Is dropshipping on Amazon still a viable business model in 2023? Absolutely! In fact, it’s one of the best ways to get started in ecommerce. And, with a little bit of effort, you can be up and running your online store within a matter of weeks.
In this article, we’ll talk about dropshipping on Amazon, it’s benefits and disadvantages, and how to do it right in 2022.
What is dropshipping?
Dropshipping is an order fulfillment option that allows ecommerce businesses to outsource the processes of procuring, storing, and shipping products to a third party—typically a supplier.
This fulfillment model commonly appeals to entrepreneurs seeking efficiency and low overhead, but it can come at a cost—especially when it comes to customer experience. This guide will cover what dropshipping is and explore how this fulfillment method can work. We’ll also look at a few dropshipping alternatives that can potentially save you time, lower your overhead, or simplify your business.
How does dropshipping work?
The exact logistics of dropshipping depend on your arrangement, but typically the dropshipping process follows this general sequence:
Seller signs agreement with dropshipper.
Customer orders online.
Seller receives order.
Customer receives an order confirmation.
Seller forwards the order to dropshipper.
Dropshipper ships the order.
Customer receives their product.
Dropshipping vs. Retail Arbitrage vs. Private Labeling
Before we get into the meat and potatoes, let’s compare dropshipping to a couple of other popular ecommerce business models: retail arbitrage and private labeling.
Retail arbitrage (Amazon arbitrage if you’re selling on Amazon) is buying products for cheap from a retailer and flipping it for profit. Under this model, you do in fact own inventory at some point, which you typically rack up during big clearance sales or heavy-discount seasonal promotions from big stores.
Private labeling is buying off the shelf products from suppliers (usually from China) and selling them under your own brand.
What is Amazon Dropshipping?
Dropshipping on Amazon means selling products off of wholesale suppliers, not online retailers like Walmart or Home Depot. Amazon Dropshipping is basically similar to the traditional Dropshipping model except that the product sells on Amazons market and not just through an ECommerce store.
Many dropshippers prefer doing this online with Amazon because of its built-in eyeball and large market. Amazon also has an integrated sales network that integrates easily with ecommerce store and Shopify. Getting ecommerce dropshipping is fairly easy; however it is somewhat more complicated to make it on Amazon.
How Does Dropshipping on Amazon Work?
Before jumping into Amazon dropshipping, you must understand the platform’s policies on dropshipping to avoid suspension. For instance, Amazon’s dropshipping policies prohibit you from purchasing products from another retailer on Amazon. Your seller account can get suspended if you violate it.
Here are other policies that you must adhere to as a dropshipper on Amazon:
You must identify yourself as the seller in your invoices, external packaging, and packing slips.
You must be responsible for accepting and processing returns.
You must comply with Amazon’s Terms of Service.
Once a customer orders a product you listed on Amazon, you purchase the product directly from the supplier by using a portion of the proceeds. You then forward the customer’s information, then the supplier ships the goods to the customer.
At the same time, the invoices, external packaging, and packaging slips must not contain information indicating the supplier’s name or contact details. Simply put, customers aren’t supposed to know that the items are purchased from another company.
Amazon Dropshipping vs Fulfillment by Amazon (FBA)
Merchants on Amazon can take advantage of the Fulfillment by Amazon (FBA) program, which offers similar benefits to dropshipping. It spares you from inventory, warehousing, and fulfillment headaches.
Amazon picks, packs, and ships products on your behalf for a fee that varies depending on the product type. However, it gives you more control over customer experiences.
If you’re dropshipping with FBA, you’re free to choose the type and quantity of products for fulfillment. You ship them to Amazon, and they’ll keep them in their fulfillment centers. When customers make orders, they will pick, package, and ship the products to customers. They will also handle customer service and returns.
FBA, however, might not be the most ideal option for new entrepreneurs because you will have to invest in merchandise. On top of that, you incur fulfillment charges and monthly storage expenses. You have to take that into consideration to make sure that you earn enough profit to continue your business.
Thus, if you don’t have the capital to invest in bulk stock and want to avoid bigger risks, dropshipping is still the best option for you. It’s low risk and profitable—that is, if you put in a lot of time and effort into your business.
The pros of Amazon Dropshipping
Dropshipping is also an advantage and disadvantage in Amazon’s business models. Amazon dropshipping business possesses several advantages that attract beginners looking into online stores. Among these benefits are:
Requires less capital
Dropshipping is a highly accessible and economical way to start a business. Compared to traditional retail methods and e-commerce models like wholesaling, you can earn revenue without buying merchandise upfront and handling products physically. You also don’t need to pick, pack, and ship orders to consumers.
