Dropshipping vs Amazon FBA: How to Choose for Your Business

Kevin Lamb

May 21, 2021

Whether you’re new to selling on Amazon or a seasoned pro, it can be challenging to keep up with Amazon’s ever-evolving landscape and make the best decisions possible for your brand’s ecommerce presence. What was best practice 5 years ago may not be now—especially after 2020, the year that catapulted ecommerce 10 years into the future.

One of the most basic yet consequential decisions you’ll need to make as an Amazon seller is whether you’ll fulfill your own orders through dropshipping or rely on Amazon FBA. Even if you’ve made this decision before, Amazon is committing to even faster shipping in 2021, making now the perfect time to reevaluate how you get your product in the hands of your customers.

But what factors should you consider while considering dropshipping vs. FBA, anyway? What makes the two fulfillment options different? And how can you decide which option is best for some or all of your products? We’ve got answers to all your questions below.

What is dropshipping, or Fulfilled by Merchant?

Dropshipping on Amazon is when a brand uses a third-party supplier or its own facilities—not Amazon itself—to fulfill its product orders and handle customer service. Brands that use dropshipping ship products directly from the product manufacturer, warehouse, or facility to the customer. These products never pass through an Amazon fulfillment center. Dropshipping is also referred to as the Fulfilled by Merchant program.

If you choose to fulfill your Amazon orders with dropshipping, you’ll use Amazon’s interface in your warehouse and Amazon will notify you when an order is placed. It’s then up to you to pick, pack, and ship the ordered products to consumers within Amazon’s promised time frame. You’ll also be directly responsible for handling all customer service inquiries and returns.

If you’re trying to sell your dropshipped products through Amazon Prime, your product may need to reach your customer very quickly—we’re talking same-day or 1-day shipping. If you’re not selling through Amazon Prime, you’ll have a bit more time to ship your product, but you’ll miss out on the benefits of offering your products through Prime. In either case, you have the option to purchase product shipping in Amazon’s system to get negotiated rates.

There are many third-party suppliers or fulfillment services that can make dropshipping easier for your brand. Amazon FBA is the gold standard when it comes to fulfillment services, but services like Shopify may be useful if your product isn’t eligible for Amazon FBA or you don’t have the resources to ship your own products.

While dropshipping is perfectly acceptable in most cases, it’s still important to familiarize yourself with Amazon’s dropshipping policy if you choose to go this route. Amazon does not permit dropshipping if the seller purchases products from another online retailer to be sent directly to customers. The shipment also must identify you as the seller of record with no other names or retailers listed on any packing paperwork or the package itself. You must also comply with Amazon’s seller agreement and other policies.

What is Amazon FBA?

Fulfillment by Amazon, or Amazon FBA, is Amazon’s native shipping and fulfillment program. When using FBA, vendors send their products to Amazon’s fulfillment centers. Amazon then takes care of storing, picking, packing, and shipping the products as well as handling customer service.

If you choose to fulfill your orders through Amazon FBA, you’ll first have to add FBA to your Seller Central account. You’ll then create your product listings and prepare your products for shipping based on Amazon’s FBA requirements. You should process each product at the unit of sale level, whether that be case pack or individual, and prep it according to Amazon’s specifications.

In some cases, this preparation step is as simple as printing out a new barcode and covering up the current UPC. It may be slightly more complicated if your product is liquid, sold in a set, or contains loose parts. Ensuring you meet these specifications, and Amazon’s shipping guidelines, will facilitate the process and help you avoid additional fees.

We also recommend that brands identify their products by their Amazon Standard Identification Numbers (ASINs), and not UPCs, before shipping them to Amazon FBA. If you’re selling 3P and use the UPC to identify your product, Amazon will mix your products with any other products with a matching UPC — including counterfeit goods. These fake or counterfeit products may then be sent to customers who order products from your listings. Using your unique ASIN ensures that your inventory stays together in the fulfillment center and separate from lower-quality items.

Once your products are ready for shipment, you’ll send them to one of the more than 100 Amazon fulfillment centers across the country, and Amazon FBA will take it from there, handling all fulfillment and customer service.

What are the pros and cons of dropshipping?

Dropshipping potentially offers benefits for your supply chain, since you don’t have to hold so much inventory designated specifically to Amazon. With all of your product in one place, there’s a lower risk of misallocation.

