So, you're interested in dropshipping and especially wondering how much can Amazon dropshippers make?
Is it even worth trying? What sort of profit per unit I can gain with Amazon dropshipping in 2020?
Of course, YES! For example you're dropshipping a product on Amazon for $30 which you've sourced at $7 from your supplier. Add Amazon's Seller, Referral, and Fulfillment fees to it which is around $7-$8. You'll end up with a profit of $15 per Amazon dropshipping sale.
But, Amazon dropshipping is little different from the regular dropshipping as Amazon has laid out some rules specifically for dropshippers.
You'll need to take some additional steps to be able to dropship successfully on Amazon. Check out below.
Drop Shipping Policy
Drop shipping, or allowing a third-party to fulfill orders to customers on your behalf, is generally acceptable. If you intend to fulfill orders using a drop shipper, you must always:
- Be the seller of record of your products;
- Identify yourself as the seller of your products on all packing slips, invoices, external packaging, and other information included or provided in connection with them;
- 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.
Examples of drop shipping that is not permitted:
- Purchasing products from another online retailer and having that retailer ship directly to customers, if the shipment does not identify you as the seller of record or if anyone other than you (including the other online retailer) appears on packing slips, invoices, or external packaging;
- Shipping orders with packing slips, invoices, external packaging, or other information indicating a seller name or contact information other than your own.
**Let's check out some important things from Amazon's Seller policy and what you need to do in order to be a risk free Amazon dropshipper.
- The key takeaway from Amazon's pilicy is - you'll need to talk with your supplier to ensure there is no other branding on the product package and to include your dropshipping store name wherever possible.
- Sometimes, it might be the case where a supplier mentions their name as a seller for customs purposes which could cause an issue in regards to Amazon's dropshipping policies. It's important that you make this point clear with your supplier that there shouldn't be any other name whatsoever associated with the product packaging.
Now, let's see some Pros & Cons of Amazon dropshipping!
Pros of Amazon Dropshipping
- Brand Value
Who doesn't want to sell with a beast like Amazon.com which is the world's largest and popular e-commerce platform. When you dropship with Amazon, you inherit their brand value, the trust customers have on them and a ton of free marketing and spotlight.
It's a huge advantage especially for someone starting dropshipping on Amazon as it takes out the huge burden of marketing your dropshipping store on your own.
As mentioned above, you don't need to worry about marketing your product when dropshipping with Amazon as your product will get a good number of views once your product is onboarded to Amazon.
This is a big big advantage as I know how much of a challenge it is to brand and market your new dropshipping store when you are starting out that too with a very little or zero budget sometimes.
3. Prime Shipping
Shipping, which is the biggest struggle for any dropshipper is a breeze when dropshipping with Amazon as Amazon takes care of shipping. The world's most popular and fastest shipping titled 'Amazon Prime Delivery' is with you!
Only thing is that you need to make sure the inventory is sent out to Amazon's warehouses for them to fulfill your orders quickly through Amazon FBA program.
Cons of Amazon Dropshipping
- Upfront Investment
As mentioned above, you cannot do traditional dropshipping with Amazon as Amazon doesn't like to keep their customers waiting for a long time for their products to arrive which is the usual case with dropshipping outside of Amazon.
Either you need to make sure the product is shipped out and delivered to the customer within 7-14 days for every order or send out stock in bulk to one of the Amazon's warehouses to sell through FBA (Fulfillment by Amazon)
As an experienced dropshipper, it's quite difficult to deliver within 7-14 days when you are dropshipping from your supplier who is most probably based in China. The average dropshipping delivery time from China is around 20-28 days to the States and other popular destinations.
Even though some suppliers promise faster delivery, it might not be practically possible and that too in the post pandemic conditions.
And if you have to take the other step which is to send stock in bulk to one of the Amazon's FBA warehouses, it completely takes out the equation of dropshipping as that will be considered as a traditional e-commerce business where you are holding some inventory.
There are chances you might not even get any sales on Amazon and all your inventory is just sitting in one of the Amazon's FBA warehouses and you might even end up paying for Amazon's Long term storage fees.
I would advise you do something like this when you see a good reception for your product from the audience in that specific market when you are trying to get into dropshipping on Amazon.
