Which is a better business… dropshipping vs Amazon FBA? Let's evaluate which is better for you.
Hint: There is no right answer. The honest and unbiased truth is that running a dropshipping store and selling on Amazon are both excellent platforms for becoming and succeeding as an eCommerce entrepreneur. It is up to you to make an educated evaluation on both sides and decide which route is best for your situation.
In some cases, attempting both may be the best, if your economic situation allows – in others, perhaps it is neither.
If you don’t have a willingness to educate yourself, adapt to ever-changing scenarios, or simply take risks in order to succeed – eCommerce is probably not the best route for you.
The goal of this post is to give you enough information for both platforms where you feel you are knowledgeable enough to continue the learning curve.
If you feel inspired to start exploring in one direction, that is excellent. This will give you that opportunity, however, I highly encourage you to continue your exploration.
Find additional opinions, seek more information – evaluate as many arguments as possible – that way you will be on your way to succeeding in the world of eCommerce through successful truth-finding.
What Experiences Do These Opinions Come From?
Of course, you’re probably wondering – this is just one opinion – what experience lies behind it in order for it to be deemed trustworthy? Great question!
Personal experience goes a long way into opinion formulation, that said, most of what I see regarding this topic becomes one-sided based on what was successful for that person. Through hundreds of different conversations with entrepreneurs on both sides, I can confidently say that I can compile several entrepreneurial perspectives – both good and bad.
On the Amazon side, I was able to gain experience as a Product Manager for a third-party Amazon pay per click (PPC) software. As a customer facing Product Manager, I was able to conduct hundreds of client conversations. Understanding their worries, wonders, successes and failures. Through these diverse conversations with individuals based in different areas of the world, in different product categories and at different investment levels – I was able to evaluate who Fulfillment By Amazon (FBA) was best suited for.
As for the dropshipping perspective, I am currently with Dropified on the Customer Success side, having had the opportunity to evaluate and guide, hundreds of potential and current eCommerce entrepreneurs. I will say it now, this is not going to be one-sided, ‘dropshipping is the greatest' post – as I mentioned initially, myself and our team aim to provide the objective truth.
If in the process there is a gain of knowledgeable, successful eCommerce entrepreneurs finding new opportunities in dropshipping – amazing!
Road to Becoming an eCommerce Entrepreneur
In most of my posts regarding eCommerce entrepreneurialism, I often indicate the importance of a few characteristics that will be success indicators in the space.
No matter what your takeaway is from this post, the main one should be “learn before you earn.” Learning will come in many forms, it could simply refer to the topics listed – however, the most important elements to learn are product research and marketing.
Building a Dropshipping Store
When you are looking to build a dropshipping store, the most common recommendation for your platform will be Shopify. That said, it is not the only option. Additional platforms that may tailor better to your skill set include Groove Kart, Commerce HQ and Woocommerce – to name a few.
In building a dropshipping store, be sure to utilize as many resources as possible in your decision-making process. It never hurts to have multiple viewpoints, most of what is out there is partly truthful – so gain perspectives and never stop learning. Since all information cannot be sourced from a single database with dropshipping, research is king.
Once you have had a solid opportunity to complete research and figure out a general direction – my best advice is to begin slowly and develop strategically.
Selling on Amazon FBA
Amazon FBA will be a bit of a different approach, like running a dropshipping store – you will need to complete a ton of research in order to abide by their guidelines. That said, there is essentially one database where you will need to do so. Be sure to couple that research, with the testimonials from other experienced Amazon FBA entrepreneurs to learn best practices and from previous mistakes.
With Amazon FBA you will essentially do the work up front with product research and investing in what you would like to sell. Once you send the products to an Amazon warehouse and an order is made – they deal with it and charge you for it. Amazon has one of the most advanced fulfillment networks in the world and provide exceptional customer service.
As stated, both are amazing options – let’s explore a few categories in further detail so you can find the key differentiators that may be better aligned with your situation…
Dropshipping Store vs. Amazon FBA: Getting Started, Speed and Cost Analysis
Kicking things off with a dropshipping store is essentially one of the quickest and most cost effective business ventures you can create. Since you do not have to purchase inventory upfront, you have an excellent opportunity to invest that money elsewhere.
