Amazon FBA vs Dropshipping: Which is best?

Panna Kemenes

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.

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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:

FeatureDropshipping¹FBA²
Product sourcing
    ✔️
    Done by the dropshipping supplier
    Done by your business
Upfront payment for goods
    You only pay for the goods after the customer has ordered them
    ✔️
    You need to source and buy products that you then ship to an FBA center
Warehouse storage
    ✔️
    Provided by the dropshipping supplier
    ✔️
    Provided by FBA
Marketing and Sales
    Your business will retain control of this
    Your business will retain control of this
Shipping
    ✔️
    Goods delivered by the dropshipping supplier
    ✔️
    Goods delivered by Amazon
Customer service and returns
    Up to your business to manage customer service & returns
    ✔️
    Amazon deals with customer service & returns

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

Pros of Amazon FBACons of Amazon FBA
Allows for easy scaling of your business, without having to consider warehouse space and staff.You need to purchase stock in advance of sales.
Using FBA, your products and offered with Amazon Prime. This can offer increased exposure and sales.Storing, preparing, labeling, and shipping goods to Amazon is time-consuming.
You handle goods before shipment, enabling you to inspect them and manage quality.Costs can add up, especially for larger items and for longer storage times. This may decrease your profit margin.
Amazon offers a huge and respected logistics and distribution network.Products have to be shipped in Amazon-branded packaging (you cannot arrange for your own brand to be used).
Amazon handle customer service and returns.Amazon’s storage limits your sales and expansion. At peak times, Amazon may restrict taking in inventory.
FBA is designed to scale globally, at low cost and risk.
🔍 If you decide Amazon FBA is the right choice for your business, then don’t miss the guide on how to start an Amazon FBA business (successfully!).

Dropshipping

ProsCons
There is no need to purchase stock in advance.You cannot inspect products for quality before they are dispatched. For some businesses, this is a major consideration.
Can start a business with lower initial capital.You will need to handle customer support and returns, or arrange this with another party.
No storage space is needed to handle goods – even for a short time.You have no control over fulfillment time and quality. Problems here could hurt your brand.
It is lower risk to try out sales of new products.Dropshipping suppliers may not be able to offer the same shipping speed and reach as Amazon FBA.

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.

🔍 More Amazon and dropshipping articles you’ll love:

Sources:

  1. Drop shipping - Wikipedia
  2. Fulfillment by Amazon (FBA) | Definition + How It Works
  3. Dropshipping in 2022: What is dropshipping and how does it work?

All sources checked March 21, 2022.


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