Ecommerce has become one of the fastest-growing industries on the planet. With no signs of stopping, we’re going to give you an overview of the different business forms inside eCommerce.
In this article, I will focus on the two major eCommerce business models that are the most beneficial today. Hopefully, after reading the entire article, you will be capable of making a firm decision about what you can choose to start your entrepreneurial journey.
Starting on Shopify is quite easy. You get the first two weeks entirely free of cost. If you have got some outstanding products on your digital store, you can already start making a profit in your trial period. The very first investment you have to make is a monthly rental of the most common Shopify price starting at $29 per month.
With Amazon FBA, things are a little different. There’s no such concept as a free trial. You must make detailed planning before you enter the business.
Now, let’s talk about Dropshipping, Amazon FBA, and other aspects in depth that will help you decide independently on which way to go.
What is Dropshipping?
Dropshipping is the most suitable eCommerce model for small business owners to start their businesses quickly and easily. It can be started with a small investment and no physical storage facility. All you need to do is create your digital store, advertise your products through appropriate sales platforms (usually people use Shopify, Amazon, and eBay for advertising their products), and sell your specific products that can be shipped directly from suppliers located elsewhere.
The entire process is simple on your behalf and that is the major point why you can be fascinated by this model quickly. When your customers order their preferred products on your digital store, you will contact your supplier. The supplier in turn ships the products directly to your customers and you can pay the supplier once the product gets dispatched and you get paid.
The profit margin you keep in dropshipping is the amount you choose to mark up the price of the product you sell.
Now that you understand Dropshipping is a safe play and the best method to avoid piling huge stocks paying massive storage cost, you can be inspired to hurry and start Dropshipping. But, let’s wait till the end of the article and take a calculated decision analyzing what the next option has to offer you.
Pros and Cons of Dropshipping
Analyzing pros and cons gives a concise idea and is a critical method in determining whether to go for or quit any option. Here are some of the pros and cons of Dropshipping to corroborate your decision making:
Pros of Dropshipping
- Smaller investment and lower responsibility will give the drop shipper extra time to look after other areas of his business.
- Lower risk as there is less investment and you don’t have any responsibility related to the products to be sold.
- You don’t have a product barrier. You can select any number of products to sell under any category you want.
- Location-independent business model as you can work from anywhere in the world.
Cons of Dropshipping
- As anybody can start this model with little investment, there is intense competition because of which you will have to settle for a little profit margin.
- There are a lot of customer service issues. You won’t have a reliable source like Amazon to handle customer service for you. On the other hand, you have to be totally dependent on the information provided by suppliers about the products.
- As you are not buying any products to sell, you can’t really offer discounts or promotional deals.
- You can’t build your own brand by doing Dropshipping.
- Dropshipping isn’t a perfect choice for you if you want exponential scalability because dropshipping scales linearly.
Dropshipping employees a very popular strategy of getting benefits by selling goods from other suppliers to your customers without any upfront capital at almost nil risk. It’s the best alternative if you do not have any capital to start your own business.
On the other side, strictly speaking, you don’t have central control in this model to call it your business. You are not aware of the quality of the products you are selling, the price you pay to your seller is at their own discretion, you don’t have any negotiation power, you have to handle all the customer service and because of tough competition, you have to work at a minimum profit margin. All these features make Dropshipping a not so appropriate approach for beginners with expectations of high-income generation from eCommerce.
What is Amazon FBA?
Amazon is the largest eCommerce platform in the world where you can start your business as an Amazon FBA seller by listing and selling your products. While selling your products as a seller you have two options. You can either fulfill the order by yourself or provide all the heavy lifting to Amazon i.e. you can outsource the storage, packing, and shipping to Amazon via Fulfillment by Amazon (FBA).
For sellers that are serious about expanding and scaling their online business, Amazon provides an excellent platform through Amazon FBA by handling key logistics and storage facilities. You just need to add on the stock and start selling to generate revenue. That’s it.
The best part of all the things is Amazon also handles your customer service and returns. This is similar to Dropshipping model when it comes to dispatch and storage facility not to be done by yourself.
