If you're looking for your next income stream, dropshipping on Amazon is a popular consideration for many entrepreneurs.
With over 300 million active users and billions of dollars in sales each quarter, Amazon is the largest and most dominating online marketplace in the world. By utilizing the power of this platform, you can start your online store without having to handle inventory or worry about the physicality of shipping logistics.
To decide if Amazon dropshipping is the right fit for you, it's essential to understand what it is and how it works. Whether you're just starting to selling online or looking for ways to expand your current business, this guide provides valuable insights, tips, and strategies.
What is Dropshipping?
Dropshipping is an e-commerce business model where a retailer (you) sells products to customers without physically handling the inventory. Instead, you partner with a supplier who handles all the product sourcing, storage, packaging, and shipping of products to sell directly to your customers.
As an Amazon dropshipper, you don't need to worry about carrying inventory or managing the fulfillment process. This allows for lower startup costs and less risk, making it an appealing option for many entrepreneurs.
How Dropshipping Works on Amazon
A few primary people and companies are involved in a dropshipping business model. At the top is Amazon, the online marketplace where you will sell your products. The next layer comprises suppliers who hold the inventory and fulfill orders for your customers. It can be one company you work directly with, or you might work with a wholesaler who sources products from various suppliers.
As the retailer, also known as the merchant, seller, or brand, you are responsible for creating product listings on Amazon and marketing your products to potential customers. When someone makes a purchase, you pass the order to your supplier, who then ships the product directly to the customer.
Does Amazon Officially Allow Dropshipping?
Yes, Amazon officially allows dropshipping, but specific rules and guidelines must be followed. In their Dropshipping Policy, Amazon states that as long as you are the seller on record for all products sold on your account, you can use dropshipping to sell online. It means you are responsible for the product listings, packaging free of any third-party data, customer service, and any returns or refunds.
You must also adhere to Amazon's policies and procedures, such as providing accurate shipping information and having a return address in the same country as your marketplace account. Violating these rules can result in account suspension, so you must familiarize yourself with Amazon's policies before starting your dropshipping business.
Amazon Dropshipping vs. FBA: Are They The Same?
In addition to dropshipping, Amazon also offers a program called Fulfillment by Amazon (FBA). You can send inventory to Amazon's fulfillment centers, and they will handle the shipping and customer service for you. This is often seen as a more hands-off approach than dropshipping, as Amazon handles all logistics (shipping, customer service, returns, etc.) and storage.
However, FBA does require more upfront costs, such as purchasing inventory from wholesale suppliers in bulk and paying for storage and fulfillment fees. Dropshipping, on the other hand, has lower startup costs as you only pay for products after they have sold.
FBA does offer the advantage of removing the middleman (supplier), resulting in faster shipping times and potentially higher profit margins. It also gives a seller more control over product quality and customer loyalty.
Pro Tip: Some dropshippers will offer a combo of offerings, with some faster-moving products fulfilled by FBA. Then, their slower-moving products are fulfilled by a third-party supplier and dropshipped so that they can cover certain products within their brand.
Pros and Cons of Amazon Dropshipping
As with any business model, there are general advantages and disadvantages to Amazon and dropshipping.
- Low startup costs: With no brick-and-mortar storefront, inventory, or warehouse space, you can start your business with minimal investment. You don’t even need your own website if you don’t want one.
- Easy to start: Setting up an Amazon seller account is quick and straightforward.
- Broad reach: With millions of active users on Amazon, you have access to a large pool of potential customers. This contrasts popular e-commerce sites like Shopify or Sam Cart, which will require a bigger marketing budget and strategy.
- Flexible location: As long as you have an internet connection, you can run your dropshipping business from anywhere in the world.
- Low margins: Since you are not manufacturing or purchasing products in bulk and have less control over shipping costs, your profit margin may be lower than other business models.
- Limited control over inventory: You rely on your suppliers for product sourcing to fulfill orders correctly and on time, which can lead to issues if they make mistakes or run out of stock.
- Competition: Amazon is a highly competitive marketplace, so it can be challenging to stand out amongst other sellers in your niche, affecting profit margins.
- Fulfillment challenges: If your supplier does not have efficient fulfillment processes, it can result in longer shipping times and customer dissatisfaction.
- Difficulty building a brand with loyal customers: With drop shipping, you may not have much control over the quality of your products or packaging, making it challenging to build a consistent brand and loyal customer base.
How to Get Started with Amazon Dropshipping
If you're ready to jump in head first, here are the exact steps to follow.
