With Amazon’s popularity continuously on the rise, many first-time entrepreneurs are looking to join the bandwagon. And who can blame them?
With sales of up to 280.52 billion dollars in 2019, it’s not surprising that everyone wants a piece of the pie, so to speak.
If you are one of them, congratulations because you’ve made the right choice. Before you open shop, however, it’s important to understand how dropshipping works so you can use it to your advantage.
Keep reading to learn everything you need to know about dropshipping with Amazon.
What is Dropshipping?
Dropshipping is the process of selling products without keeping them in stock (inventory) and shipping them to the buyer.
With the ease of running a store without having the responsibility of doing both, the business model has gained popularity over the years.
You can do it with your own eCommerce store or via Amazon depending on your preference.
If you decide to dropship via your own online store, here’s how the process works:
You post your listings on your website
A customer orders a product online
You contact your supplier who has the product on hand
The supplier then ships the product to your customer
Easy peasy, isn’t it?
Technically, the only work you do is to market the products. What goes on behind the scenes is up to your supplier.
Dropshipping via Amazon is typically the same though it can get a bit trickier based on the e-commerce giant’s current policies.
Dropshipping on Amazon
There are two ways to dropship on Amazon. You can do it the traditional way or via Amazon FBA (Fulfillment by Amazon).
Traditional dropshipping, or that of allowing someone else to fulfill orders on your behalf, is generally acceptable. You just need to comply with Amazon’s requirements as stated below:
You must be the seller of record of your products;
You must identify yourself as the seller of your products on all packing slips and other information included or provided in connection with them;
You must remove any packing slips, invoices, external packaging, or other information identifying a third-party drop shipper prior to shipping the order;
You must be responsible for accepting and processing customer returns of your products;
You must comply with all other terms of your seller agreement and applicable Amazon policies.
If you go by these requirements, it’s fair to say that Amazon doesn’t allow dropshipping products through traditional means.
Despite the said terms, many sellers still do it and the easiest way to spot them is through listings with shipping times between 7 to 14 days. More often than not, this is an indication that the product is being purchased from a dropshipper located somewhere else.
What this means is that Amazon will take care of everything behind the scenes from picking, packing, and shipping your orders to your customers. They even take care of the after-sales transactions which include providing tracking information to customers, customer service, and processing refunds, among others.
The fees you’ll pay Amazon will depend on the type of product you sell as well as the time of the year. Also bear in mind that with this method, you don’t have control over your inventory and you are essentially trusting your vendor to ship the correct item and quantity to the Amazon FBA warehouse, meaning you are giving up your ability to perform quality control. This of course means your reputation is on-the-line should anything go wrong.
Another important thing to consider is the amount of time your products have spent in Amazon’s warehouse. You’ll need to pay fees if your goods have been sitting in storage between 6 to 12 months. Additional fees will also be charged if the goods have spent more than 12 months in storage.
Why Dropship via Amazon?
There are plenty of reasons why you should consider this option. Whether we want to admit it or not, dropshipping via Amazon comes with several benefits.
One of the obvious benefits is brand recognition. With over 300 million active users under its belt, marketing your products wouldn’t take so much work compared to having your own ecommerce store.
With Amazon, you already have a massive audience waiting for you. You just need to find ways to separate yourself from the pack so you can drive traffic and sales towards your store and your products.
If you opt to use the FBA model, the biggest benefit is that holding an inventory is the least of your concerns because you already have Amazon doing it for you. The same can be said when it comes to shipping, customer service, and returns when necessary.
The only downside is Amazon disallowing traditional dropshipping methods which can make life difficult for sellers who are used to playing by the rules.
Because the majority of the profit goes to the supplier. If you factor in the fees a seller is required to pay, it’s safe to say that they’ll be left with very little to play with.
Lastly, with Amazon’s immense popularity comes its customer’s high expectations and demands. Issues encountered with orders can easily lead to bad reviews and if you’re not lucky enough, even account suspensions.
Storage Fees to Keep in Mind
As mentioned earlier, while Amazon FBA offers the convenience of getting your hands off inventory, packing, and shipping, all of this comes at a cost.
To give you an idea of the potential fees you have to deal with, check out the following:
February 15th and August 15th are very important dates to remember because this is the time when Amazon does their inventory cleanup.
If your products are found to be sitting in storage between 6 to 12 months, you’ll be required to pay a long-term storage fee of $11.25 per cubic foot. If the items have been there for more than 12 months, the fee moves up to $22.50 per cubic foot.
Given these scenarios, Amazon FBA may not be the best alternative for sellers with slow-moving products. Imagine how hefty the fees can become if you’ve got lots of items sitting in storage for a very long time.
Amazon FBA isn’t also for sellers whose products are prohibited by FBA like alcoholic beverages, perishables, vehicle tires, and products that need to be refrigerated among others.
You’re probably better off with dropshipping if you’re planning to sell any of these items so you can save yourself from storage fees.
Where Do You Begin?
With all of this information considered, the next question is where and how do you begin?
Fortunately, setting an Amazon store is easy.
1. The first thing you need to decide on is whether you’ll dropship the traditional way or via Amazon FBA.
2. Once you’ve reached a decision, you are now ready to create your Amazon seller account. You’ll be given a choice between signing up as either a professional or an individual seller.
3. The next step is to decide on the product categories you’ll be selling your products with and to get those categories approved.
4. Last but not least, start listing your items.
You should now be ready to start selling on Amazon once you have all of these figured out. A fair amount of research is of course required in terms of how you’d present your products in your listings.
Plan these all out before you open shop so you can see quick and better results.
Selling on Amazon is a promising endeavor especially since Amazon has become a household name. Running your own store and fulfilling orders through dropshipping is an excellent way of making money because it requires the least amount of effort.
Whether you’ll succeed or not depends on the method of dropshipping you choose. If your budget is tight and you’re not too confident about your items’ selling power, going with traditional dropshipping would be the better choice.
If you have more money to spend and you’re looking for quick results, dropshipping with Amazon FBA makes a lot of sense.