Starting your online business can be challenging, especially if you are new to the world of e-commerce. There is a steep learning curve when it comes to launching and promoting your own brand. You have to come up with everything from product ideas and design to finding a manufacturer and promoting your products. However, one e-commerce business model requires none of the above! You don’t have to manufacture, source, stock, or even ship items. