May 21, 2021

Dropshipping vs Amazon FBA: How to Choose for Your Business

By Kevin Lamb / Logistics & Fulfillment, Marketplace Management, Brand Protection

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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