Want to know the differences between Amazon FBA vs. dropshipping so that you can start your own online store?
Fulfillment by Amazon (FBA) and dropshipping are two different options for delivering goods that your customers order online. Whether you are starting an online store from scratch, expanding your retail operations onto the internet, or having inventory management and shipping problems, using a fulfillment service could be helpful.
In this article, we will cover the major difference between Amazon FBA and dropshipping so that you can learn the best option for selling products.
Why Do You Need Amazon FBA or Dropshipping?
Whenever you sell products online, it’s important to think about your fulfillment strategy, which means how you will deliver orders to customers.
That includes everything like:
- Sourcing: You’ll need to decide where to source products. As a retailer, you might manufacture your own product and handle everything in-house. But in other cases, you’ll work with a supplier and license the right to sell their products under your brand name.
- Storage: Next, you’ll need to hold those products in a designated warehouse to prep for delivery.
- Processing: When orders are received and processed, items are sorted and packaged accordingly. Then, they are sent to customers based on the selected shipping method and carrier.
- Returns: If customers return a product, you’ll need to ensure it can be returned to the storage facility.
Your fulfillment strategy affects how products are stored, handled, and delivered to customers.
That said, if you fall into any of these camps, then having a solid fulfillment strategy can streamline your order delivery:
- You are a one-person business that holds all of your products in a separate spare room and want to scale your business.
- You often have inventory lost or mismanaged due to a lack of space and need a simpler fulfillment process.
- You manufacture everything on your own, but your warehouse and inventory costs are a huge expense.
- Your orders are delayed, or customers complain that products take too long to be delivered, causing poor customer satisfaction.
- You are new to selling online and want to know the best way to fulfill orders.
Wherever you stand, it’s important to have a fulfillment strategy that fits your business needs.
To get started, you’ll need to learn the most popular fulfillment methods: Amazon FBA and dropshipping.
What Is Amazon FBA?
Fulfillment by Amazon, or FBA, is a service offered by Amazon that handles the inventory management and fulfillment side of things.
That means you won’t be stuck having to:
- Keep a bunch of boxes in your home office or storage space.
- Pack, label, and ship products to customers.
- Handle returns.
- Or even deal with some kinds of customer service.
Amazon handles the fulfillment for you, which makes life much easier as a seller. When you choose Amazon FBA, customers are entitled to get your product within one to two days via Prime shipping.
All you have to do is ship your products to Amazon warehouses, and they’ll do the rest.
To become an Amazon FBA seller, you need to create a seller account and then enroll in the FBA program. This involves providing additional information about your products and inventory.
As an FBA seller, you are not only limited to selling on the Amazon platform. You can sell your products from other platforms through Amazon Multi-Channel Fulfillment (MCF).
For example, you can connect your WooCommerce store to Amazon’s MCF fulfillment service through WooCommerce extensions. So everytime an order comes from WooCommerce, Amazon automatically ships orders to your customers.
What Is Dropshipping?
Dropshipping is when you sell products online without holding inventory.
When you receive an order, you will send that to the supplier, who then ships the products directly to the customer’s location. As the seller, you act as an intermediary between the customer and the supplier of the product.
This streamlined approach to order fulfillment means you can start your e-commerce business without needing to lease warehouse space, manage inventory, or juggle supply chains.
You can dropship from anywhere that allows you to do so. The most common dropshipping suppliers and companies include AliExpress, Spocket, SaleHoo, US Direct, Printify, and Alibaba. So, if you order from one of these sites, there’s a good chance the seller is not actually fulfilling the orders themselves.
That said, you could technically dropship from retailers like Amazon, Walmart, Home Depot, etc. However, some stores like Target have strict eligibility requirements before you can dropship using their products.
For more information, you may want to check out our full dropshipping guide, where you’ll learn how to build a dropshipping store on WordPress.
The Best Option to Build Your Online Store
Both fulfillment models have their pros and cons. No matter where you source and sell your products, you are going to want to create an online brand.