Amazon is a marketplace where over $400 million worth of products is sold on a daily basis. This strongest eCommerce giant makes the suppliers and the customers confident enough to sell and purchase goods without any dilemma.
There’s another typical benefit with Amazon FBA. Since products sold are fulfilled by Amazon, they are more likely to be recommended by Amazon’s algorithm. While these products are always favored by Amazon, there is a high chance that they appear higher on the search result page.
But there’s a catch. If you are just starting your eCommerce journey, there is a greater risk involved in Amazon FBA. Also when you have outsourced everything, there is a certain cost to be paid. This ultimately adds up to the existing costs and makes this model an expensive venture.
Pros and Cons of Amazon FBA
Now that you have got an insight into what is Amazon FBA and how to sell on Amazon, here are some additional points supporting the benefits and flaws of Amazon FBA that will help you to make a correct decision.
Pros of Amazon FBA
- This model of business has the capacity to scale exponentially because of the Amazon fulfillment network.
- Amazon has a powerful customer base of over 300 million active customers worldwide. Once you start your Amazon FBA business you get a ready-made market of global customers.
- One of the most tedious sectors is to handle your customers. You get built-in customer service. Thus you can focus on scalability.
- There is no need to make an online store as you can easily start selling on Amazon just by choosing a product to sell and listing your products on Amazon.
- As you have the advantage of scalability you can generate exponential profits over any other model of eCommerce business.
Cons of Amazon FBA
- Upfront capital is required for starting an Amazon FBA business that may be a risk if you have entered without any research.
- Amazon is the largest eCommerce company with strict and numerous rules and regulations that Amazon sellers at times may not be able to adhere to.
- You won’t have your own customer base because all the customers you sell to are Amazon’s and you won’t have any direct contact with them.
- It’s not only you who can leverage the Amazon platform. There are numerous sellers willing to sell the same products as you do. So, you must be ready for fierce competition.
Amazon is the only marketplace that you can run your business. This places a huge dependency upon a single platform for your sales.
Amazon FBA is the best platform that helps you to grow your brand and business literally at your fingertips. You can totally concentrate on how you can generate more revenue while all the other works of storage, fulfillment, and customer service are looked after by Amazon.
But it’s also wise to be practical and face the truth. A reasonable amount of the profits you make by selling products on Amazon are taken by the fees you pay for Amazon’s FBA service. You will require a decent amount of capital to start the business. Amazon’s saturated market demands a high level of competition, and you will find it harder to build your own customer base. You must take these into serious considerations before you jump to sell on Amazon FBA.
Difference between Amazon FBA and Dropshipping.
They might seem like completely similar models but actually, there are a few key differences.
In dropshipping, you don’t own any goods. Alternatively, in Amazon FBA you have a huge investment in purchasing the product you list on Amazon before your customers buy them.
Another major thing that’s worth noting in which they differ substantially is comfortability in running your business.
In dropshipping, you need continuous effort in sales and marketing. Alternatively, in Amazon FBA, once you made and found products to sell and drop to the Amazon warehouse, there’s nothing much left to do.
What’s better: Dropshipping or Amazon FBA?
Any model of business involves a considerable amount of effort. Only the person who is willing to put maximum effort into the business and willing to search for the right information will excel.
This is not the question of what’s right and what’s wrong. To be brutally honest with you, both the platforms are excellent to start and scale as an eCommerce entrepreneur. It just takes you to access your position, value, and level of operation and decide what option is best for you.
What I suggest for the best of all is to educate yourself, dig deep into every piece of information about what field you can put your hands to, and be proactive to take action. Remember, there is always a considerable amount of risk involved to begin anything.
In the final words, if you are willing to make a considerably large amount of investment, Amazon FBA has more potential. If you are planning to start without anything and start all the way from zero then you can go for dropshipping. When you scale and make some additional amount, you can take both options simultaneously.
Author Bio: Kevin David is a self-made multi-millionaire, started his entrepreneurial journey as a leading Amazon seller. He has built and scaled multiple online businesses. With a goal to help every aspiring entrepreneur around the world, he started his online Amazon FBA course training. His online courses have helped hundreds of thousands of people around the world to achieve financial momentum and live the life they have always dreamed of.