The e-commerce industry online is booming. It is growing at an exponential pace. However, once you enter into the industry, you will realize that there are different business models which you can follow. Primarily, you can pick between 2 business models which are dropshipping and Amazon FBA.
Today, we will compare dropshipping vs FBA in order to provide you with a clear perspective about both. You will be able to thereafter decide the better choice for your business.
What is dropshipping?
Let?s start with the basics. Dropshipping involves marketing the products and placing the orders with the suppliers when you get the orders from customers. The supplier then in turn directly delivers it to the customers. In this model, you need not to hold any kind of inventory. You have to just work on bringing in the sales rather than handling the packaging and delivery.
What is FBA?
FBA stands for fulfilled by Amazon. In this business model, you will be storing your inventory at the Amazon warehouse. You will, however, be restricted to sell only on Amazon. Once you get a sale, Amazon will fulfill the order on its own. In this case, however, you have to invest in inventory and it will be stored in the Amazon warehouse.
Dropshipping vs FBA:
Now that you are familiar with both the business models, we will compare dropshipping with FBA in order to determine the one which is more profitable for your business.
The main advantage of the dropship model is that no inventory is required. Additionally, there are quite a few pros and cons of dropshipping which we will look into below.
? No need to invest in physical infrastructure:
In the dropshipping business model, you will be just marketing the products. They will be fulfilled by the suppliers. Thus, you need not to have any physical presence or any kind of physical infrastructure. This will help you in saving a significant amount of money.
? Work done by the supplier:
? Lower risk:
The amount of capital which you will be putting in the dropshipping business is on the lower side; hence the amount of risk will also be on the lower side. As a result, it will become much easier for you to start this business. Also, even if the business is not successful, you will not end up losing a significant amount of money.
? Variety of products on offer:? ? ? ? ??
With the help of dropshipping, you will be able to offer a variety of different products to the customers. Since you will not have to stock of these products, it will be easier for you to offer a large number of options to the customers. This will ensure that you are able to increase the conversion rate as well.
Apart from money-saving, this business model is also time-saving. The dropshipping, as well as the packaging, will be done by the supplier. You will neither need to invest your time for the same nor you will have to invest the effort. This is one of the main reasons why you should opt for dropshipping.
? Business can be operated from any location:
Another huge advantage which you have is that since there is no physical infrastructure required this kind of business can be operated from any location. Marketing has to be done digitally which will just require your computer. As long as you have that, you can work from anywhere around the world without any problems at all.
? Exploring the newer trends:
Since you will not have to tie-up money on the inventory, you can explore the newer e-commerce and shopping trends quite easily. This will help you in staying ahead of the competition always.
? Nimble business model:
Dropshipping does not require you to stick to a particular business niche or a business model. You can easily change the industry or the products as per the requirement. This means that whenever there are newer trends emerging, you will be able to follow them quite easily with the help of a dropshipping business model.
Your business model will be much more nimble which will provide you with an advantage as compared to your competitors.
? No limitations on the platforms where you can sell:
When you follow the dropshipping model, you can use the different marketing platforms as per your convenience. This will ensure that you do not need to worry about any marketing hindrances or guidelines which you have to follow. You will have complete control over the marketing methods which you use.
? Thin profit margins:
One of the main problems which you will encounter with dropshipping is that the margins can be wafer thin. You need to find a good supplier who is willing to provide you with a sizeable discount on the listed price. Only when you are able to do that, you can gain proper margins.
? Higher competition:
The entry barrier in the dropshipping business is on the lower side or almost non-existent. Due to this very reason, the competition which you might face is on the higher side.
? No control over the supply chain:
Once you accept an order from the customer and pass it on to the supplier, you will have no control over the supply chain. This can be quite difficult in cases where the product is not delivered on time or where the product quality is not up to the mark.
Thus, when you are looking to start your own dropshipping business, it is important to look into these pros and cons before taking a final decision.
Amazon FBA ensures that you are able to get a credible platform for selling your products. Moreover, the fulfillment is done in an entirely professional manner by Amazon. You need not worry about shipping or packaging. We will now look into the pros and cons of Amazon affiliate to find out whether it is actually better as compared to dropshipping.
? Goodwill of the platform:
Amazon is a pretty reputed marketplace. That is why, with the help of FBA, you will be able to directly market on a marketplace which is established among the consumers. It is trustworthy as well. Thus, you will be able to use the goodwill of the platform to your advantage.
? Established marketplace:
Unlike dropshipping, you will not have to worry about driving visitors and then converting them. Amazon already has plenty of consumers looking across different product categories each and every hour. That is why; you will have access to an established marketplace. This will in turn significantly reduce the number of efforts which you want to put into marketing.
? Supply chain handled by Amazon:
The entire supply chain is handled by Amazon. This ensures that you are able to easily provide good customer support as well as timely delivery to the consumer. In case of returns as well, Amazon will be able to handle them on its own. Thus, you need not worry about any aspect of the supply chain.
? Higher price point:
Due to the trustworthiness and the credibility of the platform, customers are often ready to pay even more. Moreover, since Amazon provides quick delivery in most of the bigger cities in which it operates, you can be sure that the customers will be ready to pay more in order to get the product quickly as well. This ensures that due to the goodwill as well as prompt and faster delivery, the selling price point of the products will be on the higher side.
? Ready-made backend:
Amazon will provide the sellers with a ready-made backend in order to track the sales as well as the revenue and the profits which they generate. Thus, you will not have to invest separate money in order to create a backend for your business.
? Difficult to manage the inventory:?
When the number of SKUs increase, it becomes very difficult for you to manage the inventory. Since the inventory will be at the Amazon’s warehouse, you will not be able to physically check the inventory. This puzzle gets even murkier when you receive returned products from the customers or defective products from the customers.
? Huge charges of FBA:
Amazon does not provide FBA for free. They charge you a significant amount on the overall selling price. In some cases, it can be as high as 50% of the selling price. You will have to not only pay for the shipping and handling but also the fees on their platform as well. Due to this very reason, the actual profits which you make are pretty minuscule compared to the selling price. In some of the cases, you might incur a loss as well.
? Overdependence on a single platform:
When you?re a part of FBA, you will have to only rely on Amazon in order to sell that inventory. Thus, the dependence on a single platform is pretty huge.
? No direct contacts with the customers:?
When you are a part of FBA in order to sell products, you will not be in direct touch with the customers. Amazon will notify you regarding the basic details of the customers who have placed the order and the product and the selling price. Apart from these few details, you will not have many details to get in touch with the customers.
Thus, if you think that Amazon FBA makes your online selling business, a walk in the park, you?re wrong. You have to look at the pros and cons and thereafter you have to make a decision about the business model which you want to opt for.
So, when you compare dropshipping vs FBA, dropshipping is the clear winner. This is because you need not hold any inventory or invest in a huge amount of capital into your business.?This makes the business much more nimble which allows you to sell according to the emerging trends online.
If however, you are already running a brick and mortar store, then you can surely go for Amazon FBA in order to start selling online. In case, you want to start your online business with minimized risk, you should definitely go with dropshipping.