eCommerce has become one of the most popular forms of online business in recent years, and with that has been a growth in the amount of different ways that people participate in eCommerce.
Recently, two very popular forms of eCommerce have risen to the top—Amazon FBA and drop shipping. Both of these eCommerce business models have their advantages and disadvantages…
Let’s take a look at what these two different models are, as well as their pros and cons.
What Is Drop Shipping?
Drop shipping is an eCommerce model that involves a business selling the products of another business without really being involved in the production, manufacturing or other aspects of the physical process.
Essentially, a drop shipping company starts an online store in which customers select and purchase goods. From there, the products are fulfilled by another company.
Part of any business that sells physical goods is manufacturing.
With drop shipping, all of the manufacturing is taken care of by another party—leaving the seller to focus on selling instead of making goods.
This means saving on manufacturing costs.
No Warehousing Or Fulfillment
Another massive cost of selling goods is warehousing. Simply having the goods sit somewhere can get expensive.
On top of that, someone needs to actually ship the products once they're sold. This fulfillment process takes a lot of time and manpower—especially if a business is selling hundreds or even thousands of units a day.
With drop shipping, a third-party warehouses and fulfills the goods.
Low Upfront Cost
Because there is no manufacturing, warehousing or fulfillment costs, a drop shipping business owner can start a business on a very small budget.
Essentially, the drop shipper only needs to open an online store and market. That’s it!
This makes a drop shipping business a lot simpler, a lot less expensive and a lot faster to get off the ground than other types of eCommerce businesses.
What Is Amazon FBA?
The FBA in Amazon FBA stands for “Fulfillment by Amazon.” So, what does this mean exactly?
Essentially, when you go with Amazon FBA, you're leveraging Amazon’s resources to make money.As the name implies, Amazon does the fulfillment for you—which means they also warehouse your goods.
Not only will you be listed on Amazon, but Amazon will also do most of the heavy lifting for you.
Let’s take a closer look at why you may want to consider Amazon FBA.
Why Amazon FBA?
Below are some of the major advantages of choosing to go with Amazon FBA…
High Profit Margins
Unlike drop shipping, Amazon FBA involves you providing your own products. While this may sound more expensive, it actually ads up to a lot more in savings.
Purchasing products generally means buying in bulk, which means you get the bulk rate for those goods.
From there, you can set whatever price you’d like! This allows you to really control both your income and your profit margins.
Another advantage to setting your own prices is the ability to slash and adjust your prices as need be. If you're going through a rough time, you can lower your prices a bit and put your products “on sale” until you're able to raise the prices again.
Wide Range Of Products To Sell
If you’ve ever searched on Amazon for something that you need, you’ve noticed that you can buy just about anything on Amazon. As long as it’s legal, someone is probably selling it on Amazon…
This gives sellers the opportunity to sell a wide range of products in a variety of different niches.
The Amazon Name
When someone is purchasing through Amazon, they have a certain level of trust in the company. They know that Amazon has standards, and they know what they should expect.
By going through Amazon, you don’t need to worry as much about building a brand and reputation.
Amazon Does A LOT Of The Heavy Lifting
It’s insane how much Amazon actually does for you.
When you go with Amazon, you get:
- Access to millions of potential customers
- Warehousing and shipping
- Customer service handled for you by Amazon
- And more!
This saves you a LOT of time and money.
Cons Of Drop Shipping
Now that we’ve taken a look at the advantages of both drop shipping and Amazon FBA, let’s take a moment to consider the cons. This will help you to make a more well-informed decision of which is right for you…
Lower Profit Margins
With drop shipping, there's a pretty significant middleman. Because of this, you can expect to make less money than if you were to pay for the goods yourself and buy in bulk.
No Built-In Customer Base
As mentioned before, one of the advantages of Amazon is the built-in customer base. This is something that you don’t get with drop shipping.
When you own a drop shipping business, you need to build your customer base on your own. This means more money and time spent on advertising.
You Have To Trust Other Companies
When you're purchasing your own products, you only have to worry about trusting the manufacturers. Amazon is known for being trustworthy, so you really don’t have to worry about working with them.
Some suppliers for drop shipped goods aren’t as reputable—which means a lot of trust in a company you’ve likely never heard of.
It’s VERY Competitive
There are a lot of other drop shipping companies that you’ll be competing with. You’ll also be competing with bigger companies—such as Amazon.
Cons of Amazon FBA
Just like with drop shipping, there are some cons when it comes to working with Amazon FBA. Here are some…
You Rely On Your Own Inventory
With drop shipping, the supplier takes care of keeping the inventory in stock. When you work with Amazon FBA, you're in charge of your inventory. So, if you run out, that’s on you.
High Upfront Costs
Filling a warehouse space with goods is expensive upfront!
Keep in mind that if you go with Amazon FBA, you're in charge of purchasing goods. Even in bulk, this will be a significant cost.
You're Stuck With Amazon
While you can purchase your goods and sell them elsewhere, if you want them warehoused and fulfilled by Amazon, you’ll need to work with Amazon.
Keep this in mind if you want to choose Amazon as your fulfillment company.
So, Is Amazon FBA Or Drop Shipping Better?
You’re probably wondering which is better, and I’m sorry to say, but neither is “better.”
Both of these business models have their pros and cons. Ultimately, it’s up to factors like your time, money and upfront budget.
However, one guideline to keep in mind would be that drop shipping can be great for people with zero experience in eCommerce since so much is done for you, while Amazon can be good for those who have a bit more experience managing and selling inventory.
Consider the pros and cons, and decide on which is the best choice for YOU.