Marketplaces like Amazon have allowed millions to start a business with less than $500. As the world’s most trusted e-commerce, Amazon seems like the ideal place to start. So, what do you do when you want to start a company but have no inventory to sell?
For many, dropshipping has been the answer. This is a very popular method with sellers on Amazon, so we’re going to explore the pros and cons of dropshipping on the platform.
Dropshipping is a business model that allows you to sell fun and affordable products, without having any physical inventory on hand. You find a supplier to purchase wholesale products from, list the product items on your store, and place the purchase order with the wholesaler when you make a sale. The third-party supplier will deliver the products to your customer’s door, and you don’t have to worry about the logistics. Simple and clean.
This business model is a dream to start with because of the benefits it allows a small business. The most important task on hand is to find a reliable wholesaler. Pick one or two that you would like to use, and order from them a couple of times to see how they fare in delivery. As well as a Dropshipping Agreement to keep every detail on the legal end of things. Have zero tolerance for scammers!
How dropshipping works on Amazon
Dropshipping on eBay has become really popular over the years, and now Amazon sellers have caught on. Currently, the Amazon Drop Shipping Policy is pretty clear and full of requirements. All of which make sense.
For example, it states, “Remove any packing slips, invoices, external packaging, or other information identifying a third-party drop shipper prior to shipping the order”. You definitely don’t want your customers seeing an invoice from the drop shipper letting them know you spent pennies in comparison to the money they paid you.
Amazon also doesn’t want any decorative “external packaging” either because that distracts from the Amazon brand. Because marketplace heavily encourage you to use their own shipping system, otherwise known as Fulfillment By Amazon (FBA). And you’ll note that the Professional Selling Plan already comes with FBA included.
Is dropshipping on Amazon a suitable alternative? Let’s break it down.
Amazon Dropshipping Pros
- It’s Low Risk, High Reward
A dropshipping business is fairly inexpensive, given that you don’t order the inventory until after the product listed is sold. This saves you on the overhead costs of starting your own business. No warehouses or shipping supplies necessary, just an internet connection and your customer’s address to send to the supplier.
- You Have Immediate Customers
The most attractive benefit of selling on Amazon is its audience. You have 300 million consumers at your fingertips worldwide. Had you created your own dropshipping company elsewhere, you would’ve had to start from scratch.
We’re talking about hundreds to thousands of dollars – depending on the size of your product – that you will be saving and applying towards growing your business instead.
- More Time Spent On Your Brand
Having a drop shipper is like having a logistics department that runs itself. You no longer have to worry yourself with packaging, carriers, or shipping labels! You can put that energy towards creating a website, marketing, or locking in the next purchase order.
- The Sky’s the Limit on Product Selection
OK, maybe not the sky, but you certainly don’t have to stick to one product type. With big chain suppliers, you’re able to expand your store with different merchandise. Big, medium, or small – you choose.
Amazon Dropshipping Cons
- Amazon Holds Your Money For Two Weeks
When you sell your products with Amazon, your payout is every two weeks, so when your customers purchase your goods, you can’t use that revenue instantly. Which means that the first dropshipping orders will come out of your own pocket.
- No Online Retailers Allowed
Walmart or AliExpress are great examples of the online retailers they’re referring to. According to the Amazon Drop Shipping Policy, your account will be at risk of suspension. It’s their competition, makes sense why they would discourage you from doing so. You’re better off finding a wholesale supplier that isn’t going neck to neck with Amazon.
- Competition is Thick
Dropshipping is really popular among online platforms and the odds of your product being available in hundreds of other Amazon stores are very high. Standing out of the crowd will become a challenge.
- Orders Can Get Complicated
Suppliers can run out of inventory and put items on backstock. If you don’t monitor your items, this can cause for an unhappy customer who orders your product only to find out they can’t have it. Also, if you have returns, you may not have the space to store it after a while, or can acquire storing fees from suppliers.
- Dropshipping Is Not As Credible as FBA or SFP
Out of the 300 million active users on the site, 90 million are Prime account holders. Fulfilled by Amazon (FBA) and Seller Fulfilled Prime (SFP) are huge money makers in the Amazon community. People feel secure when they see that AMZL US tracking number because they know the couriers come from Amazon themselves.Technically, you could order in bulk from your drop shipper and send the inventory over to FBA, but at that point you’re defeating the purpose of dropshipping.
Should I Dropship on Amazon?
Dropshipping certainly has its appeal, but when it comes to dropshipping on Amazon, it can also become a headache. The appeal of dropshipping is the fact that you don’t have to put any money down on your inventory, but Amazon makes that a little complicated. If you have the liquidity to launch the business, then this won’t be a problem.