A strong brand presence allows you to outperform your competition. When you sell solely on marketplaces like Amazon, Etsy, eBay, or other e-commerce marketplaces, you are limited to their rules. Breaking those rules can result in your store being removed or suspended, which can be catastrophic.
Additionally, you have little to no customization since all stores must remain on brand with the site. Beyond that, you have very little control over the customer experience, meaning you can’t offer one-click upsells, provide different payment options, or even send abandoned cart emails.
If you choose Amazon FBA as your fulfillment method, then you will not be able to control your own storefront. You will be an Amazon seller with your own store page, but you won’t control your site outside of that—at least for the products you use FBA for.
That’s why the best option for differentiating yourself from competitors is to build your own online store with WooCommerce. Unlike Shopify, BigCommerce, or similar eCommerce sites, WooCommerce is an open-source eCommerce platform that is housed directly on WordPress.
That means you can easily start a blog, drive traffic, collect emails, or even connect it to a retail store without hassle. WooCommerce has a wide range of apps on the Woo marketplace, and you can install WordPress plugins to customize your site.
With so many dropshipping plugins for WooCommerce, you can instantly sell important products, fulfill orders from your site, and much more. You can also create an eBay-like eCommerce marketplace, allowing other vendors to sell on your website.
Even if you run an Amazon store using FBA, it’s still good to have a website separate from Amazon. That way, you can control customer data and continue marketing to them to gain repeat purchases and build loyalty.
To get started, just follow our step-by-step WooCommerce tutorial.
Key Differences Between Amazon FBA and Dropshipping
Before you dive into choosing your fulfillment method, it’s a good idea to understand the major differences between Amazon FBA and dropshipping.
1. Upfront Investment and Overhead Costs
The biggest advantage of dropshipping is the low initial investment. Since you don’t hold inventory costs, you have no overhead costs except web hosting, marketing and advertising expenses, and any other software you use.
Dropshipping allows you to wait until sales roll in before you place an order with the supplier.
On the other hand, Amazon FBA has high upfront costs. You need to buy the products upfront and send them to Amazon warehouses.
For example, if you purchase some of your stock from a site like Alibaba, then the seller you buy from might have a minimum order quantity of 500 units. So, you would need the capital to buy 500 units in advance to shop at Amazon.
In addition, there are shipping costs involved with sending your products to their warehouses.
Through their ‘Send to Amazon‘ feature, you do get discounted shipping rates, especially when using Amazon-partnered carriers. You would need to complete certain steps, like telling them which inventory you are sending and the quantity.
From a macro perspective, here are a few costs associated with Amazon FBA:
- Minimum order quantity: $500 to $2000 in product costs
- Monthly inventory storage (per cubic foot): $0.56 to $3.34, depending on the size, category of item, and season
- FBA fulfillment fees for standard-size products (per unit): Starting from $3.06 and increasing based on weight
- FBA fulfillment fees for oversized products (per unit): Starting from $9.61 + $0.38/lb and increasing depending on weight and dimensions
- Inventory storage overage fee: $10 per cubic foot monthly
- Inventory removal disposal fees: Starting from $0.97 per unit and increasing based on shipment weight
- Aged inventory surcharge: $.50 to $6.90+ per cubic foot, depending on how many days stored
On top of that, Amazon charges referral fees, which usually are about 15% of the product’s selling price on each product sold. Outside the seller fee, Amazon FBA charges the inventory storage fees and fulfillment fees, as shown above.
You may want to keep a product catalog along with inventory for each item, ensuring that you’re never out-of-stock.
Beyond that, there’s also an Amazon Professional Sellers fee of $39.99 per month.
This subscription gives you all the benefits of becoming a professional seller on Amazon, such as the ability to use Amazon ads, offer free shipping promotions, and sell in multiple categories.
Winner: Dropshipping has no upfront costs. You only pay once orders are placed, drastically reducing the overhead expenses.
