You’re probably familiar with some Amazon business models such as private label, retail, and online arbitrage. But, today we’re going to focus on Amazon Dropshipping.
About 10% of sellers run an Amazon dropshipping business, according to JungleScout. This means that brands rely on a third-party ally to fulfill customer deliveries.
It may not be a significant percentage. Yet, that doesn’t mean you should discard dropshipping as a profitable business model.
Today, we dive into the pros and cons of dropshipping. You’ll learn about its pros and cons, and how it can help you improve your Amazon sales.
What is Amazon Dropshipping?
Dropshipping is about letting a third-party fulfill your orders. As a seller, you only upload your products. From then on, the wholesaler, supplier, or manufacturer handles deliveries.
Amazon Dropshipping is the go-to model for Fulfillment by Merchant (FBM) sellers. That’s because FBM sellers have full control of supply and logistics.
By adopting such a model, brands are free from dealing with storage and fulfillment. You take care of selling, and the supplier handles everything else.
The Costs of Dropshipping on Amazon
Dropshipping is a great way to start off your Amazon store without busting the bank. The first key fee would be your Amazon seller plan:
- The individual plan is free to set up. Then, Amazon will collect $0.99 for every item that you sell.
- The Pro plan does not charge unit fees. You’ll only pay a $39.99 monthly fee for all your selling privileges.
Now, Amazon dropshipping fees range between 10%-15% depending on item categories. As for profitability, the percentage margins fall between 10%-30%.
Also, note that Amazon will collect 15% off of the top-line revenue. So, if your margins are at 30%, the marketplace takes a 15% chunk out of each sale. The remaining profit goes to your account.
Considering Amazon’s huge audience, the final dropshipping revenue is not bad at all.
Related content: How to Value your Amazon Dropshipping Business
How to Start a Dropshipping Business on Amazon
We’ve reviewed the general pointers about dropshipping. Now, let’s take a look at how to start dropshipping on Amazon.
First, set up your individual or professional seller account.
Then, you should do the following:
Research Suitable Products
The marketplace features over 30 product categories. You can select any that fits your brand and market base. We recommend using an Amazon product research tool to make things easier.
Here are some pointers to select profitable offers:
- Go for niche items with year-long market demand.
- Your products should also have low competition from other sellers.
- Take on highly marketable products, so you can boost conversions off Amazon.
- Stick to a $20-$35 pricing to collect a fair profit margin.
Related Content: How to Research Products on Amazon
Partner Up with a Trustworthy Supplier
Suppliers are your biggest allies in dropshipping. As you take care of sales and marketing, they’ll handle logistics, shipping, and delivery.
Here are a few useful channels to search for the best dropshippers in the market:
- AliExpress. This marketplace focuses on business-to-business sales. Here, sellers can get in touch with suppliers ready to dropship their stock.
- Web search. Once you find a product to sell, find out who can supply it. Then, go to their webpage to know more about them. This is also a great way to establish contact and begin negotiations.
- Trade Shows. Attend a few trade shows where you can meet suppliers face to face. It’s not as quick as a web search, but you’ll benefit from the personal touch.
It’s crucial that you vet all potential suppliers before committing to a partnership. Find out all you can about their working practices. For example quality control, stock management, shipping process, and payment options.
Also, try to get a letter of authentication once you set a deal. This is to let Amazon know that you are allowed to dropship from your chosen supplier.
Set Up Your Listings on Amazon
The last step is to upload your products to Amazon. Here are the ingredients to a great listing on Amazon:
- Detailed title and description that highlight the items’ main specs and features.
- High-quality images that convey the product’s benefits.
- Relevant keywords that boost your listing on the search ranks.
- Positive customer reviews, that convince new users of your product’s quality.
Related content: How to Write Winning Product Listings
Once a customer makes a purchase, you contact the supplier and do the following:
- Compensate the supplier with a percentage of the sale.
- Provide the buyer’s shipping details to the supplier.
- Let the supplier pack, ship, and deliver the order.
Heed the Amazon Dropshipping Policy
Before you kick off, it’s key to understand the Amazon dropshipping policy:
- Always state to customers that you are the seller of record.
- Have the supplier identify you as the authentic seller in all product-related info. For example, invoices, packing slips, or external packages.
- Eliminate any mention of a third-party brand or supplier from all product-related info.
- Take responsibility for all product returns, from acceptance to processing.
- Comply with Amazon’s terms and policies of your seller agreement.
In short, always ensure that you are noted as the seller of record. Plus, make sure that customers can’t tell when a package is drop shipped.
And never dropship products bought from another retailer, such as eBay or Walmart. That’s a big violation of Amazon’s policies.
The Pros and Cons of Amazon Dropshipping
We’ve seen the perks of Amazon dropshipping. But this selling model is not without its setbacks. Let’s compare the pros and cons of dropshipping on Amazon:
Pros for Dropshipping on Amazon
Easy to set up. You can start dropshipping with very low upfront costs. Just create your Amazon account, search for quality and profitable items, and find a reliable supplier to work with. Then, start selling!
Storage space. Dropshipping frees you up from keeping inventory and permanent warehouses. You’ll cut down on overhead costs, such as shortage fees and shipping logistics.
Automated & mobile. There’s no need to stay in a single location to run your dropshipping business. For example, you can manage your Amazon store from the mobile app, and set up supplier notifications for every customer order.
Scalability. Experiment with selling different product types from your supplier. This is a great way to find unique market niches, without increasing logistic costs.
Cons for Dropshipping on Amazon
Branding. Products may lack unique branding highlights, which makes it harder to stand out from the crowd. This could translate to low-profit margins, due to competitors offering similar items.
Competition. Although not many Amazon sellers use it, dropshipping is still a competitive field. This is due to the low startup costs. Plus, variable pricings from other sellers may cut into your profits.
Quality control. The seller is out of the fulfillment and inspection processes. Thus, you can’t make sure that product packing and shipping are handled properly. That means buyers may receive late orders or even damaged products. This could lead to negative customer reviews.
Supplier dependence. Stock, shipping, and delivery times depend on the supplier. You’ll have little say on logistics. So, if the supplier makes an error, your brand will take on the consequences.
Related content: Amazon 1P vs 3P Selling Models
Amazon holds strict rules about the products you can store in the warehouse. But dropshipping can let you work around this.
Dropshipping lets you expand your catalog with exclusive offers. Such items may have a low sales rate, but you can always target them to a niche customer base
So, is Amazon dropshipping worth your time? Yes, as long as it works as a complement to your main business model, and you have complete trust in your suppliers.
With your sales expertise and worthy allies backing you, dropshipping will free you from inventory fees. Plus, your customers will still receive quality products at their doorsteps.
Esteban Muñoz is a content writer at AMZ Advisers, with several years’ experience in digital marketing and e-commerce. Esteban and the AMZ Advisers team have been able to achieve incredible growth on Amazon for their clients by optimizing and managing their accounts, and creating in-depth content marketing strategies.