If it’s important for you to have maximum control of the customer experience, dropshipping may be the best option. Your product passes through fewer hands and is shipped fewer times, skipping steps that could add unnecessary wear-and-tear to your packaging and product. Dropshipping also lets you control the environment your product is held in instead of being at the mercy of Amazon warehouses, which aren’t the ideal environment for every product.

Shipping your product to Amazon through the FBA program also may create risks from an inventory management perspective. In preparation for the winter holidays, for example, Amazon’s supply chain is burdened, and fulfillment centers tend to slow down on receiving inbounding products. Your availability to your consumer may be impacted because Amazon can’t receive inventory fast enough to keep up with the holiday demand. You can avoid these risks by keeping and shipping your own inventory through dropshipping.

The biggest drawback of dropshipping your Amazon products is the ever-increasing difficulty and cost of competing with Amazon’s shipping speed. Amazon is currently working toward guaranteeing one-day shipping for its orders, and in the future, it’s likely that same-day shipping will become the norm.

When selling on Amazon, you’re bound by Amazon’s promise—meaning your product must reach your customer by the guaranteed date and time that Amazon dictates. If you don’t meet this guarantee, Amazon will revoke your permissions to participate in the dropshipping program.

Amazon’s promised delivery date is only getting more difficult to fulfill through dropshipping as shipping times move to one and same-day delivery. Your ability to dropship Amazon products from your facility to every customer in the country with one or same-day shipping is either impossible or extremely expensive. Brands need to ask themselves if they’re willing to keep up with the Amazon logistics system or if they can find a partner that can handle the extensive warehousing needs necessary to compete with Amazon FBA.

What are the pros and cons of FBA?

One of the most significant benefits of using FBA over dropshipping is that Amazon can offer Prime for all of your FBA products. This puts your product in front of more consumers, increases your product rankings, and provides your customers with the very appealing options of one or same-day shipping. Ultimately, this increased exposure can help you make more sales and decrease your Amazon Advertising Cost of Sales (ACoS) in your Amazon advertising campaigns.

Using FBA may also simplify the logistics for your company. After you’ve packed and shipped your product to Amazon, you don’t have to worry about fulfilling orders or keeping up with fast shipping demands. The packing and addressing will be done in Amazon’s warehouse for you. Amazon will also handle your customer service, giving your customers access to 24/7 support and freeing up time for your ecommerce team. If you choose to dropship your products, all customer service demands will be on your shoulders.

FBA also opens doors to programs only available for FBA brands, including Subscribe & Save, FBA Small and Light, and FBA Export. Subscribe & Save lets customers sign up for recurring product purchases and is only available to brands with an FBA account in good standing. FBA Small and Light offers discounted shipping for eligible products. FBA Export helps expand your products to international markets at no extra cost to you.

The biggest cost of using FBA is the input cost required to successfully ship your products to fulfillment centers. You may need to send some of your products to one fulfillment center and some to another, making the process complicated and tedious. If you package or ship an item incorrectly, Amazon may charge you per unit or dispose of the item completely.

Once your products have safely arrived at the correct fulfillment center, it requires even more capital for Amazon to pick, pack, and ship your products. Since Amazon’s costs are fairly efficient, your facility would have to be somewhat large-scale to compete with Amazon’s prices, but it’s still an important factor to consider.

Some products are also not well-suited for the FBA program, as we’ll explain in more detail below, forcing some products into dropshipping.

How can I choose which fulfillment method is best for my business?

The most important question you can ask yourself when deciding between dropshipping and FBA is this: Do I want to compete with Amazon or do I want to partner with Amazon?

If you choose to pick, pack, and ship your product yourself by dropshipping, it’s going to be a constant uphill battle to compete with Amazon FBA’s logistical capabilities. In most cases, it’s simply too expensive and demanding to ship your products at the speed Amazon requires. That’s why we generally recommend brands who are deciding between the two partner with FBA when possible and logical.

Having said that, there are some cases in which the dropshipping model may be the best option for your brand. FBA prohibits many products, including alcoholic drinks, vehicle tires, gift cards and gift certificates, and products with non-Amazon stickers. Amazon fulfillment centers also don’t have refrigeration capability, which forces products that need refrigeration to be dropshipped. Furthermore, Amazon only accepts meltable inventory from October 16 to April 14 since fulfillment centers get hot during the summer.

