If you are sales-savvy and looking to start an e-commerce business with minimum investment, you probably heard that drop shipping is the way to go. Since Amazon is one of the world’s leading marketplaces, it may seem like the best venue to start your online store. But how successful can you get with an Amazon drop shipping business?
You are sales-savvy, a good manager, and have decent marketing skills? Nowadays, that is quite enough to start a business. You don’t even have to have a warehouse in your garage or thousands of dollars you will invest in an uncertain outcome. Drop shipping, especially tied to an already established marketplace like Amazon seems like a risk-free endeavor. But is it? Well, it depends on your goals.
Here are things you need to know before you decide to start Amazon drop shipping.
1. What is dropshipping?
Drop shipping means your online store serves as a liaison between the shopper and a manufacturer. Manufacturer handles warehousing, shipping, and inventory, leaving you free to deal with marketing and growing your business.
Drop shipping is convenient because it requires:
Low investment and low risk
You don’t have to worry about product development, stocking up, or warehouse expenses – you simply order a product once the customer purchases it. This means you don’t have to hire extra workers or worry about shipments, but more importantly, you don’t have to guess which products you should stock up on.
So, you won’t have to worry about wasting money or paying warehouse for products that nobody eventually buys. This is also convenient if you are running a drop shipping business to learn more about your target market.
Simplicity
You don’t have to be an experienced seller to start a drop-shipping business. Your part of the job is to worry about your online store management, customer service, and marketing. This allows you to fully dedicate yourself to growing your business, without worrying about logistics.
Starting a drop shipping business shouldn’t take more than a day – if you want to know the details, click here for a full guide on starting your online store for as little money as possible (spoiler: around $500 for full set up).
There are also some less convenient sides to drop shipping.
Fees
Setting up the right price for your product can prove to be a challenging calculation. On one hand, you want profit, but on the other hand, you also want to offer a competitive price. Reconciling these two goals becomes difficult if you include the additional fees associated with drop shipping services. The seller might tack on another ‘fee’ for you to use their services, making your end profit margin even slimmer.
Moreover, if there is any problem with your product or shipment, the responsibility is all yours – even though the product was made and shipped by a third party.
Not the best branding strategy
When you are in drop shipping business, you are merely a liaison between the buyer and supplier. These are not your products. There are no gifts, promotional offers, or special packages that can help you create a distinct identity or a long-term relationship with a customer.
If you’ve taken all of this into account, keep going. There are several ways you can start a drop shipping business, but in this article, we will be talking specifically about Amazon drop shipping.
2. How to start Amazon drop shipping
Amazon drop shipping business is relatively easy to start. First, you have to decide whether you are going to build your own online store or use an established e-commerce platform like Shopify or BigCommerce. In this article, you can find a detailed guide on free open source e-commerce platforms, and here are detailed steps to open an online store.
Amazon is a fairly welcoming place for third-party sellers, so there are plenty of options for newcomers.
If you want to do drop shipping with Amazon, I recommend that you use Shopify platform, which recently partnered with Amazon. This way you’ll be able to add Amazon as a sales channel with as little fuss as possible. After that, move on to these steps.
Study the rules
Amazon drop shipping business has to follow a specific set of rules.
Dropshipping on Amazon is generally acceptable. However, they have listed a set of dos and don’ts that you need to keep in mind if you are planning to use Amazon Dropshipping. Since you are on their turf, don’t try to game the system because you could end up with a suspended account. Here are the basic rules:
- Be the seller of record of your products;
- Identify yourself as the seller of your products on all packing slips and other information included or provided in connection with them;
- Be responsible for accepting and processing customer returns of your products
- Comply with all other terms of your seller agreement and applicable Amazon policies.
Examples of drop shipping that is not permitted:
- Purchasing products from another online retailer and having that retailer ship directly to customers; or
- Shipping orders with packing slips, invoices, or other information indicating a seller name or contact information other than your own.
Study the eligible products
Amazon also has very specific rules about the products you can and cannot sell on their marketplace. So, before you start with Amazon drop shipping, make sure you know whether the eligible products fit your business niche. This is the current list of the eligible products for Amazon drop shipping.
These are the products requiring approval and restricted products – in these links you can find detailed Amazon’s policies regarding them.
Create an Amazon seller account
If your plan is to develop your Amazon drop shipping business to sell as many products as possible, the best thing you can do is create a professional Amazon seller account. These are the differences between the Individual and Pro Amazon plan so you can decide which one fits your needs and goals better.
Connect Amazon with your online store
When you create an Amazon account and get all the necessary approvals, connect your account to your online store. On e-commerce platforms like Shopify, it requires a few clicks. If you are running your own hosted online shop, seek information from the customer service from your e-commerce platform.
And now you are ready to start selling!
3. Pros of Amazon drop shipping
On top of pros and cons of drop shipping in general, Amazon drop shipping adds a few considerations in the mix.
Large audience
Amazon drop shipping immediately solves one of the greatest challenges for every online business beginner – reaching a large audience.
Amazon drop shippers have a convenience of being part of Amazon’s own search engine and being exposed to millions of potential customers each month that are looking to buy.
Of course, this does not mean that you shouldn’t spend your time building a marketing strategy. Amazon is still a large marketplace and there are millions of other sellers who are fighting to reach the same customers as you.
Established trust
Similarly, with Amazon being a large, established marketplace, people put trust in it. If somebody stumbles upon the same item on the unknown website and on Amazon, chances are that they are going to purchase it on Amazon.
4. Cons of Amazon drop shipping
Lack of flexibility
On top of fees you might expect from your supplier, you are also going to deal with Amazon’s own fees on sold items puts additional constraints on the way you are going to form the price.
Moreover, being part of Amazon’s search engine, the advertising of products you sell is privy to their requirements and standards, leaving you with little maneuvering space for original marketing message on the marketplace.
Your niche is also subject to Amazon’s rules, so there are also limitations to which products you can sell.
The ultimate benefits go to Amazon
If drop shipping was dirt sneaky, Amazon would not allow it. The reason they allow it is because they benefit from it more than you do. Apart from cashing in on fees for sellers, allowing sellers to drop ship is Amazon’s strategy of feeling the customers’ pulse.
They keep all the customer data you could otherwise use to attract new audiences, generate leads or convert them to sales. The only thing you know is what people buy – who buys, when, how – that’s what stays with Amazon.
Amazon can and will use this data to discover new profitable target markets and products. If they decide to sell something similar to you, you can bet that listings and search engines are going to favor Amazon products as opposed to yours.
Limited growth
For all these reasons, you may discover that Amazon drop shipping business can grow only to a certain point – and if you want to reach higher, you won’t be able to break the ceiling.
Finally, think about this – more and more (not less and less) business owners are discovering e-commerce opportunities. Why would a supplier who makes, owns and ships the product do that through your store? They can easily set up their own – on Amazon. In general, all of these platforms are now available to people who are not tech-savvy.
Final Verdict
There are two pros for Amazon drop shipping and three cons. Should mere numbers on each side guide your final decision? Definitely not. Drop shipping business (on Amazon or elsewhere) can be a low-risk way to start a successful e-commerce journey. If you feel that you don’t want to move beyond that, you can compromise with certain downsides and limitations of drop shipping.
If you want to grow your business and build a brand, drop shipping can be one part of your overall strategy. But given its limitations, it should not be your sole focus.
Making an informed decision about the right type of online business is not easy – but we got you. If you want to learn more about the requirements and investments for starting an e-commerce store, click here. If you already made up your mind, here we review the best free e-commerce platforms and here we are helping you decide which payment processor is the best option for a business beginner.