Multiple product categories
Amazon has 30+ product categories. With the help of the right suppliers, you can sell in as many niches as you want. Just avoid selling products that belong to Amazon’s restricted categories, which include alcohol, powersports, and medical devices.
You don’t need to purchase and store inventory to run a dropshipping business, which makes it very convenient for new entrepreneurs. You can set up an Amazon seller account in no time. Once you’ve found suppliers, you can start selling products.
High potential for discoverability
As one of the most popular online marketplaces in the world, Amazon has a massive customer base and a vast array of dropshipping niches. With the right products and suppliers, you have a huge potential market at your fingertips.
If you’re a Shopify merchant, you can connect it seamlessly to Amazon and tap into its large marketplace. By linking Shopify and Amazon, you can manage orders on both platforms easily. You can also keep inventory levels synced between the platforms to prevent over-selling.
The Cons of Amazon Dropshipping
Dropshipping on Amazon comes with a few disadvantages, too. You might want to look into them before jumping right into this new e-commerce venture.
Given the low cost and investment to get started, dropshipping is a highly competitive field. Dropshipping suppliers often offer little room for product customization. This limitation may make it difficult to set your brand apart from the competition.
Dropshipping reduces your involvement in the order fulfillment process, curtailing your ability to monitor and guarantee product quality.
Because the products you sell may not be unique or distinguishable from similar offerings by other sellers, you could have trouble differentiating your offering.
Little to no product differentiators means your business may end up competing more aggressively on price. Selling at low prices can eat up your profit margin.
When a dropshipping service handles the fulfillment process, you do not have control over order selection, packaging, and shipment.
Up-to-the-minute updates on what is available in stock may not be possible. If a customer places an order only to find the product is out of stock, this poor experience can discourage future orders and damage your brand.
Range of offers
Because you don’t handle order fulfillment, you may be limited in the special offers and promotions you can run, such as bundling or free shipping.
Low-quality dropshippers may make mistakes when fulfilling customer orders. This could lead to botched orders, low-end packing, and missing items.
Complex customer service
With dropshipping, you’re still responsible for your reputation and keeping customers happy. If things go wrong with the fulfillment process, managing customer support might be up to you. Amazon is more geared towards helping providers sell products than building customer relationships.
Can You Dropship on Amazon Legally?
Yes, Amazon allows their merchants to dropship on their platform as long as you play by a few key rules.
You must always:
Be the seller on 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 dropshipping that are not permitted:
Purchasing products from another online retailer and having that retailer ship directly to customers.
Shipping orders with packing slips, invoices, or other information indicating a seller name or contact information other than your own.
You can read more about how to dropship with Amazon on their website here.
How to Dropship on Amazon: 8-Step Checklist
1. Choose an ecommerce platform
As Shopify recently partnered with Amazon, using their ecommerce platform would be ideal. Shopify allows users to add Amazon as a sales channel to simplify managing orders on both platforms.
2. Sell the right products
There are several requirements and restrictions for store owners who want to sell their product on Amazon.
According to Amazon’s list of eligible stores, you can open up an Amazon store without approval if you’re in a niche like books, computer and video games, electronics, office products and the like
Take a peek at Amazon’s list of restricted products to make sure you’re not in any of these categories. These items include things like hoverboards and dangerous goods.
3. Create an Amazon seller account
If you plan on selling a high volume of products, it’s best to have a professional account. In the individual selling plan, you’re charged 0.99 cents per item sold, which can eat away at your margins.
Keep in mind that you’ll also need to offer competitive pricing and the occasional discount, while still ensuring you make a large enough profit to reinvest in the business. So watch your margins. With a professional seller account, you pay a subscription each month, as well as a few additional fees.
You’ll want to register with your email on Amazon Seller Central. Then, you’ll need to fill out your name, email, and password. You’ll then need to provide more details about your business, such as address and tax information.
4. Get approved in your product category
As I mentioned earlier, certain niches and product types require Amazon approval. Fashion, beauty, and jewelry are some of the popular niches that require approval before starting up your Amazon store. You can view the specific approval requirements for each category.
5. Set up your Amazon account on Shopify
Once you’ve been approved and your account is created, connect your Amazon account to your Shopify store. On the left panel in your Shopify account, scroll down to ‘Sales Channels’ and click the + button beside it.
