Earning or losing hundreds and thousands of dollars from your eCommerce business can be a matter of choosing which platform to use among the many popular options in the market.
Hence, before you fully immerse yourself to this business, you need to clearly understand what you are putting yourself into.
You have to determine which platform would work best for you considering your goals, your target market, financial limitations, and manpower.
Nevertheless, your decision to embark on the exciting and income-generating ride of eCommerce takes you a notch further from the rest who are still contemplating about it.
Starting an eCommerce business is a very timely and massive opportunity that you won’t want to miss for the world.
In 2019, worldwide eCommerce sales amounted to 3.53 trillion US dollars, and it is projected to almost double by 6.54 trillion US dollars in 2022.
Hence, in this day and age, if someone suddenly gets rich, people won’t instantly think that such person won the lottery, met an ultra-rich partner, or is selling drugs.
They would also consider the fact that he might have found a winning product and sold it online through his website or it was fulfilled by Amazon.
In this article, we will talk about two of the most credible and effective ways to sell online – dropshipping and Amazon FBA.
So, let me have your full attention even just for a few minutes. Feel free to take some notes, leave your feedback and ask some questions in the comments below.
Dropshipping Meaning: What is Dropshipping?
Simply speaking, dropshipping is a process of order fulfillment where your supplier (which is most often from China) directly ships the product to your customer after your customer placed an order on your website.
This is the simplest explanation as to what is dropshipping, but of course, there are few more essential steps in between.
You can’t just create an eCommerce or a Shopify dropshipping store and expect that sales will just come in.
You have to promote your products and lead potential buyers to your website. The most commonly used way to advertise dropshipping items is through Facebook ads.
After a customer placed an order on your website at a retail price, it’s your turn to order the product from your supplier at a wholesale rate.
Your supplier will be the one to ship the product directly to your customer with your store’s name as the sender.
Of course, knowing what is dropshipping, you need to inform your supplier ahead of time that you are a running this type of business.
This way they will know what to put in the sender and they won’t include promotional materials of their company inside the package.
“The primary benefit of dropshipping is the absence of inventory. You don’t have to buy enormous stocks before you can sell them on your website since you will only purchase a product from your supplier after a customer placed an order on your online store.”
As such, you can sell as many items as you want. And you don’t need to promote all of your products on Facebook because once your potential customers visit your online store; chances are they will also check the other available products.
But of course, if you have enough budget to advertise each item that you sell, it would be better.
What is Fulfillment by Amazon (FBA)?
Amazon FBA or Fulfillment by Amazon is one of the most advanced fulfillment networks worldwide.
Well, what would you expect? Orders are being fulfilled by Amazon, the largest Internet retailer in the world.
Amazon FBA is a fulfillment program that offers warehousing and shipping of your products to your customers.
With this platform, you or your chosen International supplier will send your products in bulk to Amazon’s warehouse or fulfillment centers.
And then Amazon will handle the storage and logistics – picking, packaging, handling, and shipping of your products to your customers.
Dropshipping vs Fulfilled by Amazon: Pros and Cons of Dropshipping
Like any business model, dropshipping has its share of advantages and disadvantages.
Take a look at these before you make a final decision whether or not this system will work out for you.
Cheaper Start-up Capital
With dropshipping, there’s no upfront inventory cost since you won’t be purchasing stocks unless a customer placed an order on your website.
Hence, you don’t need to worry about raising a big chunk of money to launch your online store.
Once a customer places an order, you will use that money to order the product from your supplier.
Your profit will depend on the difference between your retail price and your supplier’s wholesale price.
And you don’t have to worry about marking-up for shipping fee because most of the time the supplier offers free shipping worldwide.
If there’s no order from your website, then you don’t have to order from your supplier, as well. A large portion of your capital will be allocated to your Facebook ads and other marketing strategies.
Lower Risks Involved
Like what was mentioned earlier, you don’t have to shed a large amount of money to purchase a huge inventory.
