Have you been looking for a way to start selling on Amazon, but don’t have enough time or capital for it? Here’s what we suggest: Dropshipping on Amazon.
In 2017, over 23 percent of all the global online sales were fulfilled through the dropshipping which equates to over $85 billion in revenue. This number is only growing every year and for a good reason.
Dropshipping is profitable for everyone involved -- Suppliers make 18 percent more profit when they sell it to dropshippers as compared to selling the products through their own stores and dropshippers can make over 50 percent more profit by not keeping their own product inventory.
Amazon is the biggest ecommerce platform in the world with more than 300 million customer accounts and it only makes sense to start your dropshipping journey through it. Over 34 percent of Amazon orders are fulfilled by dropshippers and if you have been meaning to get into the ecommerce business too, this is the perfect way to start.
While it can seem rather daunting to start Amazon dropshipping, by following the right processes and practices you can ace it easily. In this article, we’ll discuss everything you need to know to successfully master dropshipping on Amazon in 2021.
What is Dropshipping on Amazon
Dropshipping is a type of online ecommerce method where the sellers do not keep the product that they sell in stock with them. The seller buys the product on behalf of the customer from a third-party (distributer, supplier, or manufacturer), who is then responsible for shipping the products directly to the customer.
Amazon is a favored platform for dropshippers with over 53 percent of the products purchased through third-party sellers on the platform -- the majority of which use dropshipping in order to fulfill the orders. Considering Amazon accounts for a big chunk of global ecommerce sales, this is a hugely profitable market waiting to be leveraged.
Here is how dropshipping works on Amazon:
- A customer purchases a product you have listed on Amazon
- You receive the funds from the customer and use it to purchase the product directly from the supplier
- The supplier ships the product directly to the customer. The price difference between your product listing and the supplier pricing is your direct profit
Let’s go through some of the common FAQs that most people have about Amazon dropshipping:
Is dropshipping allowed on Amazon?
Yes, dropshipping on Amazon is definitely allowed, as long as you abide by all Amazon’s product listing requirements, which include:
- You need to be the seller of records of all the products you have listed on your Amazon account
- You should make sure all the packing slips and other billing documents mention you as the main seller of the product
- You should remove any invoices or external packaging that identifies the dropshipping supplier
- You should be the one responsible for managing order returns
It is important to note that Amazon sellers are not allowed to purchase products from another retailer and then ask those retailers to ship the products directly to customers. You can only dropship through a supplier.
All the shipping documents should also all indicate that you are the main seller/ retailer of the product. If you don’t abide by all the Amazon policies, it may even result in you losing your account and selling privileges on the platform.
What is Amazon FBA?
You can do dropshipping on Amazon with the help of the Fulfilled by Amazon (FBA) program.
When you are an FBA seller, Amazon is solely responsible for pickup up, packing up, and shipping your orders to your customers, on your behalf. The company also provides the customers with tracking information and takes care of all the customer support related issues, including exchange and returns.
Though, FBA comes with a price tag. Amazon charges for fulfilling the orders on your behalf and storing the products in their fulfillment centers. The fulfillment fees depends on the type of products you sell and the duration of time the products stay in the storage centers.
When you become an FBA seller, all of your product listings on the platform will have ‘Sold by [Your seller name] & Fulfilled by Amazon’ mentioned on it. The obvious benefit of becoming an FBA seller is that you get to offer free shipping to Prime members and you are also more likely to appear as the first seller to the customers -- That is, you win the buy box.
Here how fulfillment works on Amazon:
- You purchase the products in advance from a supplier and ship them directly to be stored at one of Amazon’s storage warehouses
- Amazon keeps your products in storage until orders come in
- When a customer buys your product, Amazon receives it and ships it directly
- Amazon handles any kind of customer complaints or requests for exchange or returns
Dropshipping with FBA means you have to buy inventory in advance and make sure you always have enough products in Amazon’s fulfillment centers so you don’t go out of stock. But FBA is a good way to go if you want to scale your business at a faster pace and don’t mind investing a bit to pay for the products before you actually sell them.
How much does it cost to dropship on Amazon?
The fee for dropshipping on Amazon can vary a lot according to the product type that you are selling and the average number of products you sell in a month.
There are two plans available on Amazon:
Individual plan -- costs $0.99 per product unit sold
Professional plan -- costs $39.99 per month, regardless of how many products you end up selling
There is also a referral fee charged by Amazon which is a small percentage of the total product price and the exact fee amount depends on the product category.
Is Amazon dropshipping profitable?
Amazon dropshipping can definitely be profitable when executed in the right way. On average, dropshipping margins are usually between 10-30 percent and Amazon takes about 15 percent of your revenue.
