Amazon FBA vs Dropshipping: Which is best?

Amazon FBA and dropshipping are both e-commerce business models. With both methods, sellers transfer responsibility for goods storage and order fulfillment. This allows them to focus on other parts of the business.

Each model offers different advantages and disadvantages. Which is best for your business depends on various factors. These include the state of the business, availability of funds, and desired level of control.

This article will look at Amazon FBA vs dropshipping differences to help you decide which is best for your e-commerce store. You can also discover how to save money by receiving Amazon payments with Wise Business.

The difference between Amazon FBA and dropshipping

• Fulfillment by Amazon (FBA) is a service that handles storage, shipping, and customer service for Amazon sellers. Sellers can pass responsibility for all order fulfillment to Amazon for a fee. The seller maintains responsibility for sourcing, listing, and marketing their products. They must also collate, prepare and ship inventory to an Amazon warehouse location.

• Dropshipping is a business model where the seller sources products from a dropshipping supplier. The seller markets the items, and transfers orders to the other party for shipment direct to the customer. A dropshipping supplier could be the product manufacturer, a wholesaler, or another retailer.

With both methods, sellers maintain responsibility for marketing goods and taking orders. But the fulfillment of orders is handled by another party.

There are further differences in this fulfillment specifics, though. With FBA, Amazon will handle customer service and returns. A dropshipping partner won’t necessarily do this.

The main difference, though, is with sourcing and payment for goods. With Amazon FBA, you must make initial investments and buy inventory upfront.

With dropshipping, you never take ownership of the goods. Payment to the supplier is made after receiving confirmed orders.

Is dropshipping or Amazon FBA better?

Dropshipping and Amazon FBA both involve outsourcing parts of the goods supply chain.

You won’t be packing and dispatching goods directly to your customers with either method. There are several differences in how fulfillment is handled, however.

The following table shows the main differences in what each method will offer:

Which method works best depends on the state of your business and which tasks you want to be more involved with.

• Dropshipping can work well for new and smaller businesses. Once you have a supplier, you can market goods on your online store without purchasing inventory. This suits businesses with lower budgets. It’s also lower risk as you can test the market without investment.

• FBA can be a good choice for businesses that are already established and growing. As orders and stock turnover increase, additional storage space and staff will be needed. Transferring this to Amazon starts to make sense. With established turnover, the business is also more able to commit to advance purchase of goods.

Another important consideration is how much involvement you want with ordered goods.

With dropshipping, you won’t ever see or handle the goods. This means you won’t be able to inspect goods before dispatch.

On the other hand, FBA will require time and space to receive goods and prepare for bulk dispatch. It will also give you better control of quality management.

Can I use Amazon FBA for dropshipping?

Unfortunately not. Amazon FBA is a service that operates by holding your already purchased stock. Amazon will not order stock as required for you or pass orders on to another party.

However, FBA offers similar benefits as a third-party fulfillment service.

Keep in mind, too, that you can use dropshipping as a standard Amazon seller (without FBA). You can market and sell products on the Amazon Marketplace platform, then pass orders on to another party when received.

Amazon permits the use of dropshipping as long as you are identified as the seller of record. This means you record the purchase as revenue and take ownership of the product before it ships to the customer.³

Dropshipping vs Amazon FBA pros and cons

Deciding whether to use dropshipping, Amazon FBA, or handle all fulfillment yourself requires consideration of your business, budget, and future plans.

All options offer different benefits, and the choice needs to be linked to your business plan.

As you think through the best option for your online business, the following are some main pros and cons to consider.

Amazon FBA

Dropshipping

Selling goods internationally? Try Wise - The easy way to receive international payments

Deciding between Amazon FBA vs dropshipping should be easier after reading this guide.

Whichever fulfillment method you choose, there are considerations if you start selling internationally.

You will need an account that can easily handle foreign currency payments. You will also want to ensure minimal losses from currency conversions.

Wise can help with this. The Wise Business account is a game-changer for international businesses. You can connect your Wise Business account to get paid from Amazon with ease. If you sell on multiple Amazon marketplaces, you can withdraw your different currency earnings directly into your Wise account. This way, you’ll avoid paying high currency conversion fees.

Discover the Wise Business account today,
Register online!

As the World’s most international account, you can get 9 major account details to receive payments like a local. This takes the complexity out of receiving payments in different currencies.

When you need to convert currencies, this is handled at the mid-market rate – without the markup that is common with traditional banks.

All sources checked March 21, 2022.