As such, if ever your store won’t be that profitable, you will not end up losing a fortune.
With dropshipping, you just have to worry about the costs of starting, operating, maintaining, and promoting an online store.
These costs include the monthly Shopify fee (or monthly fee from your chosen eCommerce platform), domain name, fees for the 3rd-party applications installed on your store, Facebook ads, and SEO strategies.
After a customer placed an order on your website, you just have to order it from your supplier.
Once they received your order, they will do everything for you – packaging, quality check, and shipping.
You can Focus on Growing Your Business
Considering that a significant portion of your workload is already shouldered by your supplier, you can just focus your attention and energies in growing your business.
One of the key steps in running a successful dropshipping store is product research. It’s the lifeblood of any dropshipping business.
Any guru, expert or mentor would say that you should put this as your topmost priority. And as what they would always say, you just have to be right once.
This means that product research takes time and it can be expensive since you will need to test the product using Facebook ads.
However, if you’ve found even just a single winning product just once, you can just sit and wait as orders flood to your store. It can be the start of your success in dropshipping.
However, you need to be consistent with your product research. You can’t be complacent once you’ve found one winning product.
And since you don’t have to worry about order fulfillment; you have no excuse in skipping this crucial step, and the rest of the marketing tactics.
You can Dropship As Many Items as You Want
Giving your customers more options to choose from will more likely increase your sales and attract more loyal customers to your store.
Without a doubt, this is easy with dropshipping since you won’t be buying inventories for different products. If you have a general store, then you can instantly sell any trending product in the market and make a profit from it.
But of course, it’s always better to be the first one to sell a winning product. That is why I emphasized the critical role of product research for this kind of business.
Easier to Manage and Sustain Once it’s Up and Running
Once your store gains enough traffic and people learn about your business, then the tasks will just be easier.
You just have to respond to customer queries and concerns, and send orders to your supplier/s.
Once you receive more and more orders, you can hire an assistant to help you with all of these tasks or with some specialized tasks like product research and SEO.
You can Dropship from Any Location
Everything that needs to be done to run a successful dropshipping store can be accomplished online, and wherever you are. You can open, manage, and run your online store anywhere in the world.
You can Sell Your Online Store
One of the strongest benefits of having an online store that is not always talked about is that you can sell your store and get a huge chunk of money upfront.
It is not unusual for online stores to be sold at a cost equivalent to their 2-year monthly profit. This means that if your store is earning $1,000 a month in profit, you can still sell it for $24,000.
You can then use this money to start another business venture that requires a bigger capital, such as Amazon FBA, or you can launch more dropshipping stores.
Check out this article on how you can buy and sell Shopify stores.
No Need to Have a Credit Card
Although it’s better to have a credit card for your online transactions, it’s not a requirement for you to start and run a dropshipping store.
Whatever your reasons are – whether you just don’t want to get a credit card, or you are not comfortable in entering your credit card details online – this advantage works out for you.
You can set-up other payment options on your store, such as PayPal and money transfer.
Remember, if your customer has a credit card linked to their PayPal account, then they can still pay using their card via PayPal.
One major difference is that it’s just more convenient for your customers if you have a credit card option upon checkout. Then again, it’s not a requirement, but it can increase your chance of closing a sale.
Life Cycle of Products is Shorter
I am sure you’ve heard about fidget spinners. A lot of dropshippers earned huge amount of money in selling these products, especially at their peak. But, it didn’t last long.
That is why it’s important to continuously look for a potential winning product and to test it using Facebook ads.
And like what was said earlier, it’s better to be the first to sell a trending product than just sell a viral item that is sold by other drop shippers.
Check out this guide on how you can test new products (and ideas) with Facebook ads.
You Need to Spend More Time and Money in Promoting Your Products
After product research and testing, you need to focus your attention on promoting your products.
This also includes your know-how when it comes to scaling. And you should also be aware when it’s time to spend more on your ads so that you can reach more potential buyers.
You might want to check out this YouTube video about the fastest way to scale to $5,000 a day with dropshipping.
