The real challenge in starting an online business haunts you when deciding how to sell. Should you invest in Amazon FBA and send inventory to Amazon’s warehouses? Or should you choose dropshipping and buy from suppliers once a customer places an order?
The truth is that each has hidden trade offs and long-term implications that can make or break your business. In this article, we’ll break down Amazon FBA vs dropshipping step by step and who each model is best suited for.
Part 1. Amazon FBA vs Dropshipping: Side-by-Side Comparison
Have a brief overview of how Amazon FBA and dropshipping differ via this side-by-side comparison:
| Factor | Amazon FBA | Dropshipping |
| Inventory | Buy in bulk, stored at Amazon warehouses | No upfront stock; buy after sales |
| Fulfillment | Amazon handles storage, packing, Prime shipping | Supplier ships directly (slower, variable) |
| Customer Service | Amazon manages support & returns | You handle all customer issues |
| Startup Costs | High (thousands for inventory + fees) | Low (platform fees, samples, marketing) |
| Profit Margins | Higher potential, but Amazon fees cut into profits | Slimmer margins, heavy competition |
| Branding | Limited; Amazon boxes and policies | More flexibility with suppliers/custom packaging |
| Risk | Higher (unsold stock, storage fees) | Lower (no inventory risk, but supplier dependent) |
Part 2. What is Amazon FBA and How Does It Work?
Fulfillment by Amazon (FBA) is a service provided by Amazon where it handles your selling logistics. In practical terms, you ship your products in bulk to Amazon’s fulfillment centers. Amazon then takes care of that inventory and ships the products to customers. Amazon also manages customer service for those orders, including handling returns or delivery issues on your behalf.
This makes the sales process almost “hands-off” for you once your stock is at Amazon. To get started with FBA, you create a Seller Central account and list your products. Then you ship your inventory to Amazon and choose FBA as the fulfillment method.
From there, Amazon’s network does the heavy lifting of fulfillment and support, allowing you to focus on growing sales. Interestingly, Amazon even facilitates you in transferring the ownership of the Seller account if required.
Amazon FBA Pros and Cons
Pros
- Prime badge boosts trust and conversions.
- 24/7 Amazon support reduces your workload.
- FBA inventory fulfills orders from your own site or other channels.
Cons
- Risk of slow movers and storage charges.
- Minimal data and no custom unboxing; Amazon “owns” the buyer touchpoints.
Wondering if Amazon FBA is the right choice for you? Learn more about its pros and cons in our detailed guide on whether Amazon FBA is worth it.
Part 3. Amazon FBA Costs and Fees Explained
You should budget for the following types of fee structure if selling via FBA:
- Amazon Selling Plan: The Professional plan costs you $39.99/month and the Individual plan charges you $0.99 per item sold. You can be inclined to choose the Professional plan for scalability and predictable costs.
- Referral Fees (Commission): Amazon charges a referral fee on each sale, typically 5%–15% depending on category. This is calculated on the product price plus shipping, so it directly reduces your net revenue.
- FBA Fulfillment Fees: These are weight-dependent per-unit fees for picking, packing and shipping. Small items may cost around $2.50–$3.50 and expect higher charges for heavier items.
- Inventory Storage Fees: Monthly fees are charged per cubic foot of warehouse space your products occupy. Rates average around $0.75–$0.87 off-peak and up to $2.40 in holiday months.
- Long-Term Storage Fees: Items stored longer than 365 days face extra long-term fees. These charges encourage sellers to clear out unsold stock or remove it from FBA.
- Disposal Fees: Discarding unsold inventory costs about $0.50–$0.60 per unit, depending on size and weight. This cost can add up quickly for large volumes of slow-moving stock.
- Return Processing Fees: For certain categories like apparel, Amazon charges a fee for handling returns. Sellers absorb these costs if the returned item is unsellable.
- Labeling/Prep Fees (Optional): Amazon can do it for you at about $0.20 per unit if products aren’t properly labeled. Preparing shipments correctly helps avoid these extra charges.
To gain a deeper understanding of how Amazon TACoS can influence your advertising strategy, explore our detailed guide on how Amazon TACoS can transform your advertising strategy.
Part 4. What is Dropshipping and How Does It Work?
