Amazon FBA vs Dropshipping: Which eCommerce Side Hustle is Better in 2024?

Last updated: 04/01/2024 Written by: Ruby Layram

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Amazon FBA and dropshipping are both eCommerce business models that allow entrepreneurs to sell products online without taking care of shipping or inventory.

Due to the similarities between the two business models, FBA and dropshipping often get perceived as the same thing.

However, Amazon FBA and drop shipping are two different types of business models with key differences.

In this guide, we will take a look at the differences between the two eCommerce business ideas as well as which model is the best to start in 2024.

Amazon FBA, or Fulfillment by Amazon, is a service provided by Amazon that allows individuals and businesses to sell their products on the Amazon platform while Amazon takes care of the storage, packing, and shipping of the products to the customers.

When you sign up for Amazon FBA, you send your products to Amazon's fulfillment centers. Amazon stores your products in their warehouses, which are strategically located to ensure efficient and quick delivery to customers.

Once your products are stored in Amazon's fulfillment centers, they become eligible for Amazon Prime and free shipping, making them more attractive to potential customers. You then create product listings on the Amazon website, just like any other seller.

When a customer places an order for your product, Amazon takes care of the entire fulfillment process. This includes picking and packing the products, shipping them to the customer, and handling customer service and returns.

Amazon also handles customer inquiries, returns, and refunds related to the products fulfilled by their service. This allows you to focus more on sourcing or creating products and growing your business, as Amazon takes care of the logistical and customer service aspects.

Also read: 7 eCommerce side hustle ideas

Advantages of Amazon FBA

• Simplified Logistics: With Amazon FBA, you don't have to worry about storing, packing, and shipping your products, saving you time and resources.

• Prime and Free Shipping Eligibility: Your products become eligible for Amazon Prime and free shipping, making them more appealing to Amazon's vast customer base.

• Customer Service Support: Amazon handles customer inquiries, returns, and refunds, providing a higher level of customer service than many businesses could manage on their own.

• Existing customer base: Amazon has a current customer base of around 310 active users. FBA allows sellers to tap into this and sell products on a platform that already generates traffic.

• Good reputation: The Amazon platform is one of the most reputable e-commerce sites. Buyers trust Amazon which makes it easier to sell.

• Global Fulfillment Network: Amazon's expansive fulfillment network allows sellers to store products in various locations across the world. This not only reduces shipping costs and delivery times but also facilitates international selling without the complications of managing overseas warehouses.

Disadvantages of Amazon FBA

• High startup costs: Sellers are required to buy their stock and ship it to the FBA warehouse before they can list products for sale.

• Lack of Control: When using Amazon FBA, you relinquish control over certain aspects of the fulfillment process, such as packaging and shipping, which can affect the customer experience.

• Competition and Saturation: The popularity of Amazon FBA has led to increased competition and saturation in many product categories, making it challenging to stand out.

• Inventory Challenges: FBA requires carefully managing and forecasting inventory to avoid overstocking or running out of stock, which can be complex and costly.

• Risk of Suspensions: Sellers using FBA are subject to Amazon’s rules and policies, and any violations can lead to account suspensions or even bans.

• Storage Fees: Long-term storage fees can be significant, especially for slow-moving or seasonal products, adding to overall costs.

• Return complexities: Dealing with returns through FBA can be confusing and time-consuming, particularly for sellers of unique or customized items.

Dropshipping is a type of eCommerce business model where sellers do not own the stock that they sell.

Instead, when a store sells a product using the dropshipping model, it purchases the item from a third party and has it shipped directly to the customer. This means that sellers do not have to handle inventory directly.

Here's how it works:
1. The customer places an order on the online store.
2. The store forwards the order and shipment details to the supplier.
3. The supplier prepares the package and ships it directly to the customer.

In essence, the retailer acts as a middleman, promoting products and processing sales, without needing to handle inventory or manage shipping logistics. This passive side hustle has gained popularity due to its low initial investment and flexibility, making it an appealing option for entrepreneurs looking to start an e-commerce business.

Advantages of dropshipping

• Low Startup Costs: One of the primary advantages of dropshipping is that it allows entrepreneurs to start an online retail business with minimal initial investment. Since you don't have to purchase and store inventory upfront, you can reduce the costs associated with traditional retail models.

• No Inventory Management: Unlike traditional retail models, dropshipping streamlines the supply chain by removing the need to handle and manage inventory. This frees up time that can be devoted to other aspects of the business.

• Wider Product Range: Dropshipping allows retailers to offer a wide variety of products without the constraints of physical storage space. This flexibility enables businesses to quickly adapt to market trends and customer demand.

• Flexibility: Dropshipping provides the flexibility to run the business from anywhere with an internet connection. This makes it an attractive remote side hustle for digital nomads, stay-at-home parents, and individuals seeking location independence.

