The most popular and profitable online businesses nowadays are Amazon FBA and Dropshipping. These two business models are different from each other and have various advantages over one another. We hope to help you in making the right decision for your business before you jump to the bandwagon of eCommerce.
Amazon FBA (Fulfillment By Amazon)
The Amazon Marketplace is an eCommerce giant. The company produces revenue in billions each year. Amazon usually carters businesses that have a large number of consumers. Amazon offers its sellers to choose from Amazon FBA (Fulfillment by Amazon) and Amazon FBM (Fulfillment by Merchant). As of right now, Amazon FBA is the most commonly chosen plan by sellers because of its many advantages.
Amazon FBA works by a seller sending its inventory to Amazon’s warehouse for stock-keeping and then listing all the available products on its Amazon account. When a customer makes a purchase, Amazon selects packs and ships the product to them from their warehouse. Amazon differentiates between many similar products of different sellers by the unique FNSKU label, which is provided to all the Amazon FBA sellers.
Amazon FBA is the perfect plan for new businesses and entrepreneurs that do not have enough storage space for keeping stocks.
Pros of Choosing Amazon FBA:
There are many pros of using Amazon FBA, especially for the big scale businesses and third-party sellers with high scalability. But every business owner has a different selling strategy, so it’s vital to understand the advantages and take the decision accordingly.
- Time-Saving Plan
The biggest advantage of choosing Amazon FBA is that the orders are fulfilled by Amazon itself. In Amazon FBA, Amazon is responsible for packing and shipping your product to its customer. Amazon FBA fees are very minimal at $0.30 per unit. Due to fulfillment by Amazon, your time is saved, which you would have to spend packing and shipping your order.
- Better Profit Margin
Amazon is the giant of eCommerce, which means it has the largest customer base. Amazon’s larger audience base ensures that your business gets the highest exposure that in turn results in not only a good amount of sales but also a high-profit margin.
Cons of Choosing Amazon FBA:
There are some downsides of Amazon FBA as well, which many people are not aware of. Here are the two critical ones.
- A large Number of Competitors
Due to the high number of revenue being generated, businesses are flocking to Amazon to take part and grow their business. This has increased the competition to the maximum, with many sellers selling the same product at varying prices.
- Product Blunders
One of the biggest mishaps that happen with Amazon FBA is product mess up. Due to the large number of products being stored in the same warehouse, there’s a chance that Amazon ships products from a different seller to your customer. That is why it is crucial to label your products with the proper Amazon FBA label.
Dropshipping is another popular method of eCommerce. In dropshipping, you order the product you have listed on your account directly from the wholesaler or the main vendor. When a customer places an order with you for a particular product, you reach your vendor and place a similar order with the shipping information of your customer, and your vendor will then directly ship your order to the customer. Customers will believe that the order was shipped by you, while in reality, it was from your supplier. You will have to pay your supplier when the customer receives their order.
This plan is perfect for sellers who do not have enough capital to invest in the business.
Pros of Dropshipping:
Just like FBA, there are several benefits of dropshipping as well. Let’s have a look at them.
- Minimal Investment
The biggest benefit of choosing dropshipping as a mode of business entrepreneurs get is that they can start their business with minimal investment. Dropshipping does not require investment in a lump sum amount, and so new businesses do not have to worry about huge investments.
- Minimal Risks
Since there is no huge investment, the risks of dropshipping are also minimal. The seller gets the difference between the wholesale price and retail price, meaning even if the transaction with the customer wouldn’t work, they do not have to worry about losing too much of their money.
Cons of Dropshipping:
Dropshipping also comes along few cons as well. Also, the success rate of dropshipping is not very high in the current market, keeping inflation and saturation in mind.
- Less Profit Margin
Since dropshipping does not require a huge investment, the profit margin is also very low as the seller gets a difference in price between wholesale and retail.
- Limited Product Knowledge
In dropshipping, the seller does not have an actual product. This can result in a lack of knowledge about the product.
We have provided you with all the basic information about Amazon FBA, including the need for FNSKU and Dropshipping. Now it’s time for you to decide which model you will adopt to grow your eCommerce business.