Selling your products on Amazon seems like a no-brainer. Amazon has a massive reach both geographically and in their customer base. These qualifications mean you can market and sell your product to customers you would never find otherwise and grow your business exponentially.
If you’ve already decided to sell on Amazon, or you’re considering it, you need to consider logistical and cost factors including using Amazon drop shipping software, and stocking, storing, packaging, and shipping your product.
Do you want to stock your own product and ship it directly to the customer from your facility? Or would you rather ship the product to Amazon to stock, store, and dropship to the end customer? Let’s take a look at how to dropship on Amazon.
How Does Dropshipping Work?
There is always a cost associated with stocking and shipping products. In order to store products, you need a container or building to house them, depending on their size and value. Other concerns may be storing products that require special safety standards.
Shipping items also incur a cost. Shipping costs include packaging, mailing, and delivery costs. Amazon describes dropshipping as follows:
Dropshipping allows you, the seller, to outsource the fulfillment process to a third party, typically a supplier. The manufacturer or third-party supplier handles the production, storage, shipping, and delivery of products to the customer.
This business model appeals to some ecommerce sellers because it can decrease overhead and operating costs. In some dropshipping agreements, you handle marketing and customer service, while the dropshipping service manages the physical goods and fulfillment.
Amazon Dropshipping Logistics
How does dropshipping from Amazon work logistically? Here are the steps:
- You source or produce the product.
- You make an agreement with Amazon.
- Amazon stores the inventory.
- You host an ecommerce storefront or website.
- A customer places an order.
- You process the payment.
- You forward the order to Amazon.
- Amazon prepares the order.
- Amazon ships and delivers the product.
Dropshipping to your customers from Amazon means you don’t have the costs of storing, packaging, or shipping to the end customer.
And it’s important to note that Amazon uses its own shipping service for the majority of shipments and deliveries.
Amazon’s DropShipping Policy requires sellers to:
- Have an agreement with your supplier that they will identify you (and no one else) as a seller of your products on all packing slips, invoices, external packaging, and other information included or provided in connection with the products;
- Remove any packing slips, invoices, external packaging, or other information identifying a third-party drop shipper prior to shipping the order;
- Be responsible for accepting and processing customer returns of your products; and
- Comply with all other terms of your seller agreement and applicable Amazon policies.
Please note: These rules are for the U.S. If you are dropshipping in other markets, check the seller agreement for those markets.
Fulfillment By Amazon Program
Amazon also has a Fulfillment By Amazon program (FBA) in which you can send inventory directly to Amazon to store. With FBA, you can access Amazon’s customers and marketplace. Amazon will take the order, receive the payment, package, and ship. As the seller, you pay any fees associated with the order from the customer payment, and then you receive the balance of the order payment. You can use FBA for other sales channels, but the majority of FBA sellers do so on Amazon.
Pros & Cons of Dropshipping from Amazon
Some of the pros and cons of dropshipping from Amazon depending on your business model and/or the size and weight of what you are selling. If you are the actual manufacturer of the end product, you don’t have to store large quantities of your product, because Amazon can do it. But, if you are a wholesaler who is buying products and reselling them on Amazon, you have to weigh the costs of purchase, storage, shipping, and competitive pricing on Amazon.
PROS
• Getting in front of millions of Amazon shoppers
Amazon has a huge marketplace and you can get your product in front of all of those customers. In 2021, buying online has continued to grow, and Amazon is one of the biggest reasons why.
• Targeted niche traffic
Amazon offers very targeted categories, enabling you to reach niche customers.
• Setting up is free and easy
Setting up a seller’s account on Amazon is free, and it’s pretty easy to list products. You don’t need to have your own ecommerce website.
• No upfront costs
As in most dropshipping agreements, there is no upfront cost. (Unless you are doing FBA in which you ship the product to Amazon to be stored, incurring a shipping and storage cost. There is a limited program to offer free costs.)
CONS
• Limited personalization
Listing your products on Amazon means you have to use their product template to list products. That limits personalization in the listing.
• Sales data exposed
Amazon can see all of your sales data and potentially use it themselves later on.
• Amazon can suspend your account
This is a big one. Amazon owns the online store, so they can suspend your account indefinitely for any reason they decide to. Generally, accounts that get suspended are trying to cheat the system or not working within Amazon’s rules. But, not always.
• Can’t sell the business
It’s not your business to sell. Basically, you’ve been borrowing or renting Amazon’s store to run your business, which means you have nothing to sell.
• Competition
Depending on what you’re selling, you may have a LOT of competition. In fact, other sellers may be selling the exact same thing you are. This results in tiny profit margins for competitive products.
• Customer relationships
Amazon handles most or all of the transactions with customers, reducing your opportunities to engage with them.
Is Dropshipping on Amazon Profitable?
This is the biggest question that needs to be answered for your business, and like most sales questions, the answer is maybe.
How to Make Money Dropshipping on Amazon
You can’t make a profit selling ANYTHING and dropshipping it with Amazon. However, you can make a good profit selling and dropshipping with Amazon, if:
- Your product is unique or hard to find.
- You purchase your product at a significant discount.
- You manufacture or create your own product.
- You already have a dedicated following who buys from you.
- Your product isn’t in one of these high-maintenance categories:
- Large
- Heavy
- Fragile
- Valuable
- Needs special conditions to store and/or ship
Note: Your products can fit into the high-maintenance categories, and you still make a profit. But, these categories increase the storage and shipping fees.
If you can keep your storage/seller fees low enough, you can make a good profit on Amazon dropshipping in 2021. According to Sixads.
Amazon usually takes around 15% of your revenue. Typical dropshipping margins are generally about 10-30%. So, even if your margins are 30%, you’ll only be making 15% by selling on Amazon. To be profitable, you’ll either have to find a winning product with high margins or scale your sales.
So, is Amazon Dropshipping Profitable?
Yes. Ready to get started? Learn more about Amazon dropshipping and Amazon drop shipping software here.
