s Amazon FBA vs. Shopify Dropshipping - Comparison Thread




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Thread Contributor: Nhat LeAmazon FBA vs. Shopify Dropshipping - Comparison Thread
#1
I see a lot of questions on this forum from people wanting to get into E-Commerce, specifically Shopify dropshipping. There's hardly any information on here about Amazon FBA so I thought I would make a comparison thread to help users decide which path is best for them.

Shopify Dropshipping
Dropshipping has become widely popular over the last few years and it seems like just about every entrepreneur will end up trying it or consider trying it at some point in their life. For those that are unaware of how it works, you set up an E-Commerce store using Shopify and find various products to sell from sites such as AliExpress. Instead of actually ordering a mass amount of inventory and shipping yourself, you simply mark up the price of the product and each time you get a sale, you order from the supplier directly to the customer and pocket the profits.

Pros
  • Very low startup cost / barriers of entry. Shopify is $29 / month, you can get free themes or paid themes as low as ~$20, ad budgets can start low and slowly scale into them
  • Easy to test several products
  • Don't have to hold inventory or worry about shipping
Cons
  • Not direct-to-consumer. This means you aren't selling on a platform where they are already customers waiting to buy products. With Shopify, you simply have a website that is 100% up to you to put into the eyes of customers through advertising
  • Requires lots of optimization: Facebook ads, site optimization, monitoring analytics, etc. You must have the knowledge to know what to look for and when/how is best to change things 
  • Incredibly competitive, possibly saturated. Since the barriers of entry are very low with Shopify dropshipping, there are going to be tons of people who are also looking to enter the market. Without lots of previous experience, you most likely won't have immediate success and it will require lots of trial and error
  • Very low profit margins. Since you are not ordering in bulk or manufacturing the product yourself, you are paying a higher unit cost which makes profit margins lower. This means in order to make a significant profit, your sales volume will need to be much higher
  • Risk of backorders. You are relying on someone else's inventory and are only ordering 1 item at a time, which means there is no guarantee that the supplier/manufacturer will have stock when you need it.
Overall, Shopify dropshipping can still be a very profitable business model if you know what you are doing. It is going to take a lot of trial and error to have a successful store, along with a lot of creative thinking and marketing knowledge to get your store discovered.

Amazon FBA (Fulfillment by Amazon)
Amazon is one of, if not the, largest marketplaces in the world and is still rapidly growing to this day. They are gradually expanding internationally, making their platform accessible to just about everyone worldwide. For those who are unaware of how Amazon FBA works, you order inventory from a supplier/manufacturer directly to Amazon's warehouses where they package and store everything for you. Your product is then listed on Amazon's website for everyone to see and anytime you get an order, Amazon will automatically ship the item to the customer and they will even handle all customer service for you. Of course this isn't done for free, you pay Amazon fees for inventory storage and fulfillment fees, but its still an incredible service nonetheless.

Pros
  • Direct-to-consumer. Selling on Amazon doesn't require you to market your own website, you are selling on a platform that already has millions of customers actively using it.
  • 90% autopilot. You do not have to manage your inventory, manage orders, ship out items for each order you get, manage customer service, etc. because Amazon handles all of this for you. You can focus on scaling your store more by adding more products
  • High profit margins. Since you are ordering inventory directly from a supplier/manufacturer, your profit margins are much higher than they would be with dropshipping. You are getting bulk prices which are heavily discounted compared to buying 1 at a time
  • Priority over other Amazon sellers. Since you are utilizing Amazon's FBA service, you automatically have priority over other sellers who are fulfilling their products themselves because Amazon makes more profit off each sale you get. This means you'll get priority on search ranking, buy boxes, etc.
  • Ability for multi-channel fulfillment. This means you can not only sell your products on Amazon, but also on your own website or other marketplaces while still utilizing their FBA service. This is an incredible opportunity for people looking to scale their business
  • International capabilities. Since Amazon is expanding their platform to other countries, each supported country is another market you can access by listing your products for sale in that specific market. Another great opportunity for people looking to scale their business
Cons
  • Higher barriers of entry. Since you do have to order inventory, there are higher startup costs for manufacturing + shipping
  • Requires time to do product research. Compared to Shopify dropshipping, you'll have to spend several hours looking for a solid product to sell that is proven to sell. While this is made a lot easier with online software, you still have to be confident that your product is going to do well before ordering inventory
  • Fulfillment fees. Amazon doesn't provide all of these services for free, you pay fees for the storage of your products as well as the fulfillment of your products and this eats into your profit margin.
Amazon FBA is still a fairly new service and is currently only available in 3 different marketplaces: USA, Canada, and Mexico. They are rapidly expanding their FBA marketplaces into more countries, however, sellers from just about any country can sell on any of these 3 marketplaces that they choose.

Putting all this information together, I hope it makes it easier for you to decide which path you'd like to take. In my personal opinion, after experiencing both Amazon FBA and Shopify dropshipping, I like Amazon FBA much better due to the "big risk = big reward" factor. It does cost more money upfront, however with the right knowledge its fairly easy to know whether or not your product is going to sell. With Shopify, you have to throw products on your store and test them with a small ad budget, if it doesn't work then you move on. Shopify is a lot more trial and error which isn't my favorite, but it just depends on personal preference. If I missed anything, please let me know and I'll be glad to add it. I tried to be as un-biased as possible when writing this up.
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#2
Good read. I haven't really heard much about the Amazon FBA method so it was cool to see the comparison in a pros and cons fashion.

I've dabbled with Shopify doing a print on demand branding venture (not great margins.) And I've done dropshipping on eBay in the past with pretty good markups. I might give Amazon FBA a test once I have more success with my current venture.

Cheers!
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#3
Thanks, had a good read. FBA seems like the way to go.
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#4
Just what I was looking for, good article! What can happen if your product is just sitting on Amazon's shelf for months to years, will they charge you, return it or just leave it?
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#5
good read, thanks for this
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#6
Thank you for the read, it helps a lot!
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#7
(08-07-2018, 05:12 PM)MoneyMang Wrote: Just what I was looking for, good article! What can happen if your product is just sitting on Amazon's shelf for months to years, will they charge you, return it or just leave it?

They will continue charging you for as long as your product listing is still live for sale - otherwise they'll just dispose of it.
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#8
Thank you very much for this thread! I was a bit unaware of Amazon FBA to be honest.
I need to get this straight though.
You buy from a supplier - gets shipped to an Amazon warehouse - Amazon handles everything for you, even putting up your product (?)
Comprendé?

Great thread nonetheless.
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#9
(08-07-2018, 05:16 PM)CarpeNoctem Wrote: Thank you very much for this thread! I was a bit unaware of Amazon FBA to be honest.
I need to get this straight though.
You buy from a supplier - gets shipped to an Amazon warehouse - Amazon handles everything for you, even putting up your product (?)
Comprendé?

Great thread nonetheless.

You have to create your listing of course.
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#10
(08-07-2018, 05:16 PM)zebek Wrote:
(08-07-2018, 05:16 PM)CarpeNoctem Wrote: Thank you very much for this thread! I was a bit unaware of Amazon FBA to be honest.
I need to get this straight though.
You buy from a supplier - gets shipped to an Amazon warehouse - Amazon handles everything for you, even putting up your product (?)
Comprendé?

Great thread nonetheless.

You have to create your listing of course.

So you create your listing with xxx given product - then Amazon receives the product at their Warehouse and handles pretty much the rest for you? Of course some administration and management needs to be taken care of, but sounds too simple for me.
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