Amazon FBA and Shopify dropshipping are two of the most popular options for building an eCommerce business.

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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Amazon FBA vs Shopify dropshipping at a glance

Want a quick verdict?

Here are the key points to consider when deciding whether to sell on Amazon FBA vs dropshipping on Shopify.

Amazon FBA

Pros

  • Immediate customer base
  • Leverage big data
  • Saleable asset
  • Done-for-you customer service
  • Higher profits
  • Borrowed trust

Cons

  • Higher fees
  • No customer data
  • Risk of suspension
  • Poor support

Best For

Driven entrepreneurs looking to build an eCommerce business that pays as cash flow in the present and a cash out in the future.

Shopify Dropshipping

Pros

  • Lower initial investment
  • More control
  • Better cash flow
  • Access your customer base

Cons

  • Finding your own audience
  • Sub-par customer experience
  • Customer service requirements
  • Website expertise required
  • Lower profit margin

Best For

First-time eCommerce sellers looking for a low-capital startup opportunity to learn various eCommerce skills.

At Brand Builder University, we teach the private label business model and believe it to be the best opportunity to build a valuable, meaningful business.

But if you’re not convinced yet, let’s dig deeper into both options.

What is Amazon FBA?

Amazon FBA, otherwise known as Fulfillment by Amazon, allows product sellers to send their items directly to an Amazon warehouse.

From there, Amazon handles the shipping and customer service, eliminating one of the major headaches of online selling.

Additionally, when using FBA, all your products automatically become Amazon Prime eligible, which means that Amazon handles the entire shipping and returns process.

how does amazon fba work

What Is Shopify dropshipping?

Shopify dropshipping functions a bit differently.

With Shopify, you create an eCommerce site and 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.

MORE:

how does dropshipping work infographic

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 pros of an Amazon FBA business.

1. 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 and continuing to rise since then.

Source: Statista

2. Leverage big data

Using a tool like Helium 10, you can access vast amounts of data in relation to Amazon trends – search volume, customer behavior, profit margins, and more – meaning you can make informed decisions without having to test 10 products to find 1 winner.

3. Saleable asset

Building a brand on Amazon can pay you both in cash flow in the present and as “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 and then cash out for an attractive lump sum.

4. Done-for-you customer service

Since Amazon handles customer service and returns for you, it reduces stress on your end since you don’t have to deal with any customer complaints.

5. Higher profits

Since you will be ordering private label products in bulk, you can source products at a lower unit cost and often achieve a higher profit margin from each sale.

6. Borrowed trust

Amazon is a household name around the world and carries trust and authority.

Utilizing Amazon FBA means 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).

7. Focus on growth

As Amazon takes care of customer service, fulfillment, and many other aspects, you are free to spend time on the things that will drive major growth to your eCommerce business.

8. 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.

9. Global expansion

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 leverage its logistical infrastructure to free up your time further.

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.

1. Higher fees

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.

Amazon continues to gradually nudge these fees up year upon year with sellers reporting that it now takes over 50% of revenue on average:

This figure includes advertising and storage fees, too, but it is still a big chunk.

This trend should influence your decision-making when choosing products to sell, with the main consideration being selling price.

It’s difficult to make meaningful profits on products priced under $15, so the focus should ideally be on selling higher-priced products.

2. No customer data

When selling on Amazon FBA, you can’t access many of your customers’ details, such as email addresses.

This makes follow-up more difficult and means you have to find other ways to build your brand’s audience.

3. 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, it will suspend your account pending investigation.

4. Poor support

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 pros for dropshipping.

1. 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.

NOTE

2. More control

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.

3. Better cash flow

Shopify payouts will be transferred 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.

4. Access your customer base

When you sell products via your own store, you gain access to customer data that enables you to continue marketing your products to the same customers.

This helps drive more lifetime value from each customer and potentially more profit.

The cons of dropshipping on Shopify

Does this model have any cons? Absolutely, let’s look at some of them.

1. 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 find customers from day one, which can be time-consuming and expensive.

2. Sub-par customer experience

The dropshipping model, by nature, means that customers often have 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.

3. Customer service requirements

A poor customer experience will undoubtedly lead to a heavy workload in customer service.

The dropshipping model can lead to a large number of customers contacting you asking where their order is and complaining about the long delays.

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4. 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.

5. 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 best?

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.

While 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.

Want to learn more about building a brand on Amazon & beyond? Check out the free video training we made for you here.

Frequently Asked Questions

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. 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!

Yes, as long as your business meets Amazon criteria, you can use dropshipping on Amazon FBA. Amazon states that to use dropshipping services for your business in the Amazon store, you must:

  • Be the seller of record of your products
  • Identify yourself as the seller of your products on all packing slips, invoices, and external packaging
  • Be responsible for accepting and processing customer returns of your products

Dropshipping can be a good option if you want a business model with low overhead and starting costs. However, there are some cons to consider, and most sellers quickly find that it isn’t as profitable as they would like, with an Amazon FBA store being more profitable.

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Ben Donovan

WRITTEN BY

Ben Donovan
Ben is the founder of Brand Builder University and has a passion for helping normal everyday people create financial freedom by building successful eCommerce businesses. He lives in Manchester, UK with his wife and 2 children and loves to play sport and watch continual re-runs of The Office (US version, obviously).

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