Amazon FBA vs Dropshipping: Which is Better for My Ecommerce Business?

If you’re mulling over the prospect of taking those first, tentative steps into the world of ecommerce, you’re likely staring down two options: Amazon FBA and dropshipping. Widely touted as beginner-friendly, they’re both popular entry points into the online marketplace, but which one is best for you?

First things first — take no notice of the myriad videos framing either of these business models as methods of getting rich quickly. Yes, ample profits can be made through both Amazon FBA and dropshipping, but you’re not going to get any worthwhile advice from a TikToker claiming to hold “the secret to making millions online”.

Instead, pay attention to our rational, level-headed guide, as we compare and contrast Amazon FBA and the dropshipping model, and give you our qualified, quality advice.

What is Amazon FBA?

Amazon FBA stands for fulfilment by Amazon. The premise is simple enough: you send your products to Amazon’s fulfillment centers — with over 185 to choose from worldwide, you shouldn’t have to worry about finding one — and they take care of inventory management from there. They’ll store your products, pick and pack them, ship them out, and even handle customer service on your behalf.

As you can imagine, Amazon FBA’s appeal rests mainly on its largely “hands-free” model, allowing biz-savvy entrepreneurs to tap into their world-class logistics network and massive customer base without the hassle of managing their own order fulfilment.

Reaping these rewards isn’t free, of course — you’ll pay for the perks (as we’ll cover later), but if your budget allows it’s an option worth considering.

How likely am I to make money on Amazon FBA?

According to recent stats, around 94% of Amazon sellers use the company’s FBA service. With the current figures indicating that 76% of sellers become profitable, and 63% seeing profitability in the first year, it’s certainly a viable option, but as with any business pursuit, success is never guaranteed.

Whether your venture takes flight — as opposed to crashing and burning — depends largely on your knowledge of the market, and how much pre-research you performed before diving in head first.

What is dropshipping?

Ever heard the phrase “buy now, pay later”? Well, dropshipping is a “sell now, pay later” business model. Instead of buying and storing products yourself, you only purchase them from a supplier once a customer places an order. The supplier then ships the product directly to the customer — meaning you never have to touch the inventory.

Essentially, it’s like running any other online store, only with none of the fuss involved with dealing with bulky stock or draughty warehouses. Ideal, no?

The beauty of a dropshipping model is that you don’t need a big budget to start, because there’s no inventory to purchase. In premise, the setup is simple — purchase a domain, build your dropshipping store, populate it with your chosen items, and watch the orders roll in — but you’re completely at the mercy of your chosen supplier.

Is dropshipping a scam?

Let’s clear this up right away: dropshipping is not a scam. While it may not have the best reputation in the business community, partially due to its popularity among inexperienced investors, dropshipping is a legitimate business model used by thousands of entrepreneurs around the world.

However, like any industry, there are some bad apples — mainly people selling overpriced “get rich quick” courses, using shady suppliers, or selling products at ridiculous markups. It’s a business model routinely touted as an “easy way to become a millionaire” due to its low upfront costs and perceived accessibility — but as you might expect, this is rarely the case.

Consumers are increasingly becoming wise to dropshipping sites. With stores like Temu and Wish now widely used, you’ll have to go the extra mile to convince your customers that you’re running a legitimate brand, rather than an Alibaba reselling site — which many of today’s dropshipping sites effectively are.

The key to successful dropshipping is transparency and finding trustworthy suppliers. If done right, it’s just another way to sell products online without holding inventory. But if someone tells you it’s a guaranteed path to overnight success, you might want to walk away. In dropshipping (as in life), if it sounds too good to be true, it probably is!

Upfront costs: Which one is more expensive?

When it comes to upfront investment, there’s very little competition between the two, because unlike dropshipping, Amazon FBA requires you to buy inventory before orders are placed. On top of this, you’ll also be subject to Amazon’s selling fees.

The upside? Once you’ve sent your products over to Amazon, they’ll handle everything else for you — shipping, customer service, and even returns. So, once your products are in their warehouse, it’s smooth sailing... or at least smoother.

Dropshipping, on the other hand, requires minimal upfront investment because you only pay for a product after a customer orders it. Your supplier then ships it directly to them. Pick a reliable supplier — and make sure your customers understand how long it’ll take to ship their order — and things should, in theory, be just fine.

That said, dropshipping success depends on the strength of your branding, so you’ll need to be prepared to throw plenty of money at your site’s design and product photoshoots, as well as traditional digital marketing add-ons like SEO and PR.