• Scalability: Dropshipping lends itself well to scaling a business rapidly. As sales increase, additional inventory and warehouse space are not a concern, allowing for seamless expansion.

• Time Efficiency: By outsourcing the logistics of fulfillment, such as packaging and shipping, entrepreneurs can dedicate more time to marketing, customer service, and growing their business.

Disadvantages of dropshipping

• Competition: The dropshipping market is oversaturated, making it challenging to stand out among numerous sellers offering similar products.

• Quality Control: Since you don't handle the inventory, ensuring the quality of products can be difficult. This may lead to an increased risk of receiving negative feedback and returns.

• Shipping Times: Customers may experience long shipping times and delays, which can lead to dissatisfaction and impact your seller ratings and reputation.

• Reliance on Suppliers: You are dependent on your suppliers to fulfill orders promptly and maintain adequate stock levels. Any issues on their end can directly impact your business.

• Returns and Refunds: Handling returns and refunds can be complex in dropshipping, leading to potential complications with managing customer expectations and maintaining profitability.

• Customer Service: As a dropshipper, you are the first point of contact for any customer inquiries, issues, or complaints, which can be demanding, especially when managing a side hustle alongside other commitments.

• Market Saturation and Trends: Dropshipping relies on finding trending products, and the fast-paced nature of consumer trends means that products can become obsolete quickly, leading to inventory issues and loss of revenue.

• Traffic generation costs: To successfully sell products, you will need to invest a lot of time and money into promotion and marketing. It can take months to build traffic and start seeing results.

Amazon FBA and dropshipping are both popular e-commerce business models, but they operate in different ways.

With Amazon FBA, you send your products in bulk to Amazon's fulfillment centers, and they take care of storage, packing, shipping, and customer service.

The products are then sold through the Amazon platform, which is one of the largest eCommerce stores in the world. This means that sellers can take advantage of an existing audience, reducing the need to spend time building traffic.

On the other hand, dropshipping involves partnering with a supplier who ships the products directly to your customers when they make a purchase. You don't need to hold inventory or handle shipping, which requires less upfront investment, but you have less control over product quality and shipping times.

Each model has its pros and cons, so it's essential to consider your resources, goals, and preferences before choosing one.

So, which eCommerce side hustle is better - Amazon FBA or dropshipping?

In the following section, we will break down which option is the most suitable for different types of sellers. The following information is based on our own experiences of the two business models and your own experience may differ.

The best option for beginners

Firstly, let’s take a look at which option is the best for beginners. Both Amazon FBA and dropshipping require a lot of initial research and knowledge. Complete beginners should consider investing in a course before starting either side hustle.

However, from our experience, Amazon FBA stands out as the best option for complete beginners due to the fact that the platform comes with an established customer base and handles customer service on behalf of sellers.

Furthermore, Amazon offers a range of free educational resources and analytics that can be used by new sellers to improve their chances of success.

The best option for low budgets

If you’re looking for the ‘cheapest’ option, you might want to consider dropshipping. Dropshipping does not require sellers to purchase inventory before making sales, which means that you can technically start with nothing.

However, most successful sellers do spend money on:

• A dropshipping course or guide

• Product samples that can be used for marketing

• Marketing and promotion

• eCommerce website hosting

Both side hustles require some start-up funds if you want to increase your chances of success.

Also read: 10 Dropshipping Business Ideas

The best option for passive income

One of the most common reasons that people start an eCommerce side hustle is to generate passive income. This refers to income that can be generated without any physical effort - money that can be made while you sleep.

Both dropshipping and FBA can be used to generate passive income. However, neither option can be left completely alone. To be successful, sellers will have to work to keep up with trends, answer customer questions, promote their products and more.

After trying both eCommerce side hustles, we found that dropshipping is the best option for passive income. This is because sellers do not need to manage stock. On the other hand, Amazon FBA requires sellers to keep on top of stock and send new inventory to the fulfillment centers when it is needed.

With that being said, most successful sellers work on their eCommerce business every day. This includes implementing product marketing, updating listings, communicating with customers, and conducting market research.

The Verdict

Amazon FBA and Dropshipping are both types of eCommerce business model that allow retailers to sell products online without having to store or shop orders. The main difference between the two is that Amazon FBA requires sellers to purchase their stock upfront whereas dropshipping does not come with this requirement.

Another notable difference is that FBA sellers use Amazon’s shipping, customer service and storefront. On the other hand, dropshipping involves setting up your own eCommerce store and managing these processes yourself.

Even though it requires a higher upfront cost, we believe that Amazon FBA is the most suitable option for beginners. This is because the platform provides sellers with a great range of educational resources as well as an existing customer base.

However, it is possible to make money from dropshipping as a beginner. Most new sellers invest in a course to learn everything that they need to know before investing any time or money into their store.

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