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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Sept 6, 2022

Global Ecommerce Weekly News: 6th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon announces new inventory and distribution service, AWD Amazon has launched Amazon Warehousing and Distribution (AWD), providing inventory and distribution services to its sellers as a means of addressing current supply chain issues. AWD is now available for sellers using Fulfilment by Amazon (FBA), i.e. outsourcing their fulfilment to the platform. Amazon has plans to expand the service outside the platform in 2023. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/02/amazon-introduces-new-service-to-help-solve-supply-chain-challenges/) Amazon Web Services (AWS) launches in the UAE AWS, Amazon’s cloud-computing platform offering, has launched its second region in the Middle East and now provides its services in the UAE. The move will now allow anyone in the UAE who utilises cloud technologies to harness AWS’s advanced platforms and APIs. An estimated $11 billion USD is expected to be added to the UAE’s GDP thanks to the implementation, with an average of 6,000 external vendor jobs to be created annually. AWS is now available in 87 zones across 27 regions, with sights set on expanding further across Australia, Canada, India, Israel, New Zealand, Spain, and Switzerland. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/30/amazon-web-services-launches-region-in-uae/) --- Other Marketplace News --- Lazada to launch in Europe Alibaba-owned ecommerce platform Lazada is set to launch in Europe, marking a refreshed internationalisation push from the company. The move follows toughening economic conditions and performance in Southeast Asia, advancing the need to tap overseas markets. In Europe, Lazada will face tough competition from giants like Amazon and Zalando. Lazada’s exact entry strategy is to be confirmed and will be reliant on macroeconomic and market conditions, according to Lazada CEO James Dong. [Read more on DigitalCommerce360](https://www.digitalcommerce360.com/2022/09/01/alibabas-lazada-to-take-on-amazon-zalando-in-europe-push/) Chinese ecommerce giant Pinduoduo to launch cross-border platform in the United States Pinduoduo, a Chinese ecommerce giant rivalling Alibaba and JD, has announced it will be launching a new cross-border ecommerce platform. The marketplace is set to launch in the United States next month, as part of the company’s larger push into new markets. Pinduoduo found success in China thanks to its rock-bottom price offerings and harnessing of social commerce marketing, emulating strategies similar to fast-fashion giant Shein. [Read more on Yahoo Finance](https://uk.finance.yahoo.com/news/pinduoduo-launch-international-e-commerce-034129263.html) Alibaba launches its biggest B2B sales event, ‘Super September’ China ecommerce giant, Alibaba, has now launched its month-long B2B sales event ‘Super September’. The event provides 40 million buyers and 200,000 suppliers with the ability to connect on the platform, showcasing a ‘virtually unlimited’ number of products. The event hopes to foster new cross-border business relationships to tackle supply chain challenges currently faced by businesses. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/01/alibaba-launches-super-september-b2b-sales-event/) --- Other Ecommerce News --- Klarna’s losses quadruple in first half of 2022 BNPL provider, Klarna, has reported losses of $581 million USD for the first half of 2022. This figure is almost four times larger than a year earlier, where $129 million USD in losses were reported. The company attributes the losses to employee costs, technology investments, and rising credit losses. Klarna’s figure reporting comes amidst worsening economic conditions, fresh legal and regulatory scrutiny, and pressure from Big Tech competitors. [Read more on The Financial Times](https://www.ft.com/content/483451db-9221-4ca4-83a6-b4ddc6bfcfbb) [Read more on the Guardian](https://www.theguardian.com/business/2022/aug/31/klarna-losses-more-than-triple-as-consumer-spending-slows) One fifth of Snap employees to be laid off amidst poor financial performance Social media platform Snap (‘Snapchat’) has announced it will be laying off 20% of its employees and closing out a number of projects following a year of poor financial results.The move will see 1,200 employees globally lose their jobs, saving the company an estimated $500 million USD in costs. Snap is currently valued at $20 billion, an 84% decrease from its valuation of $130 billion last year. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/01/snap-to-lay-off-20-of-its-workforce-and-wind-down-a-number-of-projects/)