No Established Customer Base
Unlike Amazon FBA, when you start selling from your dropshipping store, you basically start from scratch.
Well, it’s a different story if you already have a huge number of followers from one of your Facebook pages.
You can just start promoting your new dropshipping store there. It will help, but of course, it is still nothing compared to selling to the massive customer base of Amazon.
The cost of starting a dropshipping store is low, but the profit is also low.
It’s hard to sell a $10 product for $50 on your store unless you are among the first ones to offer such product in the market.
You need to remember that you are not the only one selling a winning product. And most of the time, customers will look for cheaper sellers online.
It’s Highly Competitive
It’s a tough world out there for dropshippers. Everyone knows that they should be at the top of their game, or else they can easily be left behind.
Once again, you are not the only one selling a particular product online. As such, you need to compete with hundreds or thousands of sellers worldwide for the same market.
So, it’s crucial to build a wonderful reputation and relationship with your customers to ensure their loyalty and to attract more new customers every day.
You also have to pay importance in giving out great deals once in a while.
Hence, staying on top of this highly competitive business also boils down to having solid marketing strategies, and excellent customer support.
Customer Service Issues
When it comes to issues concerning the condition of the product, you are fully dependent on your supplier.
You can only rely on the description that they provided, and you can only vouch that they are credible and professional enough to provide products as described and without issues.
One way to check a product’s condition is to order a sample from the supplier before you list the item on your store.
This can lessen complaints and other issues concerning the product, but it won’t be always guaranteed.
Like what was said earlier, your supplier handles the packaging, quality check, and shipping.
Hence, though the sample that you received is in excellent condition, you can’t be sure that it will always be the case.
It’s better to be prepared with these issues and to widen your profit margin.
Make sure that your profit is enough to cover the cost of giving a 100% refund or the cost of shipping a new product to them for free.
Longer Shipping Time
Majority of dropshipping suppliers are from China. And the average shipping time to the United States is about 3 to 5 weeks.
This is one of the major disadvantages of dropshipping since most of the customers can’t wait that long for their order to arrive.
The best thing that you can do is to be transparent with the processing and shipping time and to emphasize the advantage of getting free shipping.
You can also add an option for paid express shipping so your customers will have the option of choosing it just in case they really need the product as soon as possible.
You’ll Handle Complaints and Shipping Issues
Your customer doesn’t know your supplier, so they can’t complain to them for their mistakes. It’s all on you. Like what was said earlier, you need to know how to handle these concerns.
Miss Out on Bigger Discounts
As a drop shipper, it’s hard to offer amazing deals to your customers since you are not buying the products in bulk.
Although you are purchasing the products at an affordable price from your supplier overseas, you are still missing out on the bigger discounts that you can get from them when you order huge quantities of the same item.
Nonetheless, you can offer bundle offers to your customers to increase your sales while giving them even just small discounts.
Dropshipping vs Fulfilled by Amazon: Pros and Cons of Amazon FBA or Amazon Marketplace
The following pros and cons of Amazon FBA will help you in making your final decision between dropshipping and FBA.
Huge Customer Base
Having a large customer base is crucial to an eCommerce store’s success.
And when you sign up to Amazon FBA, you don’t have to worry about this.
You can take advantage of Amazon’s massive customer base worldwide. This is a low-cost way on how you can reach millions of potential buyers the shortest time possible.
You Don’t Need a Website
Unlike dropshipping, you don’t need an online store to sell your products.
You will directly create your product listings on Amazon, and you can promote your products directly on their website through Amazon PPC (Pay Per Click).
Benefit from Amazon’s Topnotch Credibility
You don’t have to start from the bottom and establish an excellent reputation to start reaping massive sales.
Once you join Amazon FBA, you automatically benefit from Amazon’s goodwill and premium brand image.
Higher Profit Margin
Compared with dropshipping, you can mark up your price higher on Amazon.
It is a common scenario that a $5 product from a supplier in China can be sold for $30 on Amazon marketplace.
