Amazon FBA and dropshipping are two are great online business models. But which one makes the most money? Find out in the article below.
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You’ve read about Amazon FBA. Eyeballed all the videos about Dropshipping. But now it’s time to decide what business to start and which one to ditch. But the only thing is, you can’t!
This article will help you come to a decision by comparing the characteristics of Amazon FBA and Dropshipping as business models. By the end of this article, you’ll know things like what model makes the most money, which the cheapest to start, and which is the most passive.
Let’s get started.
Question 1: Which model is cheaper to start?
A major benefit of the dropshipping model is that you don’t have to purchase any inventory in-advance. It’s only after the customer has bought them that you purchase the item from your supplier.
In addition, the fulfilment costs are low (usually $10 an item), which means you don’t need a lot of cash-on hand to make sales.
Instead, your main expenses come from your online store and advertising. On average, it’ll cost you $45 to build a store and buy domain with Shopify. And advertising will cost you around $20 per product to test through a Facebook ad.
Amazon FBA on the other hand requires you to purchase the products you are private labelling in bulk, which means you have much higher upfront costs. On average, it’ll cost you around $1,000 minimum to start and launch an average Amazon FBA business.
Question 2: Which model is the most passive?
Once you have built a dropshipping store, you still need to be on the job with daily tasks.
You are still required to fulfil customer orders, respond to customer emails, and monitor your ad campaigns. There’s still a lot of manual processes involved, and these aren’t even all of the tasks you are required to do!
To save time, most dropshippers outsource these small tasks to virtual assistants sites like Upwork. But this will cost money, which at the beginning, isn’t exactly something you have in abundance. And so it is likely you will be wearing all the hats at the start.
With Amazon FBA private labelling, all of the work is up front. That includes product research, manufacturing the product, and preparing for your launch. Once your products has been shipped into the Amazon FBA warehouse, they take care of most of the work for you, including fulfilment. And this is what makes it so passive.
All that is required is to monitor your inventory level so that you know when to restock. And if you spend money on advertising, you’ll need to monitor your ads performance. But overall an Amazon business is very low maintenance compared to Dropshipping.
Question 3: What makes the most money?
Dropshipping has the power to scale big and fast. No inventory allows you to test several products in a short space of time. And makes it easy to quickly find winning products that can, in the long-term, bring huge returns in profit.
In addition, there is more flexibility in how you market the products in your store. Strategies like upsells, cross-sells and email marketing can dramatically increase your profit margins. And these transactions all occur after the initial sale.
Amazon FBA takes longer to scale. First, you need to manufacture your inventory in-advance. And second, without the ability to test products, there’s no guarantee your product will successfully sell before it reaches the market.
In addition, you are limited in how you market to customers. Remember: they are Amazon’s customers, not yours. Restricted access to customers means you lose the ability to remarket to customers who previously purchased from you. And this can be a disadvantage compared to Dropshipping because of how profitable remarketing is.
Question 4: Which has the least risk?
Part of being successful in dropshipping is testing a lot of different products until you find a winner. But in your quest to find a winner is the risk of losing money, as not every product is going to be a winner.
The general rule of thumb is that for every twenty products you test, you’ll find one winning item. But again, there are no guarantees. If you’re lucky it may only take four products to test. While on the other hand, you may even have to test over twenty products before you find a winner.
With Amazon FBA, you choose a product to sell based on market research. Thanks to tools like Jungle Scout, you can gain real-time insights about a product on Amazon i.e. sales, sales rank, competition etc.
Based on this data, you choose a product to private label and sell on Amazon. Given you did the proper research, your product should successfully sell in the marketplace.
But again, like Dropshipping, there are no guarantees. And there is also the chance your product does not sell the way you thought it would, so you end up losing money. And being stuck with useless inventory you now need to find out how to get rid of!
Question 5: Which is the best for free traffic?
When dropshipping in your own store, you can take advantage of free search engine optimization (SEO) traffic. However, SEO is slow and takes a long time for Google to rise your listing to the top of the search results. For competitive keywords, you will also need to spend time and money on backlinks; something which is quite tricky for the average beginner.
Unlike Google, Amazon’s search engine puts you in front of people who want to buy something. They type into the search bar with an intention to buy, not research. This ongoing stream of buyer traffic allows you to make A LOT of sales in a shorter space of time, given you know how to rank high in the search results.
Question 6: Which is best for paid traffic?
Dropshipping is a great match for paid traffic because you don’t have to worry about manufacturing products. You have access to all of the products in the Aliexpress catalogue, so you can immediately go and start creating ads for them.
If you have a successful product you are private labelling on Amazon, then you should definitely run paid ads to it. However, you have a bottleneck where you have to go and produce and manufacture a new product and ship it into the Amazon warehouse before you can run more ads. If you like paid traffic and want to utilize it to its fullest, dropshipping works best.
The Bottom Line
As you can see, Amazon FBA and Dropshipping each have their own pros and cons. But what really matters is what business is best suited to your own needs.
Maybe you prefer to have more control over how you market your products. And so in that case Dropshipping may seem more appealing to you.
On the other hand, you may not want to deal with the hassle of fulfilling orders or responding to customer emails. Here Amazon FBA would be more favourable to you, and you’d probably end up enjoying it a lot better!
It’s important to start a business that aligns with your strengths and current situation. This way, you are more likely to do the work necessary to reach success, and will be more motivated to push through challenges along the way.