2. Profit Margins
As you might have guessed, dropshipping has better margins. You won’t have to pay the referral and storage fees that come with Amazon FBA.
So, if your goal is to maximize profits item-for-item, dropshipping could be the better option.
That said, Amazon gets 2.27 billion web visits per month. That means just by being a seller on the platform, you get free traffic to your product listings.
While you don’t have fees for dropshipping, you are in charge of driving traffic to your product pages. In most cases, that means spending more money on advertising.
The profit margins for both fulfillment models vary depending on your product category, how you mark up prices, and the overall perceived value of your item.
To boost profit margins, you may want to leverage pop-ups to increase sales and increase the average order value.
Winner: Dropshipping has better profit margins because the Amazon FBA service comes with referral and storage fees. These fees eat into your profits, so it’s important to price your products accordingly.
3. Customer Service
Dropshipping your products means you will most likely have to handle all customer support queries.
You’ll need to promptly respond to all customer support emails. Depending on how many orders you have daily, this can quickly become a growing pain for large stores.
That’s why it’s best to install help desk and live chat plugins. As a result, customers can easily get their questions answered. Beyond that, you’ll want to have a frequently asked questions section to help reduce the number of queries you get.
You’ll want to answer questions such as:
- What are the expected shipping times?
- What are the shipping rates to different locations?
- What is the return or refund policy?
- How do you install or use the product?
If you have a WordPress website for your online store, then it’s reasonably easy to set up an FAQ section. Here’s an example of one created using the Heroic FAQs plugin:
By contrast, when you choose FBA, you get to tap into Amazon’s existing customer service. You don’t need to hire virtual assistants or customer service representatives to handle all of your return or refund requests.
Amazon also has a no-questions-asked return policy. Customers are confident that they can always return their items anytime and get their money back. When customers have an issue with an order or delivery, they’ll just need to contact Amazon’s service reps through live chat.
Winner: FBA gives you access to Amazon’s built-in support system. Customers have peace of mind that they can always contact Amazon’s trusted support team for any issues and return their products within 30 days.
4. Shipping Times
Depending on where you source the products, dropshipping can have very slow shipping times. If you source from American suppliers, then your customers may only wait a week for their order.
However, in many cases, dropshipping from overseas can take anywhere between two to four weeks for the shipment to arrive.
The AliExpress delivery times range from 15 to 30 days.
If you do have long shipping times, make sure to always offer shipment tracking so that customers aren’t left wondering when their package will arrive.
Note: If you are adding shipping costs based on location for dropshipping, then it’s a good idea to add a shipping calculator. Amazon automatically does this for customers at checkout, but for dropshipping sites, you’ll need to add this on your own.
Note: If you are adding shipping costs based on location for dropshipping, then it’s a good idea to add a shipping calculator. Amazon automatically does this for customers at checkout, but for dropshipping sites, you’ll need to add this on your own.
By contrast, when you choose FBA, you get to leverage all of Amazon’s shipping and logistic services.
Since they handle the entire fulfillment process, they will use their network of carriers to ensure a two-day delivery time.
Winner: Amazon has warehouses worldwide. When you enroll in the FBA program, Prime users can have their orders delivered within days.
5. Level of Control
One of the biggest downsides to dropshipping is the lack of control. Since you don’t hold inventory, you have no say over how the packaging looks or the product quality.
Plus, because you are dropshipping, you don’t get to customize the product to fit your branding.
For example, if a customer receives a poorly packaged product with Chinese printed labels, it might not reflect well on your brand, especially if it doesn’t match what your website portrays.
With Amazon FBA, you are essentially developing your own private-label brand like you would if you were using a storefront through WooCommerce or Shopify.
Since you are buying items in bulk, you can work with your suppliers to customize the products to fit your needs. Plus, you are able to send Amazon any printed packaging labels, postcards, or special gifts to personalize the customer experience.
As you scale your online business, you will want more control over the shipping process.