Now, if your margins are about 30 percent and Amazon takes off the 15 percent, you still have a 15 percent profit margin with you. This can further increase if you end up winning the coveted Buy Box. Though that can be very competitive and dynamic, and you shouldn’t always rely on it.
Step by step guide to start dropshipping on Amazon
Step 1 – Set up an Amazon seller account
The first thing that you obviously need in order to start selling on Amazon is to create a seller account on the platform. You can sign up by going to Amazon’s Seller Central. You can use an existing Amazon account to sign up as a seller or create a new account.
You will have to provide information about your store name, registered business name, your location, and whether you manufacture your own products or not. You can also add the billing information to streamline payments to your account.
Step 2 – Find a high-demand/low-competition product
The next step is to find the products that you want to dropship and sell through Amazon. The idea is to find some high-demand and yet low-competition products that can help you gain more visibility and conversions at the same time.
Look for products that easily sell 100-300 units every month on the platform and do not have pricing of more than $35. Also, when you are starting out, make sure to keep things simple -- start with a small number of products and then slowly expand your offerings
Step 3 - Find the best dropshipping suppliers
Choosing a reputable, qualified, and reliable dropshipper is one of the most important parts of becoming a successful Amazon seller. After all, it is your own reputation on the line.
If the customers don’t like the quality of your products, they will eventually leave bad reviews and your seller ratings will go down drastically.
Here are a few ways you can find genuine dropshipping sellers on Amazon:
- Look for suppliers on platforms like Wholesale 2B, SaleHoo, and AliExpress. Make sure to check the supplier reviews to ensure they trustable and genuine
- Before finalizing a supplier, you should check their office numbers or run a quick Google search on them
- Fake dropshippers will very often offer you with super low rates that seem almost too good to be true -- and they are
- Its common for fake dropshippers to ask for a big upfront payment or a direct payment to PayPal instead of their account
Step 4 -- Get approved in your product category
There are certain product categories and types that require approval from Amazon before you can start selling them. Watches and jewellery are just some of the many categories that require you to get a prior approval from Amazon. You should check out the approval requirements for every category before listing your products.
Step 5 -- Create an Amazon product listing
Now, it's time to list your products on your seller account. Go to Inventory → Add a product. You will see a product screen pop up and you should click on ‘Create a new product listing.’
Add all the information about the product while ensuring accuracy. Also, when you are setting the price for the product, keep in account all the fees and the charges that will get deducted including referral fee, shopping fee, and FBA fee.
As soon as you are ready, you can take your product listing live and start making sales. In case you already have a Shopify account, you can also link your Shopify to your Amazon account and automatically create listings.
Step 6- Track and sync inventory
As a seller, especially if you are shipping your products with the help of Amazon FBA, you have to constantly monitor stock levels of your products to ensure you don’t go out of stock.
It's also a good idea to track your store’s past performance to get a clear understanding of how much stock you need to maintain on a monthly basis.
Pros and Cons of Amazon Dropshipping
Pros of Amazon dropshipping
No storage or warehousing costs
By opting to be an FBA seller, you can ship your products directly to Amazon to store and the company is then responsible for shipping and delivering the products to the customers on your behalf. It helps avoid any storage or warehousing hassles at your end.
Less work, more profits
By letting Amazon store an inventory of your drop shipped products, you end up putting in less work and still making more profit. This in turn also saves a lot of time which you can use to build and expand your ecommerce business.
Wide customer base
Amazon has over 300 million active users on its platform, which means, when used in the right manner, Amazon as a sales channel can give your ecommerce business big returns. With Amazon, it is possible to reach out to a larger number of prospective customers which just wouldn’t be possible with your own standalone online store unless you put a lot of capital into advertising and marketing.
The Cons of Dropshipping on Amazon
Amazon sees all of your data
One of the biggest drawbacks of selling through Amazon is that the company can see and access all of your sales data -- what products are most profitable, what kind of customers you are attracting, and what price range is working best for you.
Amazon has been accused in the past of using data from small retailers in order to create better selling opportunities for itself. Now, Amazon offers its own set of products on the ecommerce platform too, making it almost impossible for small and new sellers to compete in those product categories.
No way to improve customer loyalty
Amazon as a platform is not focused on helping businesses create long-term relationships with customers. Its focus is to help customers purchase products in the fastest and most convenient way possible. In case you will be dropshipping products that are already offered by a lot of other sellers on Amazon, improving brand awareness and customer loyalty can become all the more difficult.
Dropshipping on Amazon is definitely a profitable ecommerce business strategy when executed correctly. However, it's important to abide by all the rules and regulations set by Amazon in order to succeed.
More importantly, you should always keep your profit margins in mind while deciding on the product rates. While your prices shouldn’t be too higher than your competitors, they shouldn’t be so low that you are hardly able to see any revenue.
At the same time, focus on customer satisfaction and urge them to share positive reviews.