When it comes to online selling, there are a lot of different options out there. Two of the most popular are Amazon FBA and Shopify dropshipping. But which is better? In this article, we’ll compare and contrast the two methods, and help you decide which is the right business model for your online store.
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What Is Amazon FBA?
Amazon FBA, otherwise known as Fulfillment by Amazon is a program that allows product sellers to send their items directly to an Amazon warehouse. From there, Amazon handles the shipping and customer service for you, taking away one of the major headaches of online selling. Additionally, when using FBA all of your products automatically become Amazon Prime eligible, which means that Amazon handles the entire shipping and returns process for you.
What Is Shopify Dropshipping?
Shopify dropshipping functions a bit differently. Essentially, what happens with Shopify is that you create an eCommerce site and then connect it to a pre-existing shipping service like Oberlo. From there, when a customer places an order on your site, you buy the product from a third party and ship it directly to them.
Like any business model, there are pros and cons. Let’s break down the pros and cons of both of these models so you can decide which is better for you.
The Pros of Amazon FBA
Selling on Amazon is a great opportunity for those looking to start and scale an online business. Let’s take a look at some of the pro’s of an Amazon FBA business.
Immediate Customer Base
When you sell on Amazon, you have the benefit of their massive customer base. This means that you have a ready-made audience for your products, which can lead to a high volume of sales much quicker.
Amazon’s Prime membership continues to grow at a rapid pace, hitting over 200 million in 2020.
Leverage Big Data
Using a tool like Helium10, you can access vast amounts of data in relation to Amazon trends – search volume, customer behaviour, profit margins and more – meaning you can make informed decisions without having to test 10 products to find 1 winner.
Building a brand on Amazon is something that can pay you both as cash flow in the present, but also as a cash-out in the future. Amazon aggregators and online marketplaces are driving valuations of 4-5x annual profits and higher meaning you can work hard for 2-3 years then cash out for an attractive lump sum.
Customer Service Taken Care Of
Since Amazon handles customer service and returns for you, it reduces stress on your end since you never have to deal with any customer complaints.
Generate Higher Profits
Since you will be ordering private label products in bulk you will be able to achieve a lower unit cost and achieve a higher profit margin from each sale.
Amazon is a household name around the world and carries trust and authority. By using the FBA business model you are borrowing Amazon’s reputation which leads to far higher conversion rates (typically 10%+) than you would see on a dropshipping store (typically 1% or less).
Focus On Growth
As Amazon take care of customer service, fulfilment, and so many other aspects it means you are freed up to spend time on the things that will drive major growth to your eCommerce business.
Ease Of Setup
Once you’ve created your Amazon seller account and listed your products you’re ready to start selling online. No website build, no audience to find – you’re good to go.
The Amazon marketplace is becoming increasingly global with new locations being added all the time. This means you can sell online in all major countries of the world with one Amazon account and lean on its logistical infrastructure to further free up your time.
The Cons of Amazon FBA
Like anything, there are always strengths and weaknesses. Let’s analyze some of the cons of selling on Amazon FBA.
One of the major cons of Amazon FBA is that there are fees attached. Firstly a referral fee (usually 15% but depends on the category), and also shipping fees which will vary depending on the size and weight of the items you sell.
No Customer Data
When selling on Amazon FBA you aren’t able to access many of the details about your customers such as email addresses. This makes it harder for follow up and means you have to find other ways to build your brand’s audience.
Risk Of Suspension
Amazon is notorious for having a shoot first, ask questions later policy. Whilst it is far rarer than some may suggest, there is the possibility that if you violate Amazon’s terms of service that will suspend your account pending investigation.
For one of the biggest companies in the world, Amazon’s seller support is shockingly bad. Attempts to connect with support via Amazon seller central are often met with frustration and sellers should be prepared to attempt to resolve issues on their own.
The Pros of Dropshipping On Shopify
Ok, now let’s take a look at some of the pro’s for dropshipping.
Lower Initial Investment
Given you only pay for an item once it sells, you don’t have to place bulk orders of products and therefore save significantly on your initial investment. This can be counter-balanced by the need to invest more in marketing upfront as we’ll discuss shortly.
With a Shopify store you can adjust your pricing, marketing copy, images and a range of other aspects without limitation. Whereas Amazon FBA may place limitations on these aspects, having your own online store gives you complete freedom to market your products however you see fit.
Better Cash Flow
Shopify payouts will transfer to your bank account daily as opposed to bi-weekly on Amazon meaning more regular income. Combined with only paying for inventory when it sells, this creates the potential for better cash flow.
Access Customer Base
When you sell products via your own store you gain access to customer data that enables you to continue to market your products to the same customers driving more lifetime value from each customer and potentially more profit too.
The Cons of Dropshipping On Shopify
Does this model have any cons? Absolutely, let’s look at some of them.
Finding Your Own Audience
When selling on Amazon FBA, you access their huge customer base. However, when running a dropshipping store on Shopify you have to learn the marketing skills to be able to find customers from day one which can be time consuming and expensive, often exceeding the cost of an initial inventory order on Amazon and eating into profit margins.
Questionable Customer Experience
The dropshipping model by nature means that often customers will be left with long waiting times between placing an order and receiving their products. This can create a poor customer experience and mean shoppers won’t return to transact with you again.
Customer Service Requirements
A poor customer experience will undoubtedly lead to more customer service workload. The dropshipping model can lead to a large number of customers contacting you asking where their order is, and complaining about the long delays.
Website Expertise Required
Whereas Amazon sellers can simply list their products and be on their way, selling on a Shopify store requires building out an entire website. If you’ve never done this before it can be daunting and makes for a more difficult start than selling on Amazon.
Lower Profit Margin
When dropshipping, you have less buying power with your suppliers and usually need to sell a standard version of a product. You aren’t able to differentiate, create a unique selling proposition, and therefore charge a higher price to achieve more profitable sales.
So, Amazon vs Shopify – Which Is Better For You?
You’ve seen the pros and cons of selling on both Amazon FBA and dropshipping via your own eCommerce store. But which is the better option for you?
Whilst the decision is yours, and much of it will come down to circumstantial factors, we believe the clearest opportunity to build a successful product-based business is by launching first on Amazon FBA.
With Amazon, you have the borrowed trust, the vast customer base, and all the tools you need to help you get started as a beginner. Whilst it may take a higher initial investment, the savings you will make on not having to test many products and various advertising platforms means the difference in startup costs may well in fact be minimal.
Also, you are building an asset that can one day be sold which is the biggest opportunity in all that we have discussed.
Can I Sell On Both Amazon And Shopify?
Absolutely, you can! And to be honest, this is the dream solution. Build a real brand and launch your private label products on Amazon for momentum, but also build out a branded Shopify store for returning customers and further brand awareness.
Then, when you receive orders from customers on your own online store, simply fulfil the items through your Amazon stock and the customer will receive their order within 2-3 days – far quicker than if dropshipping. This means happier customers and more profit – everyone’s a winner!
If you’d like to learn how to launch your own brand on Amazon and grow a business that pays you both as cash flow in the present, but also as a cash out in the future by selling it for a multiple of your annual profits, then check out the free video training we made for you here.