There may never be an end to the argument around Amazon FBA vs Dropshipping, but there's most definitely a clear winner in my eyes.
But don't get me wrong, this comparison isn't going to be like when a biased parent thinks their own child is the smartest or the cutest. Just because I'm typically an 'Amazon guy' doesn't mean I can't spot another more lucrative opportunity if it presents itself.
In this detailed comparison I'm going to lay out the facts about both Amazon FBA and the Dropshipping business models.
Whilst the reality is that any online business can succeed, there's always going to be some options that are superior to others. Often times though, this type of inside knowledge is usually only gained with hindsight.
So in an effort to be detailed and transparent when comparing Dropshipping vs Amazon FBA, I'm going to dissect the following in this article:
How Dropshipping and Amazon FBA work, and how they differ
Which model needs more of an initial investment, and why
Which model allows sellers to generate higher profits
How they differ in fees and charges
And ultimately, which model is best to make money in 2022 and beyond
What is Dropshipping?
Dropshipping is a business model in which ecommerce entrepreneurs sell products without having to carry any inventory. When a store owner receives an order from a customer they simply contact their dropshipping supplier who will then ship the products directly to the customer’s door.
Dropshipping is a great way to start an online store with little upfront investment, and it’s also perfect for those who want to test out different product ideas before having to purchase inventory.
Additionally, dropshipping allows store owners to focus on marketing and promotion, as they don’t have to worry about the fulfillment process or other logistical tasks.
Although it’s not without its challenges, the drop shipping model is a popular and viable option for those looking to start an ecommerce business.
What is Amazon FBA?
If you're familiar with my blog, you'll know that I've written quite a lot about various tools, tips and strategies to use in your Amazon FBA business.
But if you're new here and have no idea about Amazon's FBA program, here's a quick run-down for you.
Amazon FBA, short for 'Fulfillment by Amazon', is a service that allows businesses to sell their products on the Amazon marketplace. To use the service, businesses ship their products to Amazon's fulfillment centers, where they are stored and shipped to customers when orders are placed.
One of the benefits of using Amazon's FBA business model is that seller's products literally sit in Amazon's warehouse, so they can take full advantage of Amazon's world-class fulfillment network.
Another reason why Amazon FBA sellers love this model is the fact that you're using Amazon's fulfillment service. This helps to improve delivery times and potentially reduce shipping costs.
Overall, Amazon FBA is a powerful tool that can help businesses to grow their sales and reach new customers.
The Key Differences between Amazon FBA and Dropshipping
Now that we've briefly covered how these two ecommerce business models work, let's take a look at some of the major difference between these two popular online businesses.
The Ecommerce Platform
Obviously if you're running an Amazon FBA business, you're listing and selling your own inventory on the Amazon marketplace and you don't need your own ecommerce store.
When it comes to drop shipping, typically you'll be running your own website with the help of an ecommerce platform like Shopify.
The Customer Base
If you're using Amazon FBA to sell online, then all of your customers are going to be on Amazon's platform searching for their next online purchase. You don't really have to worry as much about driving paid traffic to your listings.
If you're running a dropshipping model on your own Shopify store then you're also responsible for driving traffic to your store. This is a cost that you need to factor in when calculating your profit margins.
Customer Concerns & Support
Whether it's ecommerce or some other business model that involves dealing with customers, there's going to be some level of support required.
Amazon FBA sellers have the benefit of not dealing with customer support at all because this is all handled by Amazon.
Dropshipping store owners still need to track customer orders and handle any customer concerns or support queries that come in.
Dropshipping vs Amazon FBA Pros and Cons
Now it's time to take a closer look at these two ecommerce businesses and discuss the advantages and disadvantages when it comes to comparing Amazon FBA and Drop Shipping.
Amazon FBA Pros
In an effort to avoid my own personal bias and present all the facts, let's start with why many Amazon sellers feel that Amazon FBA is a better business model.