Winner: Amazon FBA allows you to customize your packages and labels and add branding elements before you ship inventory to their warehouses. With dropshipping, you have no control over how the company ships, packs, or handles your products.
6. Competition
Both fulfillment methods have high competition, depending on your product niche.
The competition for dropshipping depends on where you sell your products. If you sell on Etsy, eBay, or other third-party platforms, you’ll have direct competition with other sellers selling similar products.
However, if you sell in your own store through WooCommerce or Shopify, you can use ads to drive traffic to your product page. In that case, your audience probably won’t be directly comparing your products to other sellers.
On the other hand, Amazon has more head-to-head competition. Customers can visibly see all your competitors, their products, and prices.
For example, if you are searching for a product like a ‘pet grooming kit,’ you’ll get to see all the sellers in one place. It’s easy for customers to price shop on a marketplace like Amazon.
With reviews and rating systems in place, Amazon FBA can be seen as more competitive than dropshipping through a storefront you control.
Winner: Both can have high competition. But if you have your own online store that you drive traffic to, then dropshipping has less direct competition since competitors won’t also show in sitewide search results.
7. Trust and Credibility
Dropshipping doesn’t provide anywhere near the credibility that Amazon does. If you sell on your WordPress site, then first-time customers don’t know what to expect. It can take time to establish a brand reputation, which isn’t as necessary if you are an Amazon seller.
Unless you are a big brand, customers might be worried that the product quality is bad or, even worse, that the product never arrives. Sure, they can go to their banks or payment gateway and request a refund or chargeback, but the process is a much bigger hassle.
While you won’t be able to emulate Amazon’s credibility with dropshipping, you can still use a social proof plugin like TrustPulse on your website to help build trust with visitors.
It will show real-time notifications of customers buying your products, which can convince visitors that your brand can be trusted.
Amazon is the market leader in e-commerce and is widely recognized for its outstanding customer satisfaction. Due to Amazon’s iron-clad return policy, buyers are confident they can always return items easily.
Plus, generally, most products sold on the platform have a high satisfaction rating of 4+ stars.
When you choose Amazon FBA, customers aren’t worried about fraud, which can help boost sales.
Winner: Amazon has a built-in trust factor. Customers know they’ll receive their products on time and without many issues.
8. Multi-Channel Selling
As a seller, you may not want to be limited to one traffic source. That’s one of the big advantages of dropshipping. You can choose to take your store anywhere.
You can dropship items listed on eBay, Amazon, Etsy, your own site, or even using print-on-demand services like Printify.
Plus, you can choose to use any form of advertising you’d like to drive traffic to your dropshipping store, including Facebook ads, Google PPC campaigns, social media posts, and even blog content.
With FBA, you are primarily limited to selling only on the Amazon platform unless you enroll in their MCF program. As mentioned, you’ll be in direct competition with other sellers. That means a competitor can easily swoop in to undercut your prices and take away your sales.
Even if you choose FBA, you can still build a separate e-commerce store outside of Amazon. This will allow you to sell your products elsewhere and control your customer data.
Winner: When you dropship products, you can sell them anywhere online. With FBA, you can’t sell on other platforms. Instead, you need to enroll in their MCF program.
Amazon FBA vs. Dropshipping: Which Is Better for Small Businesses?
Both fulfillment methods can work for small businesses. Overall, dropshipping is best for new sellers who are just getting started. It allows you to test products without first buying inventory in bulk.
Plus, you can do dropshipping from your own online store. This will give you the freedom to control your store’s customizations and branding without having to follow the rules of third-party marketplaces.
That said, if your products are already selling well, it might be a better option to transition to Amazon FBA. FBA streamlines the fulfillment process so you can take advantage of faster shipping times and professional delivery services.
We hope this article helped you understand the major differences between Amazon FBA vs. dropshipping so you can pick the best option for your online store. You may also want to check out our curated list of the best WooCommerce plugins for your store and the best WooCommerce WordPress themes.
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