As an Ecommerce owner, one of your top concerns is to ensure the safe and secure delivery of the customer’s order. Order fulfillment is crucial in ensuring customer loyalty. Studies show that nearly 62% of customers expect their orders to arrive in less than three days. In addition, most consumers expect fast and free fulfillment from online stores. However, they are also willing to pay extra for expedited shipping.
As far as order fulfillment is concerned, two of the most common shipping methods are dropshipping and Fulfillment By Amazon (FBA). Each has their pros and cons so understanding them will help you decide which is the better option for your ecommerce business. So read on and find out which will work better for your online store.
Dropshipping vs FBA
- What Is Dropshipping?
- Pros and Cons of Dropshipping
- What is Amazon FBA?
- Pros and Cons of Amazon FBA
Choosing Between Dropshipping and Amazon FBA
- Initial Cost and Investment
- Level of Competition and Profitability
- Customer Support
- Quality Control
- Market Access
- Additional Features
Dropshipping vs FBA
Dropshipping and FBA are common shipping methods used by ecommerce retailers to fulfill orders by customers. Effective order fulfillment boils down to choosing the right shipping method for your online store. Let’s get to know these two shipping methods, and their pros and cons to help you decide on how you will fulfill orders.
What is Dropshipping?
Dropshipping is when a seller lists products online and ships from a supplier or manufacturer without purchasing any inventory upfront. In dropshipping, you will usually partner with a wholesale company. You provide the customer details to the wholesaler, which will in turn be responsible for shipping the order to your customer.
From the word “drop,” this fulfillment method will only have you place an order with a supplier and provide the customer details. You only pay for the cost of the product upon payment by the customer. In this model, you act as a middleman between the customer and the supplier. You get a portion of the money for your work in facilitating the sale. Dropshipping is a good way to start a business as a sole proprietor. Just choose a niche and partner with reputable suppliers.
Pros and Cons of Dropshipping
Dropshipping can be an attractive shipping method because it removes the factor of responsibility on your part. Even so, there are still other factors to consider when deciding if dropshipping is right for you.
Pros
- Low Cost. Dropshipping comes with low startup costs. You do not need to order products in bulk or spend thousands of dollars upfront. It is pocket-friendly and you do not have to make lump sum investments.
- Lesser Management. In dropshipping, the supplier will handle everything from packaging to shipping, and returns. All you have to do is place an order, provide customer details, and the supplier will do the rest.
- Low Barrier To Entry. Getting started with dropshipping is easy. You can easily find products to sell from a supplier and list them on ecommerce platforms immediately. This way, you can offer diverse products with less investment.
- Operate Anywhere. With dropshipping, you can take orders from anywhere. All you need to have constant communication with your customers and suppliers. It is not required that you stay in a particular city or state.
Cons
- Less Profit Margins. While it requires minimal investment, the returns of dropshipping is also lower than Amazon FBA. Since you are not the seller of the products, you cannot increase the price of the product. In a competitive market, it will be hard to generate higher profits.
- Customer Service Issues. While dropshipping gives you freedom in managing your products, it can become difficult to handle customer complaints. It will be the supplier who will be handling those concerns. Unless you have solid customer support, you may not be able to handle customer service effectively.
- Lack of Quality Control. Since the products you will be selling come from the manufacturer or supplier, you cannot be sure about the quality of the product. You can request for a sample before deciding to use the product.
- High Competition. As dropshipping is a much easier approach, it is also more competitive.
What is Amazon FBA?
In Fulfillment by Amazon, you send products to Amazon’s warehouse and list them on their website as well. When a customer orders your product on Amazon, they will be in charge of packing and shipping the placed order from their warehouse to the customer. They will also deal with customer service and returns. If you cater to a large audience, Amazon FBA is the perfect fulfillment method for you.
As of 2022, 68% of businesses are using Amazon FBA. With this order fulfillment method, you can have access to a Performance Dashboard and monitor your Inventory Performance Index. You can also use the seller toolkit to manage oversupply, track inventory age, update product listings, and maintain stocks.
Pros of Amazon FBA
- Easy To Start. In Amazon FBA, it is easy to get started. First, create an account and then organize your inventory and create a product listing. Once done, you can prepare and send your products to Amazon’s fulfillment center and let them worry about the shipment.
- Focus on Business Growth. With Amazon handling the packaging, shipping, and customer service, you can focus on scaling your business. Your business can easily achieve growth because of the Amazon Fulfillment network.
- Large Customer Base. Building a loyal customer base can take years. However, with Amazon FBA, it would not be much of a problem since you will benefit from selling in the largest ecommerce marketplace.