There are other products that FBA doesn’t strictly prohibit but may make more sense to dropship, including products that you’d rather not ship more times than necessary, like a large cooler. It’s unnecessarily expensive to ship a cooler to an Amazon fulfillment center and then again from the fulfillment center to your customers. In this case, and other cases like it, it may be more economical to ship your product directly from your warehouse to your customer.

For luxury brands or other expensive products, the benefits of dropshipping may also outweigh the costs. Customers don’t typically buy expensive luxury products on a whim. This makes the Prime badge less necessary—customers are more likely to be content with longer shipping times for an expensive, well-researched product like a laptop than for an inexpensive impulse purchase like a pack of gum. Still, one-day shipping is such a competitive advantage that even expensive or luxury items will likely see increased sales with the addition of the Prime badge on the product listing. Quick and easy shipping backed by a name that customers trust is a benefit that shouldn’t be overlooked lightly, regardless of how expensive your product might be.

What are the other options?

The choice of dropshipping vs. FBA isn’t always a straightforward one. Generally, FBA seems worth the cost and is becoming increasingly difficult to compete with as Amazon commits to even faster shipping. But some brands may still choose to fulfill orders through dropshipping based on personal preferences or product needs.

To make the decision for your brand, you’ll need to take a good look at your own shipping capabilities, whether your products qualify for the FBA program, and how important fast shipping may be for your customer base.

But are there any other options? Yes! Choosing to work with a partner like Pattern allows your brand to choose between dropshipping and fba with added bonuses. While dropshipping generally means the products go from your warehouse to your customers, dropshipping with Pattern can mean products go from our warehouse to your customers, at a much better rate. (In fact, we pay you!)

Pattern can help with inventory management, shipping fulfillment, or ensuring your products are correctly labeled for FBA. On top of that, Pattern can build on your marketing strategy, helping to optimize your listings, advertising, and sales!

Work with Pattern

Still having trouble deciding which route to take? Our highly qualified team can help with everything from crafting an engaging storefront to creating an ideal Amazon Marketing Services (AMS) strategy. Contact us today for a free demo or for help deciding the best option for your brand. We’d love to show you how we can take your brand’s ecommerce strategy to the next level.

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Amazon's Sponsored Product ads
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What Are Amazon’s Advertising Products? Sponsored Product, Brand, & Display Ads

What Are Amazon’s Advertising Products? Sponsored Product, Brand, & Display Ads

Utilizing Amazon sponsored ads can be a smart way for a brand to drive greater traffic to a product listing and start increasing sales. While many brands still struggle to manage their advertising strategies, 30% of Amazon brand sellers increased their advertising budgets in 2022. As ecommerce executives (or even on the nose with VPs of ecommerce?)  approve their 2023 advertising budgets, it may be worth it to take a look at Amazon’s advertising products and the benefit they may have on increasing conversions. 

​​Pattern is the premier ecommerce accelerator with all of the expertise, data-driven insights, and technology brands need to gain control on Amazon and maintain their competitive niche. We know the high value of and how to utilize Amazon’s advertising products to drive the most traffic and conversions to benefit and accelerate your brand.

Here are Amazon’s three main advertising products you should know about in order to drive listing traffic to your products and increase conversions: 

For a brand executive who is selling their product on Amazon, you may not already know the differences between campaign type, so we will walk you through the differences and uses for each of these three ad campaigns.

Sponsored Product Ads

Sponsored Products are a mid-funnel advertising strategy that gives visibility to products above the top organic listings (see example below). This strategy uses custom keywords to get products in front of the consumers who are searching for them, however it can be used to capture new audiences as well.These cost-per-click (CPC) ads require no additional copy or images, but usually receive the most interaction of the campaigns and need to be monitored closely.

As you can see, these ads look just like an organic listing, however they say, “Sponsored,” on them. These types of ads can be especially effective forms of advertising because they tend to blend in with the organic results around them. With Sponsored Products, you can get your products in front of qualified customers who are searching for your product in such a way that doesn’t make them feel like they are being served an advertisement.