Superior Amazon Fulfillment Method
Amazon has their shipping process fine-tuned and offering same day fulfillment services to online shoppers is a huge perk for Amazon sellers. You're unlikely to get this type of service with third party logistics companies.
Amazon sellers get the benefit of the Amazon brand and the trust it has built with the general public over the past couple of decades.
Less Admin and Customer Support
There's a bit of work involved in getting your product stock to the Amazon warehouse, but once you've done that and your listings are live its pretty hands-off. Amazon handles the product packaging, order fulfillment, returns & refunds and customer support.
Global Network of Buyers
Amazon FBA sellers can literally tap into a global audience of millions of buyers that shop on Amazon daily. You don't necessarily need to spend on paid traffic which can eat into your profit margin significantly.
No Branding or Website Required
Amazon offers very little in terms of store branding and customization which means you can get your product listings live and launch your business quickly. It's this simplicity that's made Amazon one of the most popular selling platforms.
Amazon FBA Cons
Of course there's always some setbacks when running an online business, no matter what ecommerce model you choose. Let's look at some of the disadvantages of running an Amazon FBA business.
Amazon Owns the Customer Base
You're playing on their platform and ultimately Amazon owns the customers, not you. This means you can't employ an email marketing strategy to get more sales which can be very lucrative.
You Need Capital to Start
Because you are buying your own products in bulk to send to the Amazon warehouse, you do need some capital to start an Amazon FBA business.
Fees & Charges Can be Confusing
You need to pay storage and fulfillment fees for the use of the Amazon FBA warehouse in addition to the selling fees charged by Amazon. There's a lot of variables involved with these fees and charges that you need to take into account when working out your profit margins. I've written about them in another Amazon FBA comparison article, or you can get them straight from Amazon.
Amazon FBA Competitors Can Be Fierce
On the one hand you're running your own business on the world's biggest ecommerce platform but on the other hand, so are millions of other sellers. No matter what you're selling on Amazon, there'll be others doing it too and it's easy to get caught up in the price-slashing "race to the bottom" that sees sellers constantly selling the same items for a cheaper price.
Now you've got a pretty good grasp on what its like to run your ecommerce business on the Amazon FBA platform, let's take a look at the ins and outs of drop shipping. I'll start with the great things about drop shipping.
Minimal Startup Capital Required
When launching your dropshipping store you don't need to purchase inventory or pay for storage fees if you're using a dropshipping supplier. This means your initial investment is much lower than Amazon FBA and your only expense is driving traffic to your store.
You Own The List
When you launch your ecommerce business, whether its a Shopify store or another platform, you simply need to integrate an ecommerce friendly email service and you can start capturing the details of all customers that visit your store and start the checkout process.
An intelligent email marketing strategy for your ecommerce business can be very lucrative.
Customize Your Online Store
A solution like Shopify allows you to build your ecommerce business with your own brand colors, blog pages, about us pages and a whole lot more. You don't need tech skills but you can create your entire Shopify store just the way you want it.
Let's take a look at some of the reasons why drop shipping might not be the right online business model for you.
Time and Effort
Not only do you need to research your niche and products, like you would do with your Amazon FBA business too, but you also need to spend time building your brand and your ecommerce store.
Even though Shopify's theme editor makes building an online store reasonably user-friendly, it still takes some time to get everything set up.
Customer Support is All You
If you're an Amazon seller then you don't need to worry about customer support but if you run a dropshipping store, you need to handle it yourself. This can add to your workload and take away from other important tasks. You can always hire a virtual assistant to handle customer support but they'll probably need some online training, which is yet another task you need to handle.
Lower Profit Margin
With drop shipping you're selling someone else's inventory and as such, you're certainly not going to pay the wholesale price for the products like you would with Amazon FBA. This puts you in a risky position where you may even lose money.
Build it, But They Won't Come
Amazon FBA sellers have the benefit of a massive customer base just waiting to buy products but when you build your drop shipping store, you then need to work out how you're going to get buyers. Popular methods include Facebook Ads, Google Shopping Ads or TikTok Ads but they all come at a cost.
