. This does not mean that it is not profitable, but know that the ratio of the product is low. Because it is easy to start, it is competitive as many sellers offer their products at rock bottom prices.
- Difficult ordering process
Although shipping sounds easy, you may run into problems getting products from many vendors. Difficulties arise because your suppliers use different shipping methods. When a customer orders a lot of products, shipping costs can be difficult depending on your shipping schedule. In addition, each supplier has its own shipping and fulfillment process, which requires strict management.
- less control
In the dropshipping process, you have no control over all processes such as order fulfillment, product storage and shipping. These services are provided by your vendors, so you must rely on them.
- Challenging customer service
When orders go well or suppliers fail, this problem can arise. You are the only business owner and seller who manages customer service. But if they don’t do the job well, you’ll get complaints. Getting service for supplier errors is the hardest part of shipping. In addition, the quality of customer service can affect customer retention.
- Inadequate information
It is possible that your provider information is missing or incomplete. Therefore you will not be able to answer customer questions or the customer may receive something different from what he ordered.
What is the difference between Amazon FBA and Dropshipping?
Amazon FBA and Dropshipping are similar business models with a few differences. Both offer time and location independent work based on online platforms.
With Dropshipping, you don’t have to worry about unsold products because you don’t store inventory. Shipping, refunds and returns are not your responsibility. But the low and variable profit margin may not be satisfactory. Also, broken or incorrect items are possible because you do not have the right to the item being shipped. This can upset your customer and give you negative feedback.
Amazon FBA handles customer issues, but you have to ship your goods to an Amazon warehouse first. Therefore, you have to buy those things that require research and knowledge. Because bad decisions can do big things for you.
Amazon FBA or drop shipping; Which option is best for your business?
Both methods have advantages and disadvantages and are similar in many ways. And choosing one of them depends on your situation and your work.
If you’re a freshman with no capital and looking for a risky job, water washing can be beneficial. There are various platforms like Shopify or eBay where you can advertise your products and start your Dropshipping business.
If you want to spend more time and money and get more profit, Amazon FBA can give you the right tools and a large audience. Amazon FBA requires a good amount of capital and you can increase your business.
Choosing between Amazon FBA and Dropshipping can be tricky for new sellers. Both have advantages and disadvantages that you should consider when choosing your business. Many traders use multiple trading models, but we recommend that if you are not an expert, do not work on multiple trades and postpone until you are qualified.