Sponsored Brand Ads

Sponsored Brand Ads are a top-of-funnel brand awareness tool and function on keywords. This ad format helps show a customer what they may be in need of and where to get it.  Commonly used to promote product lines or best sellers, a Sponsored Brand ad shows up as a banner above the search results (see example below). This type of ad requires that the brand showcase at least three separate products.

Unlike other campaigns used on the Amazon platform, Sponsored Brand ads require ad copy and a unique logo. These ads also can take customers to a custom landing page, or a page on the brand store, that way they get a clear and overall picture about who your brand is, what other products you sell, and why they can trust your brand

Sponsored Display Ads

Sponsored Display ads can be a tactic for top, middle, or bottom of the advertising funnel due to its varying targeting abilities. Although most commonly found under the bullet points of a detail page, these ads can also show in emails, newsletters, and even more locations off platform.

Unlike the previous ad campaigns discussed, sponsored display ads can target shopping behaviors, like repeat purchasers, similar product purchasers, and even people who viewed the detail page but did not buy. Sponsored Display ads help customers discover your brand, drive awareness, and create loyalty. 

The example above shows just one of the many placements Sponsored Display has.

Accelerate Your Sponsored Products With Pattern 

Rather than competing with each other, each of the three sponsored ad products focus on a different section of the sales funnel, allowing you to target your customers and hit your sales numbers, all while edging out possible competitors. When brands use these advertising campaigns, they can better optimize their ad budget to improve ROAS and build revenue. 

At Pattern, we have all the resources to help your brand build successful advertising and digital marketing campaigns on Amazon so you can increase traffic and conversions, which will in turn increase your revenue

Global Ecommerce Weekly News: 27th September 2022
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Global Ecommerce Weekly News: 27th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon drives renewable energy push with 71 new projects Amazon is planning to add 2.7 gigawatts of clean energy capacity through a couple of new projects as the company attempts to use 100% renewable energy by 2025. The ecommerce business will soon have a total of 329 renewable energy projects, generating 50,000 gigawatt hours of clean energy, which is equivalent to powering 4.6 million US homes every year. [Read more on Reuters](https://www.reuters.com/business/sustainable-business/amazon-drives-renewable-energy-push-with-71-new-projects-2022-09-21/) Amazon launches Prime Early Access Sale Amazon is launching a new 2-day shopping event for its Prime members only, beginning on the 11th of October. Across 15 countries, Prime customers will have access to the shopping event, with thousands of deals on offer globall, ranging from fashion to electronics to essentials. The event has the purpose of giving Prime users the chance to spread the cost of items over the winter months, 6 weeks ahead of Black Friday. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/26/prime-early-access-sale/) --- Other Marketplace News --- Shopify unveils new localisation tool Shopify is launching a new localisation tool, called Translate & Adapt, which works with Shopify Markets to offer localisation for sellers who are looking to expand into new markets. The tool translates a user’s online store into different languages, including product pages and information pages. Merchants are also able to create different shipping terms for each market using the new tool, which allows international expansion and offers a more localised consumer experience, unveiling new potential. [Read more on Ecommerce News](https://ecommercenews.eu/shopify-launches-new-localisation-tool/) Etsy is set to invest hundreds of millions into its marketing platform Etsy CEO claims that the company is on route to spend more than $570 million USD on marketing this year. Even during a time of macroeconomic pressure, inflation and rising interest rates, the company is preparing itself and its sellers for the upcoming holiday season and is focused on retaining interest from buyers. [Read more on Yahoo News](https://uk.news.yahoo.com/etsy-600-million-on-marketing-ceo-154054219.html) --- Other Ecommerce News --- Meta looks to cut costs by 10% in the coming months Meta employees are facing job redundancies as the company plans to cut its costs by 10% over the next few months. Meta reported a 22% YoY increase in costs and expenses, totalling over $20 billion USD. The cuts are expected to come in the form of job redundancies as a result of department reorganisations rather than formal layoffs. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/22/meta-to-slash-costs-by-10-over-coming-months/) DHL teams up with Quadient to offer smart locker deliveries in the UK DHL and tech company, Quadient, have partnered to offer smart lockers parcel pick-up throughout the UK. The new contactless, secure locker stations will give recipients more choice and flexibility to receive their parcels at a time and location best suited to them. The partnership plans to install 500 locker stations across the country by the end of 2022. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/21/dhl-partners-with-quadient-to-offer-smart-locker-delivery/) The online fashion market is set to be worth nearly $170 billion USD in 2025 The European online fashion retail market is set to grow 50% by 2025, with an online turnover of $170 billion USD, which is 33% of the retail branch’s total. Cross-border marketplaces prove to be the largest drivers of this growth, with online websites and apps like Vinted largely pushing the market’s online growth. Zalando recently became the largest cross-border fashion retailer/marketplace, responsible for 11.7% of the online market’s share. [Read more on Ecommerce News](https://ecommercenews.eu/online-fashion-market-worth-e175-billion-in-2025/)