Starting with your store platform, as mentioned the most common Shopify – starts at $29/month. This will be your first investment.
Next, since you are building a dropshipping store – which can be tedious and incredibly time consuming – Dropified is there to be your administrative assistant with the Builder Plan coming in at $47/month.
From here, most commonly the costs lie in trial and error during the marketing process – so the more research you complete, the more savings you will be able to realize through fewer errors. We will discuss the marketing aspects below.
That said, I was able to create a functioning store in about six hours – however, realistically you can create a fully functioning and complete store in about two days. This would be utilizing Dropified and having a really good sense of what it takes to develop a store utilizing a theme in Shopify.
Now onto Amazon FBA, first you are going to need a professional sellers account in order to access Amazon’s customer base – this will cost $39.99/month.
Next, you will need to be able to conduct some product research in order to do a market evaluation on what you would like to, or should sell. There are a few really good programs that can help you do that – Jungle Scout at $39/month and Helium 10 at $17/month (a la carte plans). The software and memberships make Amazon FBA comparable to a dropshipping store at first glance.
Here is where the real investment kicks in… you need products. You will initially need to conduct the appropriate product research, and then purchase the products in bulk from a wholesaler. Let’s go on the lower end of the spectrum and say your unit cost is $2 from a website such as Alibaba.
It is recommended to begin with around 500 units, therefore you are looking at $1,000 in product cost. These products will be shipped from China, taking approximately two months to arrive at your FBA destination – as it will be through standard shipping.
Other costs to consider include, shipping as mentioned – as well as the FBA set up costs. There will be optional costs and verifications in getting started, however, you will also want to consider design, photography, and a launch promotion in the beginning.
Verdict: Dropshipping – If you’re looking for a cost-effective and quick approach to getting started with eCommerce – a dropshipping store is the way to go. The main difference is that you can be up in running in days, rather than months – for around $200 rather than $2,000.
Dependency on the Platform’s Regulations
This is an interesting category when it comes to developing your online eCommerce business. With a dropshipping store, there is a higher self reliance in terms of development and research. With alternative platform choices, different geographic regulations and sourcing regulations make it and endless stream of research. You’re not necessarily fully bound to one set of regulations, however, you must monitor several and continually learn in order to stay compliant.
It is the marketing platform that I most commonly see eCommerce entrepreneurs having challenges with. As Facebook’s ad targeting platform is the most commonly used and the best way to get your products noticed when dropshipping – you must abide by their community standards. All too often I see and hear of accounts getting suspended due to infringement on the advertising grey area. That said, there are also many situations where accounts get suspended when they are well within the standards. It’s a challenging situation, but definitely something to make note of – the nice part is you have several alternative platforms that you can utilize for marketing as well.
When it comes to dependency on platform regulations with Amazon, well… you are at the mercy of Amazon. Since you do not have platform flexibility or choice, it can be viewed as a good thing that all of your understanding and research is simply for one complete platform. This is really nice when it comes to hypotheticals or grey area – you don’t have to stray too far when searching for information.
Although it is really nice to have one source of information for research on policies, that also means there is very little flexibility when it comes to your account. Should Amazon decide to alter any of the current regulations or policies – it could have a large effect on your business. In the past I have seen a few different situations with clients such as new restrictions place, or even total account elimination. Since your business is solely reliant on the platform, it would take a large amount of time to get back up and running as a business – when you finally get your products back.
Verdict: Both unique in their own way. There is no right answer in this situation. A Dropshipping store is great due to flexibility – however, you need to do more research in different places in order to stay compliant. With Amazon, it is fairly straightforward in staying on top of things as it is under one source. That said, if major changes take place – you might need to start over.
Obtaining Traffic Through Marketing
Since you are building your own website, marketing becomes the most crucial element in the dropshipping world. The reason for this is you do not have the luxury of being a part of the largest online retailer in the world. Education and continual research, when it comes to marketing, is crucial to the success of your business. For many, this will be one of the largest learning curves that you will face in running a dropshipping store.
