Ecommerce Intelligence
Amazon Dropshipping: A No-Nonsense Guide
What’s the best way to maximize profit while minimizing your investment of time and money in your online store? Dropshipping.
Dropshipping has been around for decades, but it was not until Amazon introduced the model on its platform that budding entrepreneurs got on board in a big way. It’s estimated that now 27% of all online retailers use this model.
Dropshipping on Amazon has immense potential, and many entrepreneurs are already earning a great deal through this method without breaking the bank to get started.
In this no-nonsense guide to Amazon dropshipping guide, we’ll share everything you need to know to get started.
What is dropshipping on Amazon?
Dropshipping is a business model which involves listing and selling products on an ecommerce platform without actually holding these items in your inventory. You list a product and when a customer places an order, you send that order to your supplier, who delivers the product directly to your customer. But, we’ll get more into how this model actually works in a minute…
Virtually anyone can launch an Amazon dropshipping business – the only requirement is to create a verified Amazon seller account. Once Amazon authorizes your verified seller account, you’ll need a third-party supplier to fulfill your orders. Keep in mind, Amazon does not provide a dropshipping service, so you’ll have to find a third-party seller to work with.
Keep in mind that Amazon forbids you to send products directly from another online retailer. For example, you cannot list a product on Amazon, then order that product on Target’s online store and have Target send it directly to your customer. This is strictly forbidden.
As a dropshipper, you’ll earn a steady profit without having to do too much work. Your profit margin will be the difference between the price you list the product and the price that you purchase it from your supplier, less the shipping and handling fees. Of course, you’re still responsible for creating and optimizing your product listings, marketing your products, and coordinating the deliveries with your supplier.
How does Amazon dropshipping work?
OK, so remember we said dropshipping is when you list a product, a customer places an order setting off a chain of 3 events.
So, by dropshipping through Amazon, as a seller, you won’t have to worry about inventory, warehouse space, packaging, or shipping.
What sets Amazon seller dropshipping apart is that the ecommerce giant has a number of policies that are applicable to dropshippers. As a seller, you must adhere to these policies and comply with the seller agreement, which includes being responsible for accepting orders and processing them properly. You’ll also need to handle any product queries and facilitate returns if required.
How do you make money through Amazon dropshipping?
Amazon dropshipping can be very profitable when done well. Product choice is a big part of this: it’s critical to choose products that are in high demand but have low competition. Ideally, you should opt for products with a growing market and from a recognizable brand that customers will search for on Amazon.
Though income varies, an average dropshipping margin is between 10% to 30%. Product pricing is also critically important: you need to strike the right balance between profit margin and sales. You should be able to achieve a high volume of sales through competitive pricing, strong marketing, and professional customer service.
Read more: How to Optimize Your Amazon Pricing Strategy
Create strong listings that target the right niche and promote them through digital marketing and advertising. Track your metrics to measure sales performance and identify potential areas for improvement. Identify your target customer, research their pain points, and sell them on how your products can help them address these issues.
Amazon dropshipping vs other business models
Amazon dropshipping can be a relatively easy and highly profitable business model, but it isn’t for everyone. However, dropshipping isn’t the only way to be a successful seller on Amazon.
A few other popular ways of selling on Amazon are:
- Amazon arbitrage – This essentially involves buying cheap or heavily discounted items from a retailer and reselling them on Amazon at a profit margin. The key difference between this model and dropshipping is that you act as the go-between between the supplier (the retailer) and your customer, and arrange shipment yourself.
- Private labeling – In this Amazon business model, you buy ready-made products from a supplier and sell them under your own brand. This is distinct from dropshipping in that you typically hold an inventory and arrange shipment yourself, requiring a much greater investment. Furthermore, in dropshipping, you’ll generally sell products of well-known brands, rather than building your own brand.
- Wholesaling – This involves purchasing bulk products from a supplier and reselling them, either to another business or directly to customers. Again, this model means you need to hold your own inventory and handle shipping.
Pros and cons of Amazon dropshipping
Like all business models, dropshipping on Amazon has both advantages and disadvantages. Let’s start by looking at the most common benefits enjoyed by Amazon dropshippers, before moving on to the drawbacks.
Pros of Amazon dropshipping
No warehouse expenses
One of the greatest advantages of being a dropshipper on Amazon is that you don’t have to worry about warehouse expenses. You won’t have to bear any costs of maintaining a warehouse as you are playing the role of a middleman between the supplier and the customer.
Large audience
Amazon is estimated to have had about 119.2 billion product views worldwide over the past year according to Similarweb Shopper Intelligence data. So, yeah. There’s a huge potential audience for your products. As an Amazon dropshipper, you’ll have direct access to this audience and your marketing efforts are more likely to deliver strong results.