Aug 30, 2022

Global Ecommerce Weekly News: 30th August 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon set to shut down Amazon Care Amazon is closing its telehealth service, Amazon Care, which launched in 2019 as a trial program for its headquartered employees. Later the service was rolled out nationwide for employees and other companies. The ecommerce giant has now made the decision to move away from the healthcare space, believing it was not the right long-term solution for its enterprise customers. [Read more on CNBC](https://www.cnbc.com/2022/08/24/amazon-is-shutting-down-amazon-care-telehealth-service.html) Peloton closes new deal to sell on Amazon Following a recent deal, Amazon customers will soon be able to buy Peloton fitness equipment on the marketplace, marking Peleton’s first move outside a direct-to-consumer model. According to Peloton’s CCO, there are already around half a million searches on Amazon for Peloton products every month, despite having no presence on the marketplace. Some key products include the original Peloton Bike, retailing for $1,445 and Peloton Guide for $295. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/24/peloton-strikes-deal-to-sell-fitness-equipment-on-amazon/) --- Other Marketplace News --- 60% of Malaysians are buying from local sellers on Shopee A recent survey of nearly 3,500 respondents found that nearly half of the shoppers prefer to purchase from local sellers due to shorter delivery times. Other shoppers decide to shop locally due to the quality of the products made in Malaysia and an interest in keeping the economy running. As a result, smaller local merchants have been able to grow their businesses, and shoppers benefit from shorter delivery times, products of high quality and supporting local businesses. [Read more on The Malaysian Reserve](https://themalaysianreserve.com/2022/08/25/around-60-malaysians-are-buying-from-local-sellers-on-shopee/) Flipkart’s social commerce platform Shopsy crosses 100 million users Flipkart launched a social commerce arm, Shopsy, in July of last year, which has now surpassed 100 million users, ahead of its target timeline being the end of 2022. This acquisition of new users has made Shopsy one of the largest platforms of its kind in the country, and is expected to onboard a further 100 million by the end of 2023. The platform is centred around boosting local entrepreneurship and powering ecommerce for consumers across tier 2+ regions where users face challenges around trust and navigation when shopping online. [Read more on Business Standard](https://www.business-standard.com/article/companies/flipkart-s-social-commerce-platform-shopsy-hits-100-million-users-1220828006851.html) Meta joins Amazon and Walmart in bid for Indian ecommerce market Amazon mentioned earlier in the year that it would be building a logistics division in-house through its purchase of a 51% stake in Ecom Express, an end-to-end logistics firm, to make ecommerce deliveries more efficient in the country. Walmart operates Flipkart in India and is set to continue its investment in the marketplace. In an effort to compete in the Indian ecommerce market, Meta has partnered with Indian ecommerce company, JioMart, to offer customers a grocery shopping platform within its WhatsApp chat feature. [Read more on Pymnts](https://www.pymnts.com/news/retail/2022/meta-joins-amazon-walmart-indian-ecommerce-market/) --- Other Ecommerce News --- Ecommerce in Spain worth €57.7 billion in 2021 Spanish ecommerce saw 11.7% growth compared to last year, largely attributed to cross-border sales. In the final quarter of 2021, ecommerce sales in Spain were at €16.9 billion euros, at least 60% of which came from cross-border sales. Transactions from foreign locations to Spain generated a turnover of €1.56 billion in Q4, a growth of 27.7% compared to Q4 a year before. [Read more on Ecommerce News](https://ecommercenews.eu/ecommerce-in-spain-was-worth-e57-7-billion-in-2021/)
Aug 23, 2022

