Whether Amazon FBA or dropshipping – these trends are on everyone’s lips. Have you 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 these methods? If you can’t decide between the two most profitable measures in online retail, learn here about the advantages and disadvantages of each shipping option so you can form your own opinion.
What is Fulfillment by Amazon?
Fulfillment by Amazon (FBA) is a service provided by Amazon where the processes related to shipping are completely handed over to the marketplace. Amazon provides the storage capacity, takes care of packaging and shipping, delivers top-notch customer service, and offers expertise in the time-consuming processes of online retail.
34.4 million users! That number is something to digest. But is that enough to decide on Amazon FBA or to go with dropshipping? Let’s see.
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Dropshipping, also known as distance selling, is a specific form of retail. In this model, 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 set the product prices. The responsibility for inventory management, storage, packaging, and shipping is taken on by the manufacturer or wholesaler. Simply put, your task as a dropshipper is only to contact the supplier once you record an order for the product. The supplier then takes care of the rest.
Now, of course, the crucial question arises – which of the above-mentioned sales options generates higher revenues and profits: Amazon FBA or dropshipping? Let’s first consider the advantages and disadvantages of both models.
Amazon FBA: Advantages and Disadvantages Explained
Advantages of FBA
With FBA, you shift the essential and cost-intensive shipping processes to Amazon. Focusing on your 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 goods via Prime – each of your products receives a Prime logo. This gives you access to a large and affluent customer base of approximately 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 itemized separately for better cost monitoring. Be sure to 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, carefully read the contract terms and rely on a healthy mix of calculations.
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 Seller Fulfilled Prime. In the second model, you have, like with FBA, better chances for placement in the Buy Box.
You have no direct contact with the buyers. When it comes to returns, Amazon tends to decide in favor of the customer rather than you. The same applies to Amazon FBA or dropshipping: for complex products, you can counteract this by providing all necessary information on the product page. If you are concerned about missing out on upselling opportunities, offering bundles is a good option – “Buy this camera with lens XY and the shoulder bag.”
Not only is shipping free for the end customer, but returns are also free. Returns are processed more quickly and incur additional fees for you. 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, the online giant also makes mistakes. Goods can be lost, damaged, or not recorded in the inventory at all. A manual check would take too much time, and online sellers often lack 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 conduct FBA analysis and fully prepare the communication with Amazon 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 commercial goods provider, the Buy Box is your holy grail on Amazon – up to 90% of all purchases occur here. The battle for placement in the Buy Box often revolves around price. However, do not be too hasty to sell your items at rock-bottom prices. The Amazon algorithm looks for a combination of competitive prices, stable performance, and excellent customer service when placing offers. For price optimization, it is worthwhile to use a repricer that calculates the best possible price and thus wins the Buy Box.
FBA leads to a certain dependency on Amazon. The marketplace is already the highest revenue channel for many sellers today. However, what holds true today can completely change tomorrow. Therefore, you need to be aware that another channel for distributing your goods should be ready.
FBA is not only suitable for online sellers who are reaching their capacity limits with their existing Amazon shop, but 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 clear that Amazon pursues its own interests with the service and (OMG!) charges money, which is also legitimate. However, one hand washes the other here.
The fact is – many Amazon sellers would not be able to welcome the broad and affluent Prime customer group without FBA.
Dropshipping: Advantages and Disadvantages Explained
To decide between Amazon FBA and dropshipping, let’s now 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 can be a significant burden for any new entrepreneur.
With dropshipping, the goods do not need to be purchased by the online retailer in advance. This allows for more money to be allocated to actual customer acquisition.
The supplier takes full responsibility – including the warranty. Once you receive an order for a specific product, the process 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 management.
Dropshipping not only saves your money but also your valuable time. You do not have to package or ship the products, nor do you need to worry about inventory management. It is becoming clear that this is the most suitable business model for those who want to invest their valuable time in other areas of business.
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 Overcome Them
One of the biggest disadvantages of dropshipping is the low quality control of the goods you sell in your name. You do not own the items, so you will not be aware of all 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 once the customer files a complaint or not. If possible, you can inform yourself about the products directly on-site, conduct blind test orders, and perform regular quality checks, or you can trust your supplier. If the supplier no longer delivers the expected quality, you will need to either demand improvements or search for a new manufacturer.
The delivery times for many products are typically longer. 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, delivery times can vary between two and six weeks. To keep the number of customer inquiries lower, be transparent with your buyers about this information and keep them updated. This is the only way to reassure your customers regarding the longer wait times.
Since you have no control over product quality and delivery times with dropshipping, you will likely need to invest a lot of time in customer service. This helps prevent your customers from leaving a negative review. One of the simplest methods to expedite 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 can only generate individual orders rather than bulk purchases with your orders, you typically do not reach the necessary order thresholds to obtain better terms. For that, you would need to maintain your own inventory.
You need to invest a lot of time in the distribution and marketing of your offers to draw customers’ attention to the products. While you have the option to list your goods on eBay, Amazon, and similar platforms, you do not have the advantages that sellers using fulfillment services from the platforms enjoy. Additionally, caution is required on 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 stay alert regarding trends and be creative when it comes to selling your products.
Dropshipping certainly offers advantages for anyone looking to try their hand at online retail – 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 should be spent on your new online shop, customer service, product research, as well as marketing and selling your items. Believing that you can now lie on the beach while the money flows into your pocket… well, maybe. Eventually. Later.
Conclusion: Amazon FBA or Dropshipping – which is the better fit?
To give you an overview of all the advantages and disadvantages of the shipping options, we have summarized them in a table for you.
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 seller. 2. The supplier ships goods from their own warehouse to the customer. 3. The seller handles returns management. The returns go back to the supplier.
Storage costs
The seller pays the storage fees to Amazon.
The seller 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 seller handles 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.
Selling 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.)
Yes
No
Startup capital
Purchasing goods, shipping to Amazon
Minimal
Quality control possible
Yes
No
Discounts on purchases possible
Yes
No
Competition
High
High
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 universally. It is as individual as your vision for your business. While dropshipping can be started with low startup capital and little experience in online retail, it requires significant capacity in marketing, sales, and customer service. Fulfillment by Amazon offers clear advantages such as a large customer base, fast delivery, and excellent customer service, but if you want to be successful, you must compete against the growing competition (dropshippers are not less affected by this).
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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.