- Easy Return and Refund. With Amazon FBA, you can avail of an easy return and refund policy. Customers can easily request returns, refunds, replacements, and reimbursement.
Cons
- High Competition. As the biggest ecommerce marketplace, expect huge competition from other online sellers. Look for high-demand products with low competition. You will be up against experienced Amazon sellers and it will require more effort on your part.
- High Risk For First-Timers. If you are just starting out with ecommerce, Amazon FBA may not be a good platform to start with.
- No Contact with Customers. With Amazon FBA, what you sow you will not reap because your customers belong to Amazon. This means you cannot send them emails or include them in affiliate marketing campaigns.
- No Guaranteed Profits. Not all products will generate profit for your business. Some may sell quickly while others may take time. You need to apply effective marketing strategies and set competitive prices to generate stable profits.
Choosing Between Dropshipping or Amazon FBA
Now that you are aware of the pros and cons of both fulfillment methods, your next question might be: Which is the better option for you? Here are the factors to consider when choosing between dropshipping or Amazon FBA.
1. Initial Cost and Investment
Getting started with both dropshipping and Amazon FBA is easy. However, Amazon FBA requires a bigger budget. You will need a warehouse for stocking your inventory, pay people who will man the warehouse and do the order management. On the other hand, dropshipping requires minimal investment. It does not require inventory control and a facility for storing your stocks.
If you have a low budget for your ecommerce business, dropshipping is your best option. However, if you have a warehouse and can afford to pay the associated fees, then go for Amazon FBA.
2. Level of Competition and Profitability
Amazon is the biggest ecommerce marketplace so expect a lot of competition. If you are just getting started, you will be up against experienced sellers who already have an established customer base. As for profitability, Amazon FBA is definitely the winner. Around 50% of Amazon sellers can make $1000 – $25000 a month.
On the other hand, the profitability of dropshipping would depend on certain factors such as the niche, website, costs, and more. Dropshippers usually maintain a 10% – 20% profit margin. Initially, however, it could be lower than 10%. One huge financial drawback of dropshipping is the marketing cost.
3. Customer Support
With dropshipping, customer support may not be much of an issue. As a dropshipper, you only place orders for the customer but it is the supplier who packs and ships the orders which essentially makes your customers their customers. Thus, if there are customer issues it will be the supplier that will handle the concerns.
In Amazon FBA, it will be Amazon that will handle customer service issues. If there are shipping problems and product complaints, the company’s customer service team will be the one to handle them. You can trust that Amazon will deliver quality customer service.
4. Quality Control
As mentioned earlier, there is no way for you to control the quality of the product from the supplier. After all, they own the inventory and the product emanates from their warehouse. The only way for you to check quality is to order samples from the supplier if they will allow it.
With Amazon FBA, on the other hand, the product itself will come from Amazon so you are assured of quality. Amazon employs quality checks such as order defect rate and putting restrictions on certain products. Also, Amazon sees to it that all products comply with applicable laws and regulations.
5. Market Access
Amazon FBA gives you access to global customers. Think of this: 68% of online shoppers on Amazon use FBA as their order fulfillment platform. When you are on the platform for FBA, you can also get access to their customer database. With Amazon FBA, you get an opportunity to scale your business and expand your customer base.
In the case of dropshipping, you may not be able to achieve market access because your customers will eventually be absorbed by the suppliers. In addition, the supplier may not have access to certain areas for delivery.
6. Additional Features
With Amazon FBA, you can take advantage of various features like easy return policies, inventory tracking, and shipping promotions. When your products are shipped by Amazon, they automatically acquire the Prime shipping badge on your listing.
Meanwhile, these features are not available with dropshipping. Capabilities like free shipping and return and refunds will be implemented by the supplier. The only way you can offer these features is to switch from dropshipping to Amazon FBA.
So Which Is The Better Choice?
The answer is: None. Both are good options to get started with ecommerce. Here are some factors that can affect your choice:
- Your experience level. If you are just new to ecommerce, go for dropshipping. It can allow you to test out different products and niches. If you have been in the business long enough and would like to expand, Amazon FBA is the perfect choice.
- Your budget. If you have a small budget, you are better off with dropshipping because it entails lower costs.
- Your involvement. If you want to deal with customer service and ship products, then Amazon FBA works best for you. However, if you only want to place orders and leave the packaging and shipping to the supplier, take the dropshipping approach.
- Your desire for growth. If you want to establish your brand and sell in big numbers, go for Amazon FBA.
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