Dropshipping vs FBA

As the rapidly development of e-commerce business in the recent years, a surging number of people start jump into e-commerce business. Drop shipping and FBA are the main ways for starting e-commerce business because it is much easier to carry out rather than ordinary business model. In this post, I’ll introduce drop shipping and FBA as the main e-commerce business model worldwide, and then make a brief comparison between them.
Pros and cons of drop shipping
Pros:
a. Lower cost requirement. As we know that drop shipping companies model allows retailers do not need to build up an actual store, which means retailers can easily do drop shipping business individually. Moreover, the drop shipping model also allows retailers do not need to carry inventories because suppliers or manufacturers should directly deliver merchandises to end-customers once the order placed.
b. Lower risk. Lower risk is one the major reason why retailers prefer doing drop shipping business. It is believe that suppliers and manufacturers should carry the complete order fulfillment once the order placed, and retailers do not need to worry about it. Furthermore, retailers also do not need to worry about the exceed inventories because they even do not having any inventories during the trading process.
c. Jobs from home. As the rapid development of smart devices and operation systems worldwide, the strong technical supports allow retailers to do drop shipping business online and they can easily deal with most of drop shipping business at home. They can easily do product selection, pricing, upload products online by using their smart devices include smart phones, tablets and PCs.
d. No inventory pressure. It is believe that drop shipping business model allows retailers to get a wider product selection. That means retailers can easily switch the products that are already selling in the store to other products. As we know that the e-commerce market is changing fast by days, retailers can easily following the trend and figure out what is the hottest niches for selling.
Cons:
a. Less profit margin. It is believe that there are tons of people are doing drop shipping business and selling the exact same categories even same products. That means retailers may have lower profit margin if they cannot find the potential niches earlier than competitors.
b. Strong competition among retailers. It is possible to find that the competition among retailers are pretty strong, and it is hard to gain any profits from it.
Poor communication. As we know that suppliers or manufacturers should carry the complete order fulfillment to deliver merchandises directly to end-customers. That means retailers and sellers should have poor communication with end-customers, and retailers cannot receive few feedback from end-customers which should make retailers do not know the reasons if the sales is decreasing or any terrible purchasing experiences.
Pros and cons of FBA
Pros:
a. A large audiences of Amazon. As we know that FBA stands for Fulfillment By Amazon. Amazon is one of the biggest e-commerce company in the words, and actually Amazon is the biggest one in the world now. As the graph from Statista shows below, it can clearly find that Amazon has more than 197 million unique visitors per month in 2017, that means Amazon has a large audiences and retailers can gain so much values from it.
b. Copyrights protection. It is believe that Amazon is committed to protect every copyrights for each member who are doing business by using FBA. Once Amazon finds that some retailers are infringing, they will immediately ban these accounts to protect other retailers’ rights. In addition, Amazon also attaches to maintaining the relationship between retailers. For example, retailers can promote their online store by purchasing the Amazon Ads, and it is believe that the Amazon Ads encourage retailers to optimize its online store and improve product quality.
c. Build up own label and brands. It is believe that Amazon is encouraging retailers to build up their own labels and brands, once the labels and brands are available, Amazon will protecting these retailers to make sure there are no counterfeits or any products are fake related to the legal labels and brands.
Cons:
a. Strong competition. As the large audiences on Amazon, it can easily understand that the competition among Amazon retailers are pretty strong. It is difficult to gain much profits from it.
b. Higher starting costs. It is believe that Amazon encourage retailers to build up their own labels, which means retailers should cost much before selling on Amazon. The registration fees and typical fees should be much higher to those retailers especially for who are just starting their business.(Related: wholesale clothing suppliers )
c. The strict management system. As we know that Amazon are trying to protect all retailers who has copyrights. However, it should be risky to sell products on Amazon because you cannot make sure each product you are selling are legal unless you build up your own legal brands and labels. Once Amazon find that retailers are selling something illegal or infringing, Amazon should close these accounts immediately.
d. Focus on consumer experiences. It is believe that Amazon is committed to bring the excellent purchasing experiences for each consumer from the world.
Comparison between drop shipping and FBA
On one hand, as the description in the previous part, it can easily find that FBA has the higher starting costs and strong competition among retailers on Amazon. However, Amazon has a large number of audiences and copyrights protection to each legal retailers, which means retailers should have a bunch of opportunities to gain profits. On the other hand, drop shipping allows retailers have a lower costs requirement and lower risk. Retailers can also doing drop shipping business from home by using smart devices to deal with most of drop shipping problems. In contrast, poor communication and lower profit margin limit the development of drop shipping business.
In summary, it is believe that retailers can choose both of drop shipping model and FBA to start their e-commerce business. Moreover, drop shipping is much more better for those people who just start their e-commerce because of the lower cost requirement. FBA on Amazon is quite complex for those retailers who do not how to do e-commerce business, it may causes the capital loss in the beginning of doing drop shipping business on Amazon.