As mentioned in the previous section, Facebook is most likely the primary platform of choice for marketing your dropshipping store. With the ability to pinpoint highly targeted ads, eCommerce entrepreneurs must understand demographic targeting as much as possible in order to find success. This isn’t the only avenue however, along with Facebook you also have Instagram – but you can also go the Google route with SEO as an option, along with YouTube. Whatever avenue you decide on, there will be a large learning curve to go along with it.
Of course, there are multiple additional options that you may consider – depending on your niche and where you are most likely to find your target market. In this section, pricing is very hard to evaluate due to such strong variability across industries, products, targets and so on. The best part is you have the ability to tell your story through unique marketing strategies and communications.
With FBA, since you are on the Amazon platform – your focus is ranking against the other products in your category, based upon keyword searches by the consumer. Being a part of the most popular eCommerce website in the world never hurts, as Amazon has over 300 million active users and over 100 million prime memberships. Having such an engaged platform is excellent, however, you must also consider competition and saturation. There are approximately 5 million sellers on Amazon (across all marketplaces), therefore you will need to do what you can to differentiate.
Differentiation is not the easiest to do on Amazon. Since social media is not required, it’s one less thing to worry about – however, it is also something that you cannot utilize to tell your story or develop a brand. You have the benefit of the Amazon branding and being a part of a trustworthy network of sellers with some of the best fulfillment standards on the planet. From here, you need to conduct as much research as possible regarding the Amazon PPC platform in order to rank higher in the listings for your desired keywords.
Since PPC campaigns can be extremely finicky, you may want the consultation of an Amazon PPC expert in the early going. Finding unique keywords, or simply placing appropriate bids on the Amazon advertising platform will take a large amount of research – and can still be very congested. Finding unique products will help, however, in order to rank you will need a solid launch strategy and promotion – be sure to conduct more research on that.
Verdict: Amazon has the ready made branding and millions of consumers that are there and consistently looking for products. Since you only have to focus on obtaining knowledge on their advertising platform – you can jump in and start to compete and differentiate on one consistent platform. With a dropshipping store, you are starting from scratch in a world of saturated marketing, so marketing education and adaptation is extremely important.
Product Research and Selection
The reason most people will say opening a dropshipping store is your best avenue for getting started in eCommerce is through product research and selection. Since there is no upfront investment to purchase your products in bulk, it is an excellent opportunity to conduct product testing across many different products, niches and consumer bases. Product research tools such as AliExtractor can help you determine which products are the most suitable, against other equivalent products in your chosen category.
That said, you will also want to conduct marketing research regarding the needs for different consumer groups that have a problem, which your product can solve. The risk level with product research and selection with opening a dropshipping store is much lower, however, I would still say there is risk involved.
Risk lies in the fact that changing your product offering is almost too easy. Too often, eCommerce entrepreneurs will lack patience in their marketing strategies and selections. Due to this, it becomes incredibly easy to sink a ton of money into marketing different products as sellers attempt to find “winning products”.
Trendy products are often the desire for quick sales. My recommendation is to find a product with a sustainable trajectory in order to build a brand, continuously improving and developing. Often times it’s the communication in your marketing, rather than the product itself – keep this in mind.
Earlier when speaking on start up costs, a few different softwares were mentioned when it comes to product research. Jungle Scout and Helium 10 will help you find unique products and give you a true data driven evaluation on what you should or should not be selling. The importance of appropriate and exhaustive product research with Amazon FBA is a lot higher due to the requirement of upfront investment.
Trending products will often be much too saturated, therefore, focussing on up and coming or lesser known products may be the best approach in getting started. There is a high level of risk involved with product selection when selling on Amazon FBA. Should you be unable to sell the volume you originally invest in, there are a few different outcomes and neither are favorable to your situation.
First, you might just be stuck with products that people do not actually want. Of course, every product serves a purpose – however, it could be price, saturation, convenience, quality, amongst many other factors that make it undesirable.