Global Ecommerce Weekly News: 23rd August 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon to add mental health support to primary-care service Amazon is set to move into mental health therapy with its primary-care division, following its recent acquisition deal of One Medical. The plan is to partner with virtual behavioural therapy service, Ginger, to offer its Amazon Care users with on-demand access to mental health services, licensed therapists and psychiatrists. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/11/amazon-plans-to-add-mental-health-support-to-primary-care-service/) GMB union calls for £15 an hour minimum pay at UK Amazon warehouses Amazon recently offered its warehouse workers a 3% pay rise, which in comparison to the June inflation rate of 9.4% left employees disappointed. Following this, hundreds of Amazon warehouse workers stopped work last week, protesting against the minimal pay increase, seeking a minimum of £15 an hour. Recent protests consisting of employee walkouts and sit-ins aim to get a better offer out of Amazon. [Read more on The Guardian](https://www.theguardian.com/technology/2022/aug/09/gmb-calls-for-15-an-hour-minimum-pay-at-amazon-warehouses-in-uk) Amazon third-party sellers have received their first-ever holiday fee hike Amazon’s third-party marketplaces account for close to half of the company’s online sales. The company introduced a 5% fuel and inflation charge to its third-party sellers earlier this year, and has now implemented another inflation increase charge. Commencing 14 October, any seller who uses Amazon’s fulfilment service is subject to the price hike, which is set to be an additional 35 cents per item for products sold in the US and Canada. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/17/amazon-third-party-sellers-have-received-their-first-ever-holiday-fee-hike/) Amazon puts a pause on UK grocery shop roll-out as the cost of living increases Amazon has slowed down on its UK roll-out of till-free Amazon Fresh grocery stores following disappointing sales and the rise in cost of living. Allegedly, the company is no longer looking for potential sites to expand and if more stores are opened, they will likely no longer use a till-free system, as consumers become more cautious about spending. [Read more on The Telegraph](https://www.telegraph.co.uk/business/2022/08/21/amazon-pauses-uk-grocery-shop-roll-out-following-disappointing/) --- Other Marketplace News --- Shopee overtakes Alibaba across international markets Shopee has surpassed Alibaba and taken the top spot for sales outside of China. Singapore-based marketplace saw a year-on-year increase of 51.4% at the end of Q2 of this year, while Alibaba saw a 3% drop during the same time period. This can be seen as a promising development for start-ups and their ability to compete with some of the largest ecommerce giants in the market. [Read more on Exchange Wire](https://www.exchangewire.com/blog/2022/08/18/shopee-surpasses-alibaba-in-international-sales-amazon-searches-for-entertainment-exec/) H&M reopens its official store to Alibaba’s Tmall ecommerce platform It has been nearly 18 months since Alibaba removed H&M from its Tmall platform, following H&M’s criticism of human rights abuses in Xinjiang. It is estimated that over a million people, predominantly minorities in the area, have been unlawfully detained in camps across the city. Brands including Nike, Adidas, Burberry and Converse were swept up in the controversy, however H&M was one of the first to be targeted for speaking out about the issue. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/16/hm-returns-to-alibabas-tmall-platform-16-months-after-xinjiang-controversy/) Klarna launches new feature allowing UK consumers to view full online order history Buy-now-pay-later company, Klarna, has launched a new feature on its shopping app, which allows UK consumers to view their full online order history, regardless of whether they purchased the product using Klarna. The feature also shows delivery tracking and aids consumers in managing their online purchases more conveniently. [Read more on The Industry](https://www.theindustry.fashion/klarna-launches-new-feature-allowing-uk-consumers-to-view-full-online-order-history/) --- Other Ecommerce News --- Online marketplaces responsible for £280 billion business turnover in the UK Nearly 900,000 UK businesses are currently selling on online marketplaces, generating an estimated £282 billion worth of sales each year. This figure represents 6% of the UK’s annual business turnover, highlighting the notable contribution that marketplaces make to the UK economy, along with the potential for further growth in this area. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/09/online-marketplaces-responsible-for-280-billion-business-turnover-in-uk/)