You’ll have a pop-up come up. Amazon should be the first item on the list. Click ‘Add Channel.’
Then, continue with ‘Connect to Amazon.’
6. Start dropshipping from Amazon to Shopify
Click on the Amazon sales channel link, see Shopify’s left panel. Click ‘Create Listing.’
Next, click ‘Select Product.’ You’ll see two options. If your brand makes the product, you’ll need to make sure you purchase UPC codes. But as a dropshipper, you’ll click on the second option: ‘This product is made by another brand.’
Next, you’ll be able to search for the product to become a seller for that SKU. Once you’ve found the product, click ‘Select.’ Lastly, you’ll need to click ‘Publish’ to finish the process.
7. Have Shopify track inventory
Make sure that Shopify tracks inventory levels. This ensures that when a customer orders on Amazon, the product is still in stock.
Make sure you don’t allow customers to order products that are out of stock – this can lead to negative reviews and some extra customer service time you didn’t plan on spending.
8. Start promoting your Amazon store
You won’t get any sales if nobody knows about your store, right? The next step is to send traffic to it.
Be sure to promote your store on any social channels you have. You can also create Amazon ads to help bring in some new eyeballs and boost sales.
Top Amazon dropshipping software - the same tools top Amazon sellers use on a daily basis.
Here’s a list of tools that will come in handy when you’re learning how to start dropshipping on Amazon.
Merchant Words – You can use Merchant Words to view the search volume and data of keywords. The pro plan costs $30/month.
FeedCheck – FeedCheck allows you to view all your product reviews in one place. It’s a great tool if you have a large selection of Amazon products in your store. By having easy access to reviews, you can work on improving your reviews while providing better customer service. It also allows you to monitor competitor’s products. Their pricing starts at $19/month.
Shopify – You can use Shopify to add Amazon as a sales channel to your store. Shopify can also be used to track your inventory and alert you if you have Amazon sales you need to fulfill. To take advantage of Shopify, make sure that you have not selected FBA for shipping your products.
Sellery – This real-time Amazon repricing software helps you create repricing strategies to win the Buy Box and increase sales and profits automatically. You can use the trial version for free. Then continue onto a paid plan, which works out to 1% of your gross monthly sales. Minimum starts at $50 per month.
Feedback Express – Feedback Express helps you get more reviews on your Amazon store. It also helps remove negative reviews so you can keep a high rating on your products and store. You can even blacklist customers who are notorious for leaving negative reviews. Pricing starts at $20/month.
Seller.Tools – This app helps automate your Amazon dropshipping store. You can access a robust keyword manager, PPC management tool, product research tools, and marketing automation tools built using ManyChat. You can download Messenger marketing workflows for rebate distribution, promotion counters, automated review captures, and more to grow your Amazon business fast.
Amazon Volume Listing Tools – Amazon offers various tools to simplify your seller experience. You can easily download spreadsheets for order and inventory information. You can also modify pricing and product quantity with ease.
Amazon store dropshipping to eBay
An older dropshipping model that’s still around is dropshipping cheap products from Amazon FBA to buyers on eBay. While it’s legal, it’s generally frowned upon by platforms and even buyers—and you only walk away with a thin margin of profit.
Think about it from a customer’s perspective: you purchase products like the latest grooming brush for your dog on eBay for $20. You wait a week, you’re excited. Then when FedEx knocks on the door, your brush shows up in an Amazon box.
Curious, you go on Amazon and find the product for a few bucks cheaper than you bought it for. How would that make you feel about the business you bought from? Don’t expect a repeat purchase in this scenario.
The model increases profits for the dropshipper, but no one else wins here. EBay doesn’t support the Amazon-to-eBay-arbitrage business model either, allegedly banning hundreds of Israeli companies for it in 2017.
In short, if you want to build an honest and transparent Amazon dropshipping business, steer clear of Amazon dropshipping to eBay.
5 Tips to Improve Your E-Commerce Business in 2023
E-commerce is growing rapidly and offers opportunities for new entrepreneurs. This will be 22% of global sales by 2023.
You can start making money by dropshipping products from Amazon. We also have a few helpful suggestions on how to improve your online business.
1. Maintain a 95% seller rating
Aim for at least a 95% sales rating. Having a high sales rating can make you appear more trustworthy in the eyes of consumers. It also increases your likelihood of appearing in organic searches, giving you a competitive advantage over sellers with lower ratings.