- Choose a Niche: The first step to starting your Amazon dropshipping business is choosing what products you want to sell. Finding a niche that is in demand but not too competitive is essential to succeed. While you can sell practically anything, it's best to specialize in a particular niche to stand out and attract customers (at least to start).
- Find Suppliers: Once you have settled on a niche, it's time to find suppliers who offer the products you want to sell. You can source suppliers through various methods, such as using online directories or attending trade shows and conferences. You will want to vet your suppliers, ensuring they can follow through and are trustworthy. If they have experience with Amazon dropshipping, with companies like Salehoo, this can be a big bonus.
- Set Up Your Amazon Seller Account: Next, you must set up an account on Amazon's seller platform. This is where you will create your product listings and manage your business. You must also decide on your fulfillment method, whether through FBA or dropshipping.
- Create Product Listings: Once your supplier and account are set up, it's time to start creating your product listings. You'll want to optimize your listings with high-quality images, keywords, and detailed descriptions to attract potential customers.
- Start Selling: With everything in place, it's time to start selling! Monitor your sales and adjust as needed to improve performance and keep up with market trends.
- Market your Products: You will likely need to market your products actively to stand out amongst competitors. Marketing options include social media advertising, influencer partnerships, and utilizing Amazon's sponsored product ads.
- Have a Plan in Place for Customer Satisfaction: Once you have your first few sales, it's crucial to have a plan to handle any issues that may come up. This can include dealing with returns and refunds, addressing customer complaints, and ensuring timely shipping.
How Much Does It Cost to Dropship on Amazon?
The cost of dropshipping on Amazon can vary depending on the products you choose to sell and your chosen fulfillment method. There are two types of accounts available on Amazon:
- Individual ($0.99 per item sold), best for those just starting
- Professional ($39.99 per month), which is more cost-effective for those selling a high volume of products
Tips for Success with Amazon Dropshipping
Anyone can start a dripshipping business with relative ease; success comes from being strategic and informed. Here are a few tips to increase your chances of success with Amazon dropshipping:
- Choose Your Products Wisely: Research demand and competition in your chosen niche before selling specific products. It will help you avoid oversaturated markets and low-profit margins.
- Build Relationships with Suppliers: Good relationships can lead to better pricing, faster shipping times, and higher-quality products.
- Build a Trusted Brand: While dropshipping can be challenging to build a brand, it's not impossible. Focus on creating consistent branding and providing excellent customer service to build customer trust and encourage repeat sales and 5-star reviews.
- Utilize Amazon's Tools: Take advantage of Amazon's data and insights to stay informed about your sales and the market.
- Stay on Top of Trends: Keep an eye out for trends in your niche and be ready to adapt quickly. Regularly updating product listings with relevant keywords and images to stay relevant.
- Prioritize Customer Satisfaction: Happy customers are vital to the success of any business. Be sure to provide excellent customer service and have a plan to address any issues that may arise.
Amazon Dropshipping FAQ
Below are frequently asked questions when considering this new venture.
What should I look for in a supplier?
When searching for a supplier, consider factors such as reputation, experience with dropshipping, product quality and variety, pricing, and shipping times. It's also helpful to look for suppliers that have worked with Amazon sellers.
Is dropshipping right for me?
Dropshipping can be a great business model for those looking to start an online business with low startup costs and minimal risk. However, it's essential to research and understand the potential challenges, taxes, and responsibilities that come with it before diving in.
What is a good target profit margin?
The ideal profit margin can vary depending on your niche and products, but generally, a 20-30% margin is considered suitable for dropshipping. Calculating all costs associated with selling and fulfilling the product is essential to determine a reasonable price point.
What are alternatives to dropshipping?
Alternative business models to drop shipping on Amazon include traditional retail/wholesale, private labeling, and creating your brand and selling directly to consumers. If you want to tap into Amazon's market differently, consider Fulfilled by Amazon (FBA), as discussed above, or affiliate marketing.
Each model has its advantages and disadvantages, so it's essential to carefully consider which one aligns best with your goals and resources.
How much money do I need to get started?
The amount of money needed to start dropshipping on Amazon can vary depending on the products you choose to sell and your fulfillment method selected. You must pay Amazon fees for basic drop shipping and be ready for potential refund fees.
However, additional costs may be involved if you choose to use FBA or other advertising methods. It's essential to carefully consider all expenses before starting your business.
Dropshipping on Amazon can be a great way to start an online business with minimal startup costs, but it's essential to plan and budget accordingly.
Amazon Dropshipping as an Income Generator
Overall, using Amazon to drop ship is a viable option for generating income. Whether you’re looking for a side hustle or full-time income, the right due diligence can get you there.