Ecommerce can be quite a profitable business. If you’re considering this route to earn extra money, you’ll need to decide on an online business model to focus on. The two most popular options that online entrepreneurs use are dropshippin and amazon fba. Let’s take a closer look at the differences between these two models.
The Differences Between Dropshipping and Amazon FBA
This is a process involving order fulfillment where the products you are selling are shipped straight from your suppliers to the actual buyers. The process starts right after an order has been placed by a buyer on your website.
You start by advertising products on your site to your customers at a specific retail figure. Once the order has been placed, you proceed to order these products from your supplier. You’ll get a wholesale price.
Once placed, the product is shipped straight to your customer. Your profit will be the difference between the item price you paid to the supplier and the price your customer paid when ordering on your website. Many people who prefer this method love the fact that there is no need for rolling inventory and they don’t have to purchase any of the items they are selling.
Pros of Dropshipping
- No inventory costs upfront- You don’t need your own products to start selling.
- No shipping materials required- Your supplier takes care of shipping the orders.
- Easy requirements and low startup costs- The costs involved are considerably low to none. Requirements needed to start the operation are simple enough as well.
- You can ship almost anything- There is a reason Amazon, Google or eBay sell just about everything— it’s because of dropshipping.
Cons of Dropshipping
- You’ll need more effort and time to advertise.
- There’s no customer base for you to tap into.
- Low margin for profit.
- Competition can be very stiff.
- You have no control over product and supply inventory.
- You’ll have to deal with complaints and returns yourself.
This business model shares certain similarities with dropshipping, especially in the sense that you’re not the one that fulfills the orders physically. In this setup, your products can be sent to the Amazon warehouse in bulk. Amazon will be responsible for providing you the space needed to hold your products. It is also highly recommended that you learn how to source products on amazon the right way. When a customer places an order, it will be Amazon that will fulfill the order for you.
Pros of Amazon FBA
- Enjoy a strong customer base- Selling on Amazon comes with the advantage of having a ready base of millions of possible buyers who may be interested in your products.
- You’ll benefit from the premium brand image that is Amazon.
- Take advantage of Amazon’s expertise and algorithms.
- Amazon handles customer service concerns on your behalf.
- You enjoy better profit margins, especially when compared to dropshipping.
- You’re allowed to sell just about everything.
Downsides of Amazon FBA
- Hefty initial costs as you need a moderate amount of capital to secure your first product inventory.
- You’ll be exclusively reliant on the Amazon platform. This makes you at the mercy of its systems and algorithms. Also, there are rules you must follow and breaking them could get you banned which will lead to income loss.
- Running out of inventory is not an option as this can lead you to you losing the business. Also, products are ranked based on sales. If your sales are low, you’ll easily get pushed down the rankings and get taken over by other better performing stores and products.
- Competition can be quite tough as there are thousands of sellers on the platform that you’ll have to be directly competing with. Unless you have a competitive advantage, achieving success on the platform can be tough.
Now that you have learned the various pros and cons to both drop shipping and Amazon FBA, it becomes easier for you to decide which model will work best for you. Take the time to weigh your options so, at the end of the day, you’ll choose the model that will suit your entrepreneurial goals best.