What are the differences between Dropshipping and Amazon FBA?

Dropshipping and Amazon FBA are game-changers for business models, and both strategies are widely considered options for new start-ups. First, let's understand the concept of dropshipping business and Amazon FBA.

What is Dropshipping?

Dropshipping is a storage and fulfillment service that allows small businesses to start up quickly and easily. Importantly, dropshipping doesn't require you to invest massive capital upfront.

What is Amazon FBA?

Amazon FBA or Fulfillment by Amazon is an eCommerce platform where you can list and sell products, and either dispatch them yourself or through the FBA service.

Having understood these concepts, an eCommerce business needs a certain approach to be successful at it. But how do you know which is best for you to implement? Continue reading to discover some of the differences between dropshipping and Amazon FBA to help you make an informed decision as you prepare to start or expand your enterprise.

Pros of Dropshipping

It's important to weigh out the pros of both dropshipping against those of Amazon FBA. Below are the pros of dropshipping.

Little Investments

Dropshipping doesn't require any large capital to start your business. It is affordable and saves you from making huge initial investments that can be a huge burden for many new businessmen.

Fewer Responsibilities

When customers place an order with you on your online store, all you need to do is place the same order with your supplier. Your supplier won't only prepare the order, but also ship it to your customers, and handle any returns for you.

Saves Time

Though, every business requires time and dedication. With drop shipping, you don't have to indulge in product packing, shipping process, or managing your inventory. It is an ideal solution for entrepreneurs who desire to save time.

Independent Location

Another advantage of dropshipping is that you don't have to be in a particular area. You can run the transaction of your online store by just remaining in touch with your suppliers and customers.

Cons of Dropshipping

Anything that has an advantage has a disadvantage. Let's look at some of the cons of dropshipping.

Less Profit Margin

Although dropshipping doesn't demand a high initial investment, the returns in terms of revenue are comparatively low.

Customer Service Issues

Dropshipping allows you to enjoy a lot of freedom, but when it comes to answering customer concerns, you have to rely on the information provided by your supplier. It is their product and you don't know whether they described the product accurately or not.

Intense Competition

When it comes to dropshipping, the competition is quite fierce. There are large numbers of dropshippers who are selling the same products as you. Some may even offer these products at a cheaper price while compensating for their profits from elsewhere.

Pros of Amazon FBA

Now you know the pros of dropshipping. Here are some pros of Amazon FBA.

Sufficient Time to Focus and Scale Your Business

Amazon takes care of product packaging and shipping processes for you. It also provides great customer care services. Keeping that in mind, there is nothing much left to do. Hence, you have enough time to focus on scaling your business efficiently.

Successive Goodwill

Amazon FBA allows you to establish a brand name for yourself. Thanks to their goodwill, you will get all the brand recognition you need, and your online store will be able to scale significantly.

Larger Customer Base

Developing a customer base is one of the most difficult tasks that any entrepreneur has to face. Nevertheless, Amazon FBA allows you to enjoy a massive customer base and extract fruitful outcomes.

Returns and Replacement Policies

With Amazon FBA, you don't have to worry about packaging, shipping, or returns. Customer services are Amazon FBA's primary task, and they allow you to maintain loyal customers.

Better Profits

For Amazon FBA, the products that you are unable to sell for a good profit margin on your website can be sold at higher prices there.

Cons of Amazon FBA

There are cons associated with Amazon FBA as well. Let's juxtapose some of them against the cons of dropshipping to make an informed decision.

No Documentation of Inventory

Unfortunately, your unsold products get accumulated. It might become large enough that you won't be able to maintain proper documentation of your stock.

High Competition

Undeniably, Amazon's FBA program is full of competitors. You won't be able to take sole advantage of FBA. Many business people are selling the same products as you. So, it might be difficult to compete with experienced entrepreneurs.

Blind Dependency

Unfortunately, there is nothing you can do if Amazon FBA decides to change its regulations, and remove your store from its platform.

No Direct Contact with Customers

Amazon FBA has a grip over the entire record of your customers. Even if you wish to sell the same products to the same customers, you can't do that because you are dependent on Amazon.

Large Capital

You won't be able to start your online business with Amazon FBA if you don't have a large amount of capital. Also, you need to pay a fixed amount to them to avail of their services.

Conclusion

The main difference between dropshipping and Amazon FBA is stock possession. When you are dropshipping, you don't own any merchandise and act as a middleman between suppliers and customers. Meanwhile, when using Amazon's FBA program, you have to invest in merchandise and store it in Amazon's warehouse. In return, Amazon takes care of all your shipments and returns.

Which of them should you go for? Well, it's simple. If you're just starting your online business then opt for the dropshipping business model. It comparatively provides more perks than Amazon's FBA program. If you are already running an online business, and wish to further scale, then opt for Amazon FBA.