Amazon FBA vs. Dropshipping- A 2021 Comparison

Virginia Miller

October 11, 2023

In this article

The eCommerce sector is flourishing and evolving into different models of business within the segment. There are many successful models of operation in the eCommerce segment. Also, there are two profitable business models that you should be focusing on as a seller. One model is the Amazon FBA model, and the other new dropshipping method of product delivery. Of course, there are some pros of both models.

Furthermore, since no model is perfect, there are some cons to the models too. In the next section, let’s observe the positive and negative aspects of each model of eCommerce and see which one is the best. Before we delve into good and evil in detail, we should first know the basics of these two models.

Dropshipping

Dropshipping is like a traditional eCommerce business where the orders are taken by a party online, and the products are delivered offline according to the order. However, between these endpoints, a third party manufactures and ships the products for the front business. This way, the actual merchant does not bear manufacturing hassle but shares profits with the third party. The model is decentralized to an extent.

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Learn more: Dropshipping Versus Third-Party fulfillment

Amazon FBA Services

Amazon FBA is also a platform that allows merchants to sell to customers indirectly through the Amazon retail platform. The storage, warehousing, packaging, and shipping are all covered by Amazon. This way, entrepreneurs do not have to worry about different sub-operations of an eCommerce platform as Amazon handles it. If you want to start selling on eCommerce platforms with minimal effort, it is better to choose Amazon FBA services because they are both trusted by customers and sellers.

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Amazon FBA Vs. Dropshipping 2021

Benefits of Dropshipping

There are many benefits of dropshipping that are worth mentioning here. For example, the model has low costs so that a merchant can quickly start selling with very little investment. The selling buying equation is between your supplier and you, so you do not spend more than what the supplier quotes. Also, the dropshipping operational model is a low-risk one because you can sell a small number of products with a small investment to test out the waters.

If your products sell well and demand, you can lease out the supply and ship to your supplier. Further, if you face a problem with the supplier, you can easily change to another supplier. The collateral loss is significantly less. Added to this is the fact that dropshipping is scalable. You can minimize it with one or two products. You can also scale it bigger with multiple products added to your inventory in a short period. It also helps you network with many suppliers at one time.

Cons of Dropshipping

As the manufacturing and shipping go to a third party, the profits made by a merchant in the dropshipping method are significantly less.

You also cannot raise the prices higher than a particular mark because of competitive pricing. Moreover, the quality of goods depends on the supplier. Therefore, a lot of the process is out of your hands.

Even though you find many customer complaints, most of them arise due to third-party suppliers. You will face many customer service issues and won’t be able to resolve them quickly. Thus, the quality of service offered by your business will collectively suffer.

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Benefits of Amazon FBA

The Amazon FBA service is also a low investment business model because Amazon takes care of all the sub-processes like storage, packaging, labeling, and shipping.

Another benefit of the Amazon FBA model is that of Amazon’s reputation. Amazon has a spotless reputation for customer service and fast delivery on a global scale. Once you are an Amazon fulfilled seller, you get the backing of the Amazon brand. This gives you more credibility and more advantages.

Moreover, you do not have to deal with customer service issues directly because Amazon offers an outstanding shopping experience. Even if there is a problem, it will go through Amazon’s pipeline and get resolved automatically. Also, the profit margins are higher than dropshipping.

Cons of Amazon FBA

The drawback of Amazon FBA is that it costs a lot more than dropshipping to start on the Amazon platform as a seller. Moreover, there are many conditions and regulations of Amazon that you have to sign up for in the FBA model. This puts restrictions on what you sell and how you sell.

Secondly, the FBA criteria are not valid for certain products, so you must choose your product wisely. Thirdly, you are part of a highly competitive environment with Amazon, and you have to pay special attention to the platform’s marketing channels and algorithm.

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The verdict

Amazon FBA, or fulfillment by Amazon, is a popular choice for sellers who want to distribute their products on the world’s largest online marketplace. Whether you use dropshipping as your main business model or are looking into becoming an Amazon seller in addition to running other types of businesses, it may be worth considering this option. With all its benefits and features like fast shipping with prime membership included free two-day delivery (on eligible items), excellent customer service from experts at Amazon (available 24/7) and more than 300 million active customers worldwide that can browse through what they would like to buy--Amazon seems like the clear choice for most small business owners.

The only noticeable con is that of setup costs. However, the profit margins of selling on Amazon are so high and consistent that a seller can quickly recover the initial setup cost of his Amazon FBA store.

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Our team at Simpl can help you with all your Amazon FBA prep needs so you can focus on growing your Amazon store. Contact us today.

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Next article: 4 Ways to Improve Customer Retention with Third-Party eCommerce Order fulfillment