Top 5 Ways to Prepare for Peak with Google Ads
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Top 5 Ways to Prepare for Peak with Google Ads

Peak season is almost upon us and with all signs pointing to it starting earlier than ever, with Christmas gifting searches now ramping up in August and September, it’s time to start preparing for peak. In this article, we’re sharing our top five tips for planning and preparing for peak season with Google Ads and the strategies required to get your Paid Search ready so you can drive success over this crucial period.

1. Go Early

In 2021, gifting search terms started increasing in popularity in August. The general trend is that people are looking, researching and weighing their options early, so it’s best to start your Paid activity early to ensure that you’re capturing that early research traffic. This will help drive revenue alongside aiding those consumers who are in their research phase.

From 2020 to 2021, spend during Cyber Week actually only rose 2% but in the weeks leading up to it, it increased by 16%. However, Cyber Week is still the biggest period during the latter half of the year, accounting for 23% of all online spend by consumers over peak. Being prepared and starting early will help you to maximise your time during this period.

2. Get Ready for Privacy Changes

 According to Google, 48% of global consumers have stopped buying or using a service due to privacy concerns. Privacy is front of mind when consumers are shopping online and we know that Google is phasing out 3rd party cookies in 2023. This is going to make it much harder to track users online and it’s something that brands need to think about this now – waiting isn’t an option.

From a Google Ads point of view, you want to ensure you have set up the Google Ads tag across your site and have enabled ‘Enhanced Conversions’, which ensures all conversions are tracked and allows you to monitor other actions such as ‘Add to Cart.’ This is relatively easy to set up, especially if you use ‘Google Tag Manager’.

It’s also vitally important that you build up your first-party data during this time as this is data you own and it can be used when targeting consumers that have provided your brand with their email address. Pattern’s own experience shows that by segmenting and using first-party data, you can see a 10% improvement in revenue and ROI.

3. Ensure Consumers Can Discover your Brand

A full-funnel approach is now more important than ever as consumers become more discerning and have more choices than ever of where to shop.

Pattern has seen success with Google Ads’ ‘Discovery Campaigns’ (image-based ads that appear on Google platforms such as Gmail and the Google app), which have driven success both from a traffic and revenue perspective.

The performance of these campaigns is significantly enhanced by adopting a segmented and nuanced approach to first-party data and incorporating these into your campaigns. Other options for a full-funnel approach include YouTube and testing bidding on keywords that are more representative of the research phase. (e.g. ‘best baby clothes’ for a baby clothes brand)

4. Get Moving with Performance Max

Earlier this year, Google announced that they were moving away from Smart Shopping and launched Performance Max. This is a new campaign type that incorporates features and placements from Smart Shopping but expands them onto other platforms such as Gmail but also alternative creative options, such as images and videos.

Since Google has already started automatically upgrading Smart Shopping campaigns to Performance Max, expect to see some fluctuations in the first 2 weeks following the switch over but results generally seem positive. We recommend upgrading sooner rather than later to limit any potential impact to peak period.

5. Flight Budgets Accordingly

Peak period will be even more competitive than in 2021 and you’ll need your budgets to support this period, we recommend boosting budgets in October to start capturing that early peak traffic. As we enter November and the Cyber Period, start early and make sure you are capturing those consumers looking for early bargains, ensuring you are being nimble in your optimisations and reacting to the data that you are seeing.

Overall, peak period is vital to help drive your sales and by preparing early, you will see strong results and drive success for your brand. If you want to discuss how your brand can navigate this next peak period, contact us to discuss your options with our performance team now.