Whether Amazon FBA or Dropshipping – these trends are on everyone’s lips. Have you also been convinced by one of these shipping methods? Are you considering starting an e-commerce business to at least give it a try? Or do you want to expand or operate your existing business with one of the methods? However, can you not decide between the two most profitable measures of online trading? Learn here the advantages and disadvantages of each shipping option so that you can form your own opinion.
What is Fulfillment by Amazon?
Fulfillment by Amazon (FBA) is a service from Amazon where the processes surrounding shipping are completely handed over to the marketplace. Amazon provides the storage capacity, takes care of packaging and shipping, delivers first-class customer service, and offers expertise regarding the time-consuming processes of online trading.
34.4 million users! One has to let that number sink in. But is that enough to decide on Amazon FBA or rather on Dropshipping? Let’s see.
You are currently viewing a placeholder content from Youtube. To access the actual content, click the button below. Please note that doing so will share data with third-party providers.
Dropshipping, or also known as distance selling, is a special form of trade. In this case, orders are placed in the online shop of the online retailer, but the shipping of the goods to the end customer is handled by the product manufacturer or wholesaler. The dropshipper, who takes care of the distribution and marketing of the goods, does not own the items and has no physical contact with them. However, they can determine the product prices. The responsibility for inventory management, storage, packaging, and shipping of the goods is taken over by the manufacturer or wholesaler. Simply put, your task as a dropshipper is only to contact the supplier as soon as you record an order for the product. The supplier then takes care of the rest.
Now the crucial question arises – which of the above-mentioned distribution options generates higher revenues and profits. Amazon FBA or Dropshipping? Let’s first look at the advantages and disadvantages of the two models.
Amazon FBA: Advantages and Disadvantages Explained
Advantages of FBA
With FBA, you transfer the essential and cost-intensive shipping processes to Amazon. Focusing on the core business is crucial with FBA. Amazon packages your products, ships them, and provides the best customer service. This means you have enough time to concentrate on selling your items.
Shipping, returns, and customer service come from a single source. Once your products have reached the Amazon fulfillment centers, everything follows its automated path.
One of the biggest advantages is offering the goods via Prime – each of your products gets a Prime logo. This gives you access to a large and affluent customer base of about 34.4 million people just in Germany.
With FBA, more sales can be generated. When comparing offers, the Amazon algorithm favors the products of FBA sellers. This is partly because shipping in the FBA program is free, which encourages the buyer to click the purchase button.
Internationalization is easier with FBA, as many processes are directly covered by the program.
Disadvantages of FBA and how to eliminate them
FBA is not the cheapest option. However, each interaction is charged and reported separately for better cost monitoring. Check your items especially for weight and dimensions, as higher costs can be hidden here.
FBA is not suitable for every sales item – especially the weight and size of the packages play a crucial role. Therefore, read the terms and conditions more closely and rely on a healthy mixed calculation.
Certain goods (such as flammable materials, some food items, or luxury goods) are not shipped by Amazon. Some of these goods can be shipped via FBM (Fulfillment by Merchant) or Prime by SELLERLOGIC. In the second model, you have, just like with FBA, better chances for placement in the Buy Box.
You have no direct contact with the buyers. If there are returns, Amazon tends to decide in favor of the customer rather than you. The same applies to Amazon FBA or dropshipping: For goods that require explanation, you can counteract this by providing all information on the product page. If you are concerned about missing upselling opportunities, the option to offer bundles is available – “Buy this camera with the lens XY and the shoulder bag”.
Not only is shipping free for the end customer, but so is the return. Returns are processed faster and cost you additional fees. If you sell goods that are often returned (e.g., clothing or shoes), keep this in mind when calculating your costs.
The FBA error rate can become a significant cost factor – no matter how well the system works, even the online giant makes mistakes. Goods can get lost, be damaged, or not be included in the inventory at all. A manual check would take too much time, and the online retailer often lacks the know-how to analyze the data from the 10 reports. Many errors often go unnoticed and are rarely communicated by Amazon. However, there are tools that perform FBA analysis and prepare communication with Amazon completely for you. Subsequently, the cases can be forwarded to Amazon via copy-paste.
Regardless of whether you choose Amazon FBA or dropshipping, you must expect strong competition. To remain competitive on Amazon, you need to take care of your own presence, run ads, or fight for a spot in the Buy Box. If you are a trading goods provider, the Buy Box is your holy grail on Amazon – up to 90% of all purchases take place here. The battle for placement in the Buy Box often revolves around price. But do not be too hasty to sell your items at rock-bottom prices. Amazon’s algorithm looks for a combination of competitive prices, stable performance, and excellent customer service when placing offers. For price optimization, it is worth using a repricer that calculates the best possible price and thus wins the Buy Box.
FBA leads to a certain dependence on Amazon. The marketplace is already the most revenue-generating sales channel for many retailers today. However, what holds true today can completely change tomorrow. Therefore, you must be aware that another channel for distributing your goods should be ready.
FBA is not only suitable for online retailers who are reaching their capacity limits with their existing Amazon shop. It is also for beginners and experienced online retailers who want to take advantage of benefits such as access to Prime customers and prioritization of items for the Buy Box. It is obvious and legitimate that Amazon pursues its own interests with the service and costs money (OMG!). But here, one hand washes the other.
The fact is – many Amazon sellers without FBA may not even be able to welcome the broad and purchasing Prime customer group as clients.
Dropshipping: Advantages and Disadvantages Explained
To decide between Amazon FBA or dropshipping, let’s take a look at the advantages and disadvantages of the second shipping option.