Dropshipping is a system where the seller never actually handles the merchandise. The store collects the order and forwards it to a supplier to take care of sending it to the buyer. So the supplier handles the physical product while you’re simply the middleman handling the marketing.
For example, say you list a phone case for $15 on Amazon. A customer orders it and pays you $15 + shipping. Then you go to your supplier’s website and purchase that same case for $5 with your customer’s details. The supplier ships it directly to the customer and you keep the $10 difference.
Dropshipping Pros and Cons
Pros
- No need to buy inventory or pay for warehousing upfront.
- You only pay suppliers after sales, which makes you free from unsold issues.
- Access to global suppliers, from China to local wholesalers.
Cons
- Shipping times and packaging depend on suppliers.
- Sudden stockouts or price hikes can kill profitability.
Part 5. Dropshipping Startup Costs: How Much Do You Really Need?
It’s a myth that you can start dropshipping completely free because there are some startup costs here as well. Have a look at the breakdown of typical expenses when starting a dropshipping business:
- Marketplace Fees: You’ll need a platform like Shopify ($29/month) plus a domain ($10–$15/year) to sell online. You’ll pay the same $39.99/month Professional Seller fee as FBA sellers if selling on Amazon. Other marketplaces like eBay also charge subscription fees, so budget at least $30–$50 monthly to start.
- Product Samples: Ordering samples isn’t mandatory but it is highly recommended to test product quality. Costs typically range from $20 to $100+, depending on the product and shipping.
- Marketing and Advertising: Marketing is often the biggest ongoing cost since dropshipping doesn’t provide built-in traffic. Expect to spend $150–$600/month on ads when testing products.
- Automation Apps: At scale, tools to automate inventory syncing or order forwarding become useful. Basic apps may cost around $20/month, though beginners can handle tasks manually at first to save money.
- Business Formation and Miscellaneous: You may incur small one-time or annual costs like business registration or logo design. Setting aside a few hundred dollars covers most of these basics.
- Supplier Directories or Tools (Optional): Tools like Worldwide Brands ($299 lifetime) or Spocket/SaleHoo/Doba ($0–$50/month) help find suppliers. These are optional since many sellers find suppliers for free via AliExpress or Google.
Overall, you could start dropshipping with just the cost of a few hundred dollars total.
Part 6. Dropshipping vs Amazon FBA for Beginners: Which Model is Better?
Each model has distinct strengths that suit different situations, depending on business needs and goals. Here’s a quick recap to help you choose wisely:
- Low Budget & Testing: Dropshipping is best for beginners with limited funds. It’s low-risk and ideal for testing products before bigger investments.
- Branding & Growth: Amazon FBA suits sellers aiming to scale and build a brand. Prime shipping and Amazon’s trust drive higher sales, but it requires upfront capital.
- Control vs Convenience: Dropshipping offers flexibility and more control, but requires you to manage customer service. FBA is convenient, but Amazon sets rules and limits branding.
- Profit Strategy: FBA can deliver higher per-unit profits if managed well. In contrast, dropshipping offers slim margins but easy product testing.
- Hybrid Approach: Combining both models balances risk and growth. Sellers often dropship trending products while using FBA for proven best sellers or brand lines.
Conclusion
There’s no single answer leading to the better option between Amazon FBA vs dropshipping. FBA offers a massive reach but requires higher upfront investment and stricter compliance. Dropshipping is cheaper to start but you carry more responsibility for customer experience.
Many sellers even combine both models. The common approach is to validate products via dropshipping first, and once winners are found, move them over to FBA for growth.
FAQs
Q1. Is Amazon FBA or dropshipping better for beginners?
Dropshipping is a relatively better model for beginners because of its minimal investment requirement and lower risk. You can test products easily without buying inventory upfront.
Q2. How much does it cost to start Amazon FBA vs dropshipping?
Amazon FBA costs you around $1,000–$5,000+ upfront for all sales-related factors. Dropshipping can start with just $30–$40/month, plus small costs for samples and marketing.
Q3. Can you dropship on Amazon?
Yes, you can dropship on Amazon with the compliance of being the seller of record. For example, invoices and packaging must show your name rather than the supplier’s. You can’t fulfill orders from retailers like Walmart due to Amazon’s policy violation.