For example if you are looking to sell on Amazon US as a dropshipper, make sure you have enough sales data outside of Amazon to back up your decision to buy stock in bulk to be sent to Amazon's warehouses.
2. Profit Margins
One of the major issues you might observe is Profit Margin. For all the marketing and brand boost you are receiving with Amazon, you are trading off some money in the form of Amazon's Selling, Referral & Fulfillment fees.
The amount you pay Amazon for each order depends on multiple factors like your product cost, size, category and weight as Amazon charges you at multiple levels starting from selling till delivery to the customer.
Let's consider 2 examples below for FBA & Non-FBA Amazon Dropshipping Orders
Amazon FBA Dropshipping Order (Non Apparel)
Product cost - $10
Selling fees - $0.99
Referral fees - $0.30
Fulfillment fees - $2.63
Sale Price - $24.99
Net Profit - $11.07 per order
Amazon Non FBA Dropshipping Order (Non Apparel)
Product cost - $10
Shipping cost - $8
Selling fees - $0.99
Referral fees - $0.30
Sale Price - $24.99
Net Profit - $5.7 per order
As you have observed in the above example, selling through FBA will give you some room for profits whereas if you dropship through your Chinese supplier, it will cut through your profits a lot and also there are high chances of risk in terms of your delivery times.
This could also lead to your Amazon account being suspended if you are unable to get your deliveries to the customer within 14 days of order.
Gradually you'll end up doing traditional e-commerce where you will be stocking some inventory at one of the Amazon's warehouses which opens up a new inventory risk for dropshippers on Amazon.
Due to the fierce competition on Amazon and pricing game between sellers, you might not get enough sales in order to sustain on the Amazon platform and end up with a good amount of inventory at Amazon warehouses.
There will be 2 additional costs here if your product doesn't get sold within 6 months.
Bulk Removal request
Amazon either asks you to pay for long term storage fees or you can request a bulk removal to get back the stock from Amazon warehouses which could be another loss to your Amazon dropshipping business.
Inventory at hand
Once you get the stock back either to your place or to the supplier's place, you will be still left with that unsold inventory and the money spent on that inventory can be considered a loss to your dropshipping business on Amazon.
It's quite important that you don't hold large amount of inventory at any given time to reduce the risk to your Amazon dropshipping business. In case your product is getting good number of sales, try restocking with 50 or 100 units and see how it goes.
The fact in dropshipping business or in any e-commerce business is that you never know when a product might die. So, it's your responsibility to stay afloat with as much less inventory as possible at hand to avoid any losses.
At the same time, you need to make sure there is enough stock at Amazon warehouses to be able to fulfill customer orders. Keep a check on stock levels on a daily basis and take a smart call accordingly.
There is nothing wrong in trying to dropship on Amazon but with the amount of competition and sellers out there, I'd strongly recommend you do a thorough research about your product and existing market for it on Amazon including the competition and their prices etc before you get into Amazon dropshipping business.
Dropshipping itself is a lot of time, money and effort and considering Amazon Dropshipping, you'll need to invest a lot more time and effort to be able to comply with Amazon's seller policies, fulfill orders on time and taste some dropshippingsuccess!
Be open to learning and testing new things as this is the core part of the dropshipping business. But if you try Amazon dropshipping, I'm sure you will be relieved from the general marketing stress that every dropshipper has as Amazon will take care of the marketing for you!
Key is to find a unique product in a successful niche in Amazon to be able to stand out from the competition and make some healthy margins. Continuous testing is very important to be able to understand which product works well and you never know when you might hit that gold mine.
Upon doing your product research, try to test products via the Non FBA way as you don't want to straight away send some inventory to Amazon warehouses and end up not getting any sales. It's important you test the product first by shipping through your supplier and see how the demand is.
That way, if one product doesn't work out, you can move to another one. In case you send out a product in bulk to Amazon warehouses without testing it, it will pose a big risk and you might lose all the money invested in that inventory.
Think carefully before taking any step that involves investment especially in the dropshipping business so that you don't end up losing money.
All the very best with your Amazon Dropshipping business and let me know how you get on with it!