2. Price your products wisely
Before setting the prices of your Amazon products, take into account all your fees, including your Amazon’s monthly fee and other expenses like fulfillment. To succeed in dropshipping, your margins have to be high enough to generate profit. Ideally, your markup should be between 30% and 50%.
3. Don’t rely solely on Amazon
Amazon is just one of many thriving online sales platforms. To increase your sales, you should consider using Amazon alongside other platforms like Facebook Shops and Instagram.
4. Optimize your product titles
Product titles must be relevant to your buyer’s search queries. Instead of just stuffing them with keywords, focus on optimizing your product titles. The brand name must be the first word in your title. Then, you can add product attributes such as size, color, or model to make the titles more descriptive.
5. Aim for the Buy Box
On Amazon, you’ll see the same product sold by different sellers. You compete with the rest of the merchants for sales and for the Buy Box.
The Buy Box is a small yet highly visible section on the right side of the Amazon product page which enables customers to make a quick purchase. A seller with a Buy Box will drive more sales than other sellers of a given product.
Amazon determines the Buy Box winner based on seller rating, history, fulfillment, and other variables. After considering all these factors, Amazon gives the Buy Box to sellers that perform well on the platform.
FAQs about Amazon dropshipping
How much does it cost to dropship on Amazon?
Amazon dropshipping requires everyone to sign up as a seller on Amazon’s website. Their Individual plan costs $0.99 per unit sold, while the Professional plan will cost you $39.99, regardless of how many items you sell.
Amazon’s dropshipping fees vary by product type but are typically in the 10%-15% range. This might not be feasible for those who’re working with relatively small profit margins.
Is Amazon dropshipping profitable?
Amazon drop shipping is profitable. Dropshipping averages around 10%-30%. Amazon is stealing 15% of your profits. If the margin is about 40% then you will get an additional 15% margin after selling products via Dropshipping. This margin may be higher in a winning Amazon Buy Box, but that’ll be highly competitive.
Does Amazon ban dropshipping?
Drop shipping is allowed at Amazon if you use an official sales name and you don’t use an alternative store name on your shipping details. But, if you drop shipping directly from AliExpress then it shows Aliexpress as a buyer, not your Amazon storename.
Can you use Amazon as a dropshipping supplier?
Amazon policies allow dropshipping for sellers – a condition for the seller to be identified on invoices, packing slips and packaging as such. Your customers have the obligation to accept and process their refund. A little information is needed to be left behind for a manufacturer, then it can be e.g.
Is it profitable to dropship on Amazon?
What’s the value of drop shipping on Amazon? Amazon drops shipping margin. The average dropshippers earn less than $5000 on Amazon with 49% reporting profit margin between 1 and 25 %. Amazon’s average dropshipping profit ranges between 10% and 30% and Amazon takes 15% off.
Want to Dropship for Your Own Brand Instead?
Don’t want to sell on Amazon? Those who want to dropship their own products can use apps like Spocket and DSers to dropship from a massive selection of millions of products.
You’ll find products in women’s and men’s fashion, beauty, watches, jewelry, home improvement and decor, and much more.
And with a click of a button, you’ll be able to add your product to your Shopify Store so you can start selling today. Learn about the advantages of dropshipping vs Amazon to get started.
Is dropshipping good for beginners?
Dropshipping can be a great option if you want a business model with low overhead and starting costs. However, there are some trade-offs to consider and some alternatives to the dropshipping business model that can offer some benefits of dropshipping as well.
What’s the difference between dropship manufacturers, wholesalers, and retailers?
With dropshipping, the seller of record does not handle the product directly but instead uses a third party to source and store products, and ship orders directly to customers. Any party in the supply chain can dropship, including manufacturers, wholesalers, and retailers. A manufacturer, wholesaler, or retailer’s role doesn’t change based on the seller’s fulfillment method. For more details on how manufacturers, wholesalers, and retailers fit into the dropshipping process, see key players in the dropshipping model.
Do I need to register my business to use a dropshipping supplier?
While it is possible to operate your online store without a business license, you may be leaving yourself open to issues down the line. Registering as a Limited Liability Company (LLC) or another formal entity can reduce your liability and show potential suppliers you’re a legitimate business.
Do dropshipping companies ship internationally?
Yes, some do. Shipping rates, timeframes, and fees will vary between companies. If you want to reach customers worldwide, be sure to investigate the details of international order fulfillment as you research different dropshipping options.
Amazon operates fulfillment centers around the world and FBA international programs can help you reach customers in other countries.