Winner: Dropshipping. If you’re starting on a shoestring budget, dropshipping’s low-risk model wins this round.

Logistics: Who’s running the show?

Amazon stores your products, picks and packs them up, and delivers them right to your customers. They even handle customer service and returns. So if logistics aren’t your jam, Amazon FBA is ideal. You’re essentially outsourcing the hassle to one of the most efficient companies in the world.

Yes, problems might occur, but they’ll be left in Amazon’s capable hands, and any customer animosity will be aimed squarely at Mr Bezos’ company, rather than yours.

Dropshipping gives you more control — but not by much. You don’t touch the products, but as the face of the brand, so to speak, you’re still held responsible for making sure everything goes smoothly. If your supplier ships the wrong item, you’re the one left to deal with the fallout.

Order gone missing during transit? Be prepared to grovel. Product out of stock? It’s on you to find a replacement. Yes, you’re able to choose your supplier, but it’s up to them to deliver.

Winner: Amazon FBA. Finding a dropshipping partner capable of a similar level of service is unlikely, bordering on impossible.

Profit margins: Which business model is a better money-maker?

Amazon FBA is a premium service. It doesn’t come cheap. They charge fees for fulfilment, storage, and returns, and these costs can quickly eat into your profit margins. But because you’re buying in bulk — and leveraging Amazon’s gigantic customer base — there’s a much better chance of your items selling. More sales mean more profits.

You might think that dropshipping’s low upfront costs mean higher margins, but this isn’t necessarily the case. Because you’re buying items individually, the cost per item is usually higher. This method also requires aggressive marketing tactics and pricing, as you’ll have to compete with other stores selling the exact same product.

In a sea of competitors, what makes your brand the one to choose? It’s a tricky — and potentially expensive — question to answer, made all the more perplexing when the items you’re selling are generic goods, often made with cheap, throwaway materials.

Winner: Tie. Dropshipping has fewer upfront costs, but Amazon FBA can lead to more consistent (and scalable) sales. In both cases, careful planning is key.

Customisation and control: Who’s the boss?

When you sell via FBA, you’re playing by Amazon’s rules. You’ll have limited control over the customer experience, packaging, and branding. The upside, of course, is that they’re excellent at handling their end of the bargain, all of which we’ve explained above.

With a dropshipping business, you’ve got much more control. You choose the suppliers, and how your products are listed. The downside? More freedom means more responsibility. You’re in charge of quality control (which can be challenging considering most sellers will never actually see the product), and customer satisfaction falls squarely on your shoulders.

Winner: Dropshipping. This model offers more control, but as we all know: with great power, comes great responsibility.

Scalability: Long-term or short-lived?

Amazon FBA is perfect for scaling. Once you’re up and running, it’s relatively simple to increase inventory, add new products, and grow your business — and you can do it all in full confidence that the logistics are in good hands.

Dropshipping is great for scaling, too — though as we’ve discussed, there’s more potential for hiccups. As you grow, managing multiple suppliers might get tricky. The same is true for ensuring that goods reach their destinations on time, and keeping your inventory levels in sync might feel like you’re spinning way too many plates at once.

For this reason, many dropshippers — particularly those just starting out — pick one or two products, figure out which one generates the most sales, and then focus all their efforts on that. From there, it’s a case of developing a solid relationship with the supplier, negotiating bulk discounts, or swapping to a more compatible partner.

Winner: Amazon FBA. Both models are scalable, but with Amazon, you can be sure that you’ll encounter fewer issues on your way to the top.

Customer support: Who deals with queries?

One of the main draws of the FBA model is that Amazon takes care of shipping and customer service — they handle enquiries on shipment status, tracking, and delivery issues, they manage and process returns, refunds, and exchanges, and they offer round-the-clock support for anything directly related to customer orders.

That said, you’ll still be responsible for fielding any queries related to the product itself, such as its features, specifications, or uses. Amazon’s customer service teams also don’t get involved when it comes to product reviews — you’ll be expected to deal with any negative feedback, for example.

In the dropshipping business model, pretty much all aspects of customer service fall under the seller’s remit. From general product enquiries to order update requests and returns and refunds, as a dropshipper you typically have nowhere to hide when your customers are looking for information or support.

Winner: Amazon FBA. Amazon handles all order-related customer support, while dropshippers must generally deal with any queries themselves.

What about Amazon FBA’s fees?

Remember those fees we keep mentioning? Here’s a rough guide to what you can expect to pay when using Amazon’s FBA service:

Fulfilment fees

These are the fees Amazon charges to handle picking, packing, shipping, and customer returns. They vary based on the size and weight of your product. So, if you're selling lightweight items like phone cases, you're in for a smaller fee compared to bulkier items like kitchen gadgets.