Opportunities to diversify
Amazon has more than 30 categories that buyers can choose from, which also gives Amazon dropshippers the opportunity to sell across a variety of niches. This allows you to target multiple audiences, driving more sales and reducing risk through diversification. With the right products and reliable suppliers, there is no limit to how many niche audiences you can target.
Faster Deliveries
Because the products are sent directly from your supplier to your customer, shipment is streamlined and your client gets their delivery faster. This, in turn, keeps your customers happy and encourages positive reviews and repeat business.
Cons of Amazon dropshipping
Plenty of competition
Dropshipping has a very low barrier to entry, mostly because of its low cost. This is not only good for you, but for others too. As a result, there are more and more entrepreneurs pursuing this business model, and competition is tough. In some cases, this competition can result in a large number of dropshippers selling the same products on Amazon.
Smaller profit margins
As a dropshipper on Amazon, you need to share a certain amount of your profit with Amazon. Furthermore, as the competition on the platform increases, you may need to drop your prices to maintain a competitive advantage.
Some upfront investment
As an Amazon dropshipper, you need to strictly follow the platform’s policies, including the recommendation that you have to pre-order a number of products from the supplier to reduce shipping time. This means that you’ll have to invest more upfront to start dropshipping on Amazon compared to dropshipping from your own online store.
How to start dropshipping on Amazon
It’s pretty easy to start a dropshipping business on Amazon with minimal investment of either time or money.
Here are the five steps to launch your dropshipping business on Amazon:
1. Do your research
Try to find niche products that are in high demand with minimal competition, and preferably something you’re familiar with.
2. Create an Amazon seller account
Create your account on the Amazon Seller Central page. Amazon gives you two choices in terms of the type of account: individual or professional.
Pro tip: Generally, it’s a good idea to start off with an individual account and switch to a professional account once you’re turning over more than 40 sales per month.
3. Get approval for your product category
This step may or may not be required depending on the types of products you want to sell. Sellers need approval from Amazon to sell in certain categories, including fashion, music, grocery, and jewelry.
4. Find a supplier
The right supplier is crucial for any dropshipping venture. You can identify quality suppliers by searching online, attending trade shows, or using a dropship directory, which usually involves a cost. Be sure to thoroughly vet potential suppliers, preferably by meeting with them face to face.
5. Create an Amazon product listing
The final step is to create a product listing for each item you want to offer through your dropshipping business. You can do this purely through the Amazon platform, or integrate with your own ecommerce site. You’ll need to connect this to your Amazon account using a multi-channel fulfillment app like Amazon by Codisto or Amazon by CedCommerce.
Read More: Amazon vs. Shopify: Which Is Better?
Amazon dropshipping tips
Amazon dropshipping is relatively easy and requires minimal investment to get started. However, given the stiff competition around from large numbers of other Amazon dropshippers, you’ll need to be on your A-game if you want to be successful.
Here are some key Amazon dropshipping tips that will help you make yours a success story:
- Don’t let price be the only thing that differentiates you from your competition. Set yourself apart in other ways, such as compelling product descriptions, excellent customer service, and great customer reviews.
- Don’t sell the same product as everybody else: look for upcoming niche products with growing demand and limited competition.
- Focus on merchandise that is always useful and in high demand, or experiment with obscure, non-traditional products.
- Offer product bundles to improve your profit margins.
- Only sell products that you are very familiar with.
- Diversify your product categories and target different audiences.
- Experiment with different shipping rates to set the optimal price.
Key takeaways
Dropshipping on Amazon can be more challenging than some people would have you believe, and there are certain rules to keep in mind. Having said that, it is a low-risk way to dip your toe in the ecommerce world with minimal investment, that you can use to create a sustainable ecommerce business over time.
It looks like Amazon dropshipping is here to stay, so there’ll never be a better time to get involved and make the most of this opportunity for substantial returns!
FAQs
Is dropshipping legal, and allowed on Amazon?
Yes – dropshipping is a legitimate fulfillment method that is completely permitted on Amazon. Of course, like any business, you’ll need to follow the relevant laws where you operate, such as registering your business and submitting your taxes.
What’s the difference between retail arbitrage and dropshipping?
Retail arbitrage is a business model where you buy products from retailers and then resell them at a higher price for a profit. Dropshipping, on the other hand, is a method of order fulfillment where the dropshipper lists the products online, and then arranges for their supplier to send them directly to their customers.
Do dropshipping companies ship internationally?
Yes, some dropshipping businesses operate internationally, this depends on your business model, trusted suppliers, and target audience. If you want to ship internationally, be sure to thoroughly research international order fulfillment in order to set accurate shipping times and rates, and fees that you will be required to pay.
Can I dropship through Amazon FBA?
No – although many people confuse Amazon Fulfillment (FBA) and Amazon dropshipping, and they do have many similarities, these are actually two quite different business models. Because you own the products through the Amazon FBA model, you essentially have inventory, and so this cannot be considered dropshipping by definition.
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