Advantages of Dropshipping
As with FBA, one of the biggest advantages of dropshipping is that you do not need a physical location to start your business. This saves you huge investments in establishing and building your operational facility, which is a significant burden for any new entrepreneur.
In dropshipping, the goods do not need to be purchased in advance by the online retailer. This leaves more money for actual customer acquisition.
The supplier takes full responsibility – including the warranty. Once you receive an order for a specific product, everything is quite simple. You pass the order on to a third party who acts as your wholesaler or supplier. They package the products, ship them, and handle the returns.
Dropshipping not only saves your money but also your valuable time. You do not have to package or ship the products, nor do you have to worry about inventory. It is becoming clear that it is the most suitable business model for those who want to invest their valuable time in other business areas.
The time gained can be invested in building your business to find the most attractive offers for your customers.
Disadvantages of Dropshipping and How to Eliminate Them
One of the biggest disadvantages of dropshipping is the low quality control of the goods you sell in your own name. You do not own the items, so you will not know all the product information and defects. You have to rely on the seller’s statements. Whether the product was actually delivered functional and intact will only be known when the customer files (or does not file) a complaint. If possible, you can inform yourself directly on-site about the products, conduct blind test orders and regular quality checks, or trust your supplier. If the supplier no longer delivers the expected quality, you will need to either demand improvements or look for a new manufacturer.
The delivery times for many products are usually higher. Nowadays, many dropshippers use the offerings from Aliexpress and similar platforms. So if you do not have a supplier who ships directly from Germany or Europe, the delivery times can vary between two and six weeks. To keep the number of customer inquiries lower, disclose this information to your buyers and keep them updated. Only in this way can you appease your customers regarding the longer wait times.
Since you have no influence on product quality and delivery times in dropshipping, you will likely need to invest a lot of time in customer service. This will help prevent your customers from leaving a negative review. The simplest way to speed up customer service is to formulate pre-written responses. Once written, they serve as templates for your customer support.
The prospect of discounts and offers is low or even nonexistent. Since you cannot generate bulk purchases with your orders but rather individual orders, you typically do not reach the necessary order thresholds to achieve better conditions. For that, you would need to maintain your own inventory.
You need to invest a lot of time in the sales and marketing of the offers to draw customers’ attention to the offer. While you have the option to offer your goods on eBay, Amazon, and similar platforms, you do not have the advantages that sellers have, such as shipping offers through fulfillment services of the platforms. Additionally, caution is advised with Amazon. According to Amazon’s guidelines, all documents such as invoices and delivery notes must come from the seller or appear to do so.
Trends are very fast-paced, and competition is high, as in every segment. You need to invest a lot of time in researching new sales products. Always be on the lookout for trends and be creative when it comes to selling your products.
Dropshipping certainly offers advantages for anyone who wants to try their hand at online trading – the startup capital is minimal. However, the most important requirement for successful dropshipping is a trustworthy collaboration with the supplier, which does not happen overnight. The supplier is responsible for the quality and for fast and secure shipping of the goods to the end customer.
The rest is in your hands. The time you have freed up, which should not be underestimated, is spent on your new online shop, customer service, product research, as well as marketing and selling your items. To believe that you can now lie on the beach while the money flows into your pocket… Well. Maybe. Someday. Later.
Conclusion: Amazon FBA or Dropshipping – Which is a Better Fit?
So that you now have all the advantages and disadvantages of the shipping options at a glance, we have summarized them for you in a table.
Advantages and Disadvantages
Fulfillment by Amazon
Dropshipping
Processing of logistics and customer orders
1. The seller must send the products ready for shipment to Amazon. 2. Amazon takes care of shipping, storage, and returns management.
1. Orders are received by the retailer. 2. The supplier ships goods from their own warehouse to the customer. 3. The retailer takes care of returns management. Returns go to the supplier.
Storage Costs
The retailer pays the storage fees to Amazon.
The retailer incurs no costs.
Customer Service
1. Customer service is handled by Amazon. 2. In the case of a return, Amazon often decides in favor of the customer.
The retailer takes care of all customer service and relies on the statements of the supplier.
Delivery Times
Prime service, 1-2 days.
From abroad 2-6 weeks. From the EU and Germany 2-7 days.
Sales through…
Amazon, own online shop.
Online marketplaces (Amazon, eBay, Rakuten, etc.), own online shop.
Customer Base
Amazon and Prime customers (34 million buyers in Germany).
Own customer base, marketplace customers.
Prime benefits (Buy Box, customers, shipping, etc.)
ja
nein
Start capital
Goods purchase, shipping to Amazon
minimal
Quality control possible
ja
nein
Discounts on purchases possible
ja
nein
Competition
hoch
hoch
Business at Amazon Dropshipping vs. FBA: Advantages and Disadvantages of the Two Shipping Options
Amazon FBA vs. Dropshipping – which model is the right choice for your e-commerce business cannot be answered in general. It is as individual as your ideas about your business. Dropshipping can be started with low initial capital and little experience in online trading, but it requires large capacities in marketing, sales, and customer service. Fulfillment by Amazon offers clear advantages such as a large customer base, fast delivery, and the best customer service, but if you want to be successful, you must assert yourself against the growing competition (dropshippers are not less affected by this).
Maximize your revenue with your B2B and B2C offers using SELLERLOGIC's automated pricing strategies. Our AI-driven dynamic pricing control ensures you secure the Buy Box at the highest possible price, guaranteeing that you always have a competitive edge over your rivals.
Audits every FBA transaction and identifies reimbursement claims resulting from FBA errors. Lost & Found manages the complete refund procedure, including troubleshooting, claim filing, and communication with Amazon. You always have full visibility of all refunds in your Lost & Found Full-Service dashboard.