For example:

• Small items (think phone accessories): Around £2 per unit.
• Larger, heavier items (like a blender): Can go up to £5 or more per unit.
• The heavier or bulkier the product, the more you’ll pay in fulfilment fees.

Storage fees

This is what Amazon charges to store your inventory in their warehouses. The fees depend on the size of your items and also fluctuate based on the time of year. Things get pricier in the run-up to Christmas, so plan ahead!

Here’s a breakdown:

• Standard storage (January–September): Around £0.37 per cubic foot per month.
• Holiday storage (October–December): Jumps to about £1.03 per cubic foot per month.
• Amazon also charges long-term storage fees if your products sit in their warehouses for more than 365 days, so keep an eye on slow-moving inventory.

Additional costs

On top of fulfilment and storage fees, there are other costs to consider:

• Referral fees: Typically 15% of your sale price, depending on the category.
• Labelling fees: If you prefer Amazon to label your products, they charge around £0.15 per unit.
• Removal fees: If you want to pull unsold stock from Amazon’s warehouses, expect to pay around £0.50–£0.60 per unit.

Pros and cons of FBA vs the dropshipping model

Looking for a snapshot of the advantages and downsides of each of these business models? Here, we’ve distilled the best and worst aspects of Amazon FBA and dropshipping.

Benefits of Amazon FBA

• Hands-off logistics. Amazon handles storage, shipping, and customer service, allowing you to focus on other aspects of your business.
• Access to Amazon’s customers. You tap into Amazon’s colossal customer base, boosting your products’ sales potential.
• Scalability. Amazon’s infrastructure makes it easier to scale your business with minimal logistical headaches.
• Reliable customer service. Amazon deals with order enquiries and returns, reducing your workload.
• Faster shipping. Leveraging Amazon’s logistics network often leads to faster delivery times, improving overall customer satisfaction.

Drawbacks of Amazon FBA

• High fees. Fulfilment fees, storage fees, and other costs can eat into your profit margins.
• Limited control. You cede all control to Amazon over how your products are presented and packaged.
• Greater upfront investment. When selling on Amazon you need to buy inventory upfront, requiring significant capital.
• Risk of long-term storage fees. If your products don’t sell quickly, you’ll incur long-term storage fees, further eating into profits.
• Fierce competition. With so many sellers on Amazon, standing out to customers can often be challenging.

Benefits of dropshipping

• Lower upfront costs. You don’t purchase stock upfront, which means the cost of entry is typically very low.
• No storage or shipping requirements. The supplier stores the products and ships them directly to the customer.
• Greater brand control. You have more flexibility over how your store looks and feels, and you manage your own marketing strategy.
• Low barrier to entry. With low initial costs and few complex operational requirements, dropshipping is relatively easy to set up.
• Wide product selection. You can offer a vast variety of products without the need to hold any inventory.

Drawbacks of dropshipping

• Lower profit margins. Products are typically bought individually at higher prices, reducing potential profits.
• Supplier dependency. Dropshippers rely solely on suppliers for quality control, shipping times, and stock levels.
• Higher marketing costs. To stand out, you need to invest heavily in branding and marketing to convince customers to buy from you.
• Potential shipping delays. Dropshipping suppliers may ship from overseas locations, often leading to longer delivery times.
• Legal risks. While most suppliers are legitimate, they’re not always transparent about their processes or where their merchandise comes from.

So, which one is best for your online business?

It depends.

We know, we know — that’s not the answer you wanted! But it’s ultimately all down to factors such as your goals, business model, budget, and your appetite towards, or aversion to, risk.

Amazon FBA ticks the boxes for those preferring to outsource inventory storage, packing, shipping, and customer service. It’s ideal for retailers who have higher sales volumes and want to take advantage of Amazon’s fast shipping and extensive logistics network, but beware that the fees for selling on the platform can quickly add up.

On the other hand, dropshipping is ideal for retailers who want to minimise upfront costs and avoid managing inventory, with the flexibility of selling items without needing to hold stock. Remember, though, that as a dropshipper you’re at the mercy of your suppliers. If they run out of stock, ship late, or send the wrong item, you’re stuck dealing with the fallout.

So which should you choose? Here’s our advice in a nutshell:

Choose Amazon FBA if you’ve got some capital to invest upfront, and you prefer a hands-off approach to logistics and customer service.

Choose dropshipping if you’re keen to keep initial costs low, and like the idea of building a more flexible, customisable business.