Lack of Trust and Brand Recognition
Customers landing on your store might get put off if your store looks slightly sketchy. Trust is a huge factor when buying from an online store and sometimes this can cost you sales if something doesn't quite look right to the customer.
FBA vs Dropshipping - Which is The Best Ecommerce Business Model?
In my opinion there's a clear winner in this Dropshipping vs Amazon FBA battle, and for a number of good reasons too.
The best e commerce business with the most opportunity to make money in 2022 is Amazon FBA. Now I don't say this just because I'm in the Amazon niche myself, but rather when weighing up all he pros and cons it's just glaringly obvious that Amazon's FBA program is the one of the best business models to venture into.
6 Reasons Why Amazon FBA is Better Than Running a Dropshipping Store
So now the cat is out of the bag, let's recap why Amazon FBA is a clear winner when compared to launching your own dropshipping store.
Also just to re-iterate, both dropshipping and FBA can both be highly successful. There's just one clear winner, if you simply had to choose one only. (I wouldn't attempt to do both, though.)
Amazon FBA is Quicker to Start
You've surely heard the old adage "money loves speed". Well in this case it rings true. Once the initial product research phase is done, which needs to be carried out for both FBA and Dropshipping, then you can launch on Amazon so much quicker.
Amazon FBA Profit Margins Are Greater
Of course if a dropshipper graduates to a 3PL supply chain model and buys their own goods in bulk, they can give Amazon FBA a run for its money when it comes to margins. But dropshipping through a supplier from Aliexpress or the like is always going to leave you slim profit margins.
Aside from the benefit of buying goods wholesale, the advertising and marketing costs of running an online store can really chew into your profits.
Customer Service is Handled
I don't know how you feel about this particular topic, but customer service can be a real pain in the behind. Even if you outsource this to a virtual assistant, it's still an added responsibility you need to take on when you choose dropshipping over FBA.
If you're an FBA seller, returns and refunds are completely hands-off too. You don't need to do a thing.
Instant Brand Recognition & Trust
Even though you're an independent seller on the Amazon platform, the customer is protected by Amazon (and usually always favored in disputes) and this holds immense trust.
The overall conversion rate on Amazon is also far greater than any online store will ever achieve and this usually comes down to the trust factor.
No Need to Worry About Driving Traffic
Once you launch your shiny new Shopify store, you need to either hire an ad agency or try running ads yourself. New platforms like TikTok seem to be crushing it for ecommerce ads, but that's almost a full-time job in itself. And I won't even mention the pain involved when it comes to Facebook pixel tracking, ad account bans and general erratic performance.
Whilst there certainly are paid ad options on the Amazon platform, the traffic is already there so you don't need to worry about running traffic to start getting sales.
Whilst we may not always build an online business with the intention to sell it, we should at least build with that in mind as a future possibility. You'd be shocked at how much you can actually sell a decent ecommerce business for.
Business broker and ecommerce brand acquisition expert Branden Yamada from Ecom-Exchange states that "The large majority of buyers overlook dropshipping businesses because they lack control with the supply/inventory, which ultimately means more risk.
Most dropshiping businesses are also selling clones or look-alike products which detracts from the defendability of a brand.
The low barrier of entry into dropshipping simply poses too many risks to potential buyers."
The Final Word
So as we wrap up this comparison, I'll reiterate one important point. You certainly can make decent money with the dropshipping model but it's simply not sustainable over the long-term unless you take it a step further and build it into a 'real brand' with inventory.
And if you're doing that well then you may as start multi channel selling and do FBA too. 😉
One thing I will also add to this argument is this. No matter what business model you choose, stick to one and commit to at least 6-12 months. The power of focus in this online world is one of the major secrets to success in my opinion.
If you need help kickstarting your FBA business I encourage you to join my Facebook community of over 50,000 Amazon FBA entrepreneurs.
If you're serious about online arbitrage, check out this article that explains the tools that make it much easier (pay close attention to Tactical Arbitrage).