You also need to consider the fact that you ordered your stocks in bulk.
As such, it also means that you got a huge discount for each item. Hence, your profit margin is further increased.
Trusted Customer Service
With Amazon FBA, you don’t need to worry about customer complaints, returns, and shipping.
And you can put your trust that Amazon will provide world-class customer service to all of your customers.
You’ll Have Ample Time to Focus in Scaling Your Business
Picking, packing, shipping, and providing excellent customer service are already on Amazon’s shoulders.
You don’t have to worry about all these tasks. As such, you can focus your attention on growing your business more efficiently.
You Can Sell Your Business
Similar to a dropshipping store, you can also sell your Amazon FBA business.
Its selling value will depend on your business’s ability to generate profit.
For instance, if your business had a total profit of $250,000 in one year, the selling value will be a multiple of your total profit.
The market can pay anywhere between 1.5 to 3x profit. So, your business could be valued between $250,000 and $500,000.
High Upfront Capital and Multiple Fees
One of the biggest disadvantages of starting an Amazon FBA business is the immensely high upfront capital that is required.
Aside from spending a huge amount of money for your inventory, you also need to pay the fulfillment fees (per unit), monthly inventory storage fees, referral fees, FBA fees, and individual seller fees or subscription fees.
Check out this comprehensive guide on how Amazon FBA fees work, and how you can make a profit as a seller.
You Are Dependent On Amazon
Another significant downside of FBA is that your business and your income are completely dependent on Amazon.
You can’t do anything if Amazon changes its algorithm or removes you from their system – you’ll be instantly out of business just like that.
Despite the higher risk in running a successful business through Amazon FBA, millions of retailers are still selling on the Amazon marketplace. As such, competition can be tough.
Many other retailers are selling the same product as you are and sometimes their price is significantly cheaper.
You Won’t Have Direct Contact With Your Customers
Your products are sold on Amazon, and they are the one who will process and ship orders of your products.
As such, you won’t have direct contact with anyone who purchased your items.
Technically speaking, these customers are from Amazon’s huge customer base.
As such, you don’t have a hold on them. You won’t know any details from your customers.
In short, you don’t know who your customers are.
Hence, if you’d like to target them on your ads and sell them something in the future, you can’t because their details are confined inside Amazon’s system. In other words, your income is tied to its platform.
Constraints With Cash Flow
With Amazon FBA, you won’t receive the money from your sales for 4 weeks.
Hence, it won’t be readily available for you, especially when you need the money to update your inventory.
And you also need to refresh your stocks regularly, making sure that you have enough products that will last for three months.
So, it is a common scenario that Amazon sellers make a lot of sales but lesser profit since they need to reinvest their money to their business by purchasing more stocks.
You Can Lose Huge Amount of Money if You Run Out of Stocks
Updating your inventory regularly is crucial for your success on Amazon FBA.
Simply speaking, if you run out of inventory, you won’t be getting sales and Amazon ranks products based on sales.
So, if you are not getting sales because you ran out of stocks, your products will be ranked behind.
Once you restock your inventory, your product won’t get the same ranking as before. You need to build it up again so it will rank higher.
You Need a Credit Card
Unlike Shopify and other eCommerce platforms, you need an Internationally-accepted credit card to start your Amazon FBA business. It’s one of the requirements in opening an account.
Dropshipping vs FBA: What’s Best for Beginners in the Marketplace?
“Without a doubt, Amazon FBA can give you an enormous amount of income considering their reputation and massive customer base. However, you also need to spend a large amount of money to purchase your products and to pay for all the required fees to launch your account. Hence, it’s better to start a dropshipping business if you are not ready to face greater risks.”
Moreover, for beginners, it’s always better to keep your cost low regardless of whether you can afford the financial demands of the business or not.
And whichever one you choose, you need to treat it as serious business to cement your chances to succeed.
How about you? Will you go for dropshipping or Amazon FBA? Let me know what you think in the comments below.