The other situation is when you are trying to make alterations to your campaigns and it is taking too long. This is where you may incur long term storage fees from Amazon FBA (they don’t want your products taking up space forever), which would require you to liquidate the products at or below cost as to not dig deeper into a hole. Focus on high quality products in less competitive niches, do your best to look for problem resolutions before they become a trend.
Verdict: A Dropshipping store alleviates a large portion of the risk when it comes to eCommerce. Both Amazon FBA and dropshipping require a considerable amount of product research in order to be successful. That said, Amazon FBA comes with more financial risk and therefore, is less desirable, especially for someone starting out and unable to stomach potential losses.
Level of Direct or Indirect Competition
Now that you’ve found your ideal product, you can assess the level of competition around not only the product, but your store in general. With a dropshipping store, since you’ve purchased a unique URL, your goal is to send traffic to your website. In doing this, you do not have competitive products being sold directly alongside your products. That said, the marketing of such products can be extremely saturated when utilizing platforms such as Facebook, in order to drive traffic.
Due to this, direct competition is not easily found when it comes to running a dropshipping store. Sure, the argument can be made that with a little research – the internet will turn up the same products being sold on other platforms. That said, the products are not sitting side by side for the ability to have readily found price comparisons.
Indirect competition cannot be understated. You must differentiate and create a quality brand that draws people in. If you’re unable to have effective marketing in order to do this – consumers will venture and spend their money elsewhere.
When you have the opportunity to utilize the amazing marketing platform that Amazon offers, it must come with some element of downside. That downside lies in the fact that your competition’s listings can be found directly beside your own. This essentially promotes a price war as you attempt to gain the upper hand on the competition, or at least attempt to divert the eyes of your potential consumer to your listing.
Indirect competition will always be everywhere, the nice part about Amazon based shoppers is they know where they are going and typically they know what they are looking for. The best course for differentiation in this case is through engaging copywriting in your product descriptions and quality photography. From there, you must do all you can to improve your ranking, obtain sales and push for reviews on your products.
Explore Amazon as a consumer if you are considering Amazon FBA and figure out what types of listings become more engaging. Note that you are one type of consumer, however, it will give you one perspective on what you will need to do to differentiate.
Verdict: As mentioned, competition both direct and indirect will always be there. In both dropshipping and Amazon FBA you will need to differentiate whether it be through branding, copywriting or photography. So you must decide – are you looking to draw people towards your brand from the outside? Or are you wanting to have a set of consumers ready for your product – you just have to establish a footing against direct competition?
Order Fulfillment Process
Through the testimonials of eCommerce entrepreneurs, you will quickly realize that the most unpredictable and negative aspect of running a dropshipping store is the fulfillment process. Depending on the supplier, or where you source your items from – timelines for delivery can be days, weeks, or even a few months, depending on the conditions.
One way to have a higher quality fulfillment process is through supplier relationships. This does not have to mean a direct relationship with a local supplier. It can mean that, however, simply being more involved and finding a connection or contact point with a supplier, can help to ensure that quality order fulfillment standards take place. For shipping timelines, you can look to source products from United States based warehouses (if you are geographically focussed on the US) – or shipping via ePacket in hopes of improving your timelines and providing tracking to your customers, on products from China.
With dropshipping, you are the marketer in the supply chain. The contact point between consumer and supplier – meaning there is no product that you have to physically fulfill, your goal is to ensure quality communication between supplier, yourself and the customer. That said, there are many administrative duties you must complete yourself during the fulfillment process. Order automation software like Dropified can help save you time during this process – as well as ensure accuracy.
It is really difficult to find any negativity in the Amazon FBA fulfillment process. As the unquestioned fulfillment standard in eCommerce, many companies and alternative platforms are doing what they can to catch up to what Amazon has been able to accomplish. Due to alleviating long shipping timelines, Amazon is one of the biggest reasons there is hesitation from potential eCommerce entrepreneurs when deciding whether or not to open a dropshipping store.
