Having trouble deciding how your eCommerce business will fulfill orders? In the current market with supply chain disruptions and inventory shortages, this can be challenging. So you might be wondering what’s best—Amazon FBA or dropshipping?
Before we look into what Amazon FBA (Fulfillment by Amazon) and dropshipping are and the pros and cons around them, let’s consider what they aren’t.
What Amazon FBA and Dropshipping Are Not
Amazon FBA (Fulfillment by Amazon) and dropshipping don’t involve scenarios where you, as the seller, are fulfilling the orders on the goods that you’ve sold.
In simplistic terms, if you’re fulfilling your orders yourself, you’re likely to be having to securely pack your customer’s purchase, fill out any relevant forms and pay for shipment, wait for your courier or postie to pick it up, advise the customer their purchase is on the way, and deal with any customer inquiries around the progress or status of the shipment. And, heaven forbid, deal with any customer returns too.
We’ve probably missed a few aspects there, but hopefully, you get the gist that it’s all down to you. In Amazon speak, if you’re doing the packing and posting on your own, you are to them an FBM seller. That’s Fulfillment by Merchant.
Yes, there’s a lot to do if you’re doing it on your own. And you can multiply this workload by an eye-popping amount if you have lots of products that are selling like hotcakes.
Fulfilling your orders can be a challenge. It’s an activity that can gobble up your time, time best spent on what you’re in the game for—selling. So, ask yourself why you’re packing boxes when you could be marketing and selling?
Enter the concept of getting someone else to do the fulfilling for you! That’s Amazon FBA and dropshipping, the two main alternatives to FBM. (There is a third slightly different variation of getting someone else to do it for you, called 3PL, but we’ll deal with this later to keep the current acronym count down.)
Let’s take a closer look at what FBA and dropshipping are and the advantages and disadvantages of each.
What is Amazon FBA?
Fulfillment by Amazon (FBA) is a service you can use to outsource your order fulfillment to Amazon. You send your products—before you’ve sold them—to Amazon fulfillment centers (or ‘warehouses,’ though Amazon isn’t a fan of that term). When a customer buys one of your products held by Amazon, the Amazon team gets it off the shelf, packs it, and ships it. They can also help on the customer service front and even process any returns for those orders.
But as you’ll already no doubt be aware, there’s no such thing as a free lunch. You pay Amazon for this service. This is, in effect, taking a slice of your profit margins.
When considering Amazon FBA vs. dropshipping, you’ll need to look closely at the sums to see if it’s still worth your while. What your product actually is, the product packaging (not the dispatch packaging), and your product size and weight can affect what you end up paying Amazon.
You want them to store big or heavy boxes and fulfill the orders for them—they’ll charge you more. Look at their tariff; you might be able to reduce your product box size or weight to squeeze into a lower charging tier.
Note: Roughly speaking, if you have a small, heavy box, they might charge you for the weight. If you have a big light box, they’re likely to charge you for the size.
Related: How to Control Inventory Storage Costs for Amazon FBA Sellers
Finally, as the big player in its own big market, Amazon has lots of bells and whistles that can benefit you directly. Shipping promos and Amazon Prime, to name just a couple. They might also tend to ‘favor’ or rather ‘help’ their FBA suppliers over their FBM ones, which would make sense as they make more money. There are some Amazon Business Models benefits you can also take advantage of if you’re an FBA supplier.
FBA to Amazon is their natural stomping ground. Packing and shipping stuff is what they do. And they’re good at it too. Because customer service is so critically important to them, you’re in safe hands as far as the fulfilling of your orders is concerned. Bear this in mind as we have a look at dropshipping.
What is Dropshipping?
The main dropshipping scenario is one where you’re selling a third party’s product, and they’re packing it and sending it directly to your customer. This third party could be a wholesaler, manufacturer, or another retailer.
This, like FBA, is great in that you aren’t having to fulfill orders. It’s also great because you aren’t having to buy stock of the product and pay to ship it into a warehouse to wait to be sold. It’s kind of like FBM, only you’re the middleman and aren’t involved in the fulfillment. Get it right, and it can be a lovely low-cost way to run your eCommerce business with minimal startup costs.
One thing worth noting about dropshipping at this stage is that you’re one step removed from the action. In other words, you aren’t in the communication loop with the customer who is being fulfilled. You aren’t ‘in control’ of the relationship in that respect. It’s likely your brand has nothing to do with the shipment.
This can be fine unless something goes wrong. That sort of thing could be sloppy shipping by the third party, delayed deliveries, or unrefunded returns—you can’t step in and firefight on any of these. This is, arguably, being a bit alarmist, and it’s very much a worst-case scenario—most dropshipping setups are well established and appreciate the nuances around customer service and prompt fulfillment.
And, importantly, you keep those costs down! According to recent market data, the global dropshipping market is expected to reach $442.61 billion by 2025, demonstrating the scalability and popularity of this online business model.
Comparing Amazon FBA vs Dropshipping
When deciding between FBA or dropship options for your eCommerce fulfillment models, consider these key differences:
Inventory Risk
- Amazon FBA: Requires upfront purchase of inventory before sales, creating higher initial risk but potentially better profit margins
- Dropshipping: No inventory risk as you only purchase products after customers place orders
Startup Costs
- Amazon FBA: Higher initial investment for inventory plus FBA fees
- Dropshipping: Lower barrier to entry with minimal upfront costs
Scalability
- Amazon FBA: Excellent scalability with Amazon’s vast fulfillment network
- Dropshipping: Easy to scale product offerings but may face challenges with supplier reliability
Profit Margins
- Amazon FBA: Potentially higher margins (64% of Amazon FBA sellers become profitable within 12 months)
- Dropshipping: Typically lower margins due to intermediary costs (success rate around 10-20%)
Customer Service
- Amazon FBA: Amazon handles most customer service issues
- Dropshipping: You’re responsible for customer service while having less control over fulfillment
Looking for more info? Check out our complete guides on Amazon FBA Pros and Cons and Amazon Dropshipping Guide.
Which Model Should You Choose?
The decision between Amazon FBA and dropshipping ultimately comes down to your business goals, available capital, and willingness to manage different aspects of the eCommerce process.
If you have the capital to invest in inventory and want to leverage Amazon’s powerful fulfillment network and Prime benefits, FBA might be the right choice. With a higher success rate and better integration with Amazon’s ecosystem, it provides a more hands-off approach to order fulfillment.
If you’re starting with minimal capital and want to test products with little risk, dropshipping offers flexibility and lower startup costs. However, be prepared for lower profit margins and less control over the fulfillment process.
Many successful online entrepreneurs actually use a hybrid approach, starting with dropshipping to test product viability before scaling successful products through Amazon FBA. This strategy combines the low-risk testing capabilities of dropshipping with the scalability and efficiency of FBA.
Looking for more guidance? Check out our Amazon Selling Tips to optimize your performance regardless of which model you choose.
Remember that both models require strategic planning and continuous optimization to stay competitive in the ever-evolving eCommerce landscape of 2025.