Now more than ever, consumers want their products as soon as possible and Amazon FBA offers the platform that does this the most effectively. Consumer buying decisions often come down to how quickly they can receive the product, therefore Amazon FBA has cemented the ability to obtain impulse purchases.
As discussed earlier, you are only investing in the products upfront and sending them to an Amazon fulfillment warehouse, where the rest of the process will be taken care of for you. The shipping aspects of fulfillment are nice, however, Amazon takes it a step further. Everything is essentially hands off, you do not need to complete any customer interactions as the customer support and returns are all handled by Amazon’s team as well. The only negative aspect in this instance of fulfillment, is there is a cost for convenience in the FBA fees. If you’re unable to sell your stale inventory, you also run the risk of incurring long term storage fees.
Verdict: Amazon is one of the best fulfillment options on the planet, that you cannot really argue. Customers getting their products in their hands in a few days at most is amazing – but furthermore, the fact that they take care of customer support and returns is also a major advantage to taking your time back. That said, fulfillment is not full deterrent on dropshipping. You simply need to solve a problem for your customers with a unique product that they cannot find anywhere else. Then they will be willing to wait.
Opportunity for Profitability
Like many other eCommerce opportunities, running a dropshipping store provides current and potential entrepreneurs with an excellent platform to make a high level of profitability. This is not achieved overnight, nor is it easy. There needs to be a high level of education and understanding.
Through this knowledge base, you can complete the appropriate product research to find those “winning products”. Once you’ve done this you will create an education base and understanding of the marketing techniques that will allow you to scale accordingly. As you scale, you then begin building a sustainable brand – to which you begin to improve your customer retention and the possibilities of branching out and expanding are endless.
As with dropshipping, Amazon provides the platform for you to succeed… you just need the right products and PPC understanding. Since you have to begin with a large investment, stay focussed and continually learn while embracing change. The part I like about this investment is that it helps you stay committed and not give in to every opportunity where it feels like too much.
To give you a glimpse of Amazon FBA success stories – in 2019 more than 140,000 third party sellers had over $100,000 in sales. Of course this is not a profit number, however, it can give you an indication that there is money to be made with the right course of action. Patience and continual alterations and learning can ultimately get you there.
Verdict: This is one of the hardest aspects to get a true evaluation on. Both platforms offer the ability to realize success through profitability. Due to the fact that there is so much variability in product, marketing and miscellaneous costs – one being better than the other is difficult to pinpoint. One this is certain, there is a ton of opportunity and profitability to be realized on both with the correct work ethic and understanding.
Creativity and Brand Development
As someone who really enjoys aspects of creativity and innovation – this is far and away my favorite aspect of dropshipping. You have the ability to differentiate through a brand that you are building with your own vision. In the beginning, this creativity will most likely be a part of your niche and product selection – as you decide how you want to position yourself in the market and in the eyes of your potential consumers.
It may not be for everyone, but the next element of brand building can be considered one of the most difficult, but also the most fun. Ad development allows you to utilize your story telling ability to showcase several elements of your business. One element this can include is the benefit(s) of your product when it is in the hands or lives of the consumer. Another, is simply showcasing the company values targeting the emotions of potential customers who resonate with your brand.
All aspects of your business will emit creativity and the emotions your brand if done correctly. The biggest portion of this is your website in its entirety – focus and utilize this as one of the most rewarding elements of developing a business – creating a vision.
Your creative side will be extremely limited when it comes to Amazon FBA. Due to regulations within the platform, Amazon looks to standardize the customer experience. With this, comes many restrictions regarding how you are to promote and execute your sales strategy. As mentioned, the marketing side will be PPC based and you only have the opportunity to showcase your style in product descriptions and through your photography style (even though elements of this are restricted as well). The nice part is having Amazon’s trusted brand on your side and you can utilize their credibility as reassurance to customers.
There is one way around this if you are willing to put in the (paper) work. Amazon’s Brand Registry allows you to register and list your brand on there platform, with that comes the opportunity to have a branded store front and marketing elements on your products. The tough part is you will need to provide patents, trademarks, and restristry documents to name a few. From there, you can utilize a few elements of creativity and storytelling through your brand – although there will still be several elements of restriction to go along with it.
Verdict: Running a dropshipping store far and away allows you to utilize your creative side in developing your brand. This is everything from the way you communicate your product to the way you communicate and showcase your values. With Amazon, you get to utilize a trusted and credible brand platform that is recognized by customers everywhere – but your story will be lost in the regulations.
Customer Interaction and Experience
The need to complete order fulfillment is one of the biggest aspects of your customer experience. You will not necessarily need to have much of a customer interaction during this phase, unless there are issues. This is a much more hands on approach, but as was mentioned in the fulfillment process – there are tools like Dropified to assist in making this easier.
Other customer interactions include the simple handling of inquiries on your products and policies or through your marketing communications. There will be a ton of monitoring and customer interactions to complete on your social media sites. This is an opportunity to have a visible voice for your brand, so be mindful of that.
Depending on how your look at it, customer interaction can be very time consuming, but also, extremely rewarding as it gives you insight into how you may be affecting the life of your customer for the better. With pixel availability and an opportunity to store customer data, you now have additional information for your marketing techniques. Through special touches and adapting to your customers needs, you will be able to influence your brand’s sustainability and customer retention.
As mentioned, standardization on process is Amazon’s forte and the reason they are able to optimize everything through economies of scale. That said, you will not have to deal with customer interactions or anything during the fulfillment process. Amazon’s staff will take care of any support related inquiries therefore you are focussed on PPC marketing and scaling your business.
It’s not all hands off, because most of the work you needed to do was upfront. As mentioned, the PPC marketing campaigns will take up most of your time – you need to be knowledgeable, focussed and competitive. You don’t have alternative marketing options and techniques like you do with running a dropshipping store. So, although the process and customer interaction is hands off, it can be difficult to understand their tendencies and what they are actually seeking.
Verdict: Amazon is definitely the better platform for quality assurance and being hands off during instances of support. This can be really nice from a time saving perspective, however, it also provides difficulties when attempting to remarket or understand your customers. Dropshipping on the other hand, you have the opportunity for meaningful specialized interactions which are time consuming, however, gives you an opportunity to better understand and build your business.
Final Thoughts, If You HAD To Choose…
When you have two high quality, high opportunity platforms – it becomes really hard to say which is better… both? It really depends on who you are and what you are looking to do.
As a junior eCommerce entrepreneur, I would have to go with opening a dropshipping store. The main reason for this is a much lower level of investment in the beginning. Typically, when people get into eCommerce – they are seeking an alternative stream of income. This can be an indicator that they don’t necessarily have the disposable income to potentially lose.
With dropshipping, you can patiently learn new skills at low level of investment that will be beneficial not only to you, but any future business adventures you partake in. As an advocate on creativity, I really enjoy the fact that you are able to materialize a vision with dropshipping… without too many restrictions and limitations – the opportunity is yours.
Amazon I see as an investment opportunity with an element of control. You can be a part of one of the most well known brands in existence, and very profitability if you take the time to research and do it right. There is still a large learning curve and understanding with Amazon, however, just know that most of it is only applicable to the platform itself.
Mistakes with Amazon FBA can be extremely costly… what if you decided to sell a product that only solved your problem? Being stuck with a few thousand dollars of something you do not need is never fun. That said, this is all about seizing the marketing platform potential.
What I have seen in many of the people I work with is dropshipping allows them to gain a good grasp of marketing needs or requirements. They then find a product that allows them to solve a problem associated with the market need.
From there, perhaps you have found your winning product. After this, many entrepreneurs consider buying that product in bulk and diversifying to have both the Amazon FBA angle as well as dropshipping. Now that they have a profitable product, it gives more and more opportunities to continue learning, testing and developing a brand.
Whatever you decide – whether it's opening a dropshipping store or selling on Amazon, eCommerce is not going anywhere and there are still more and more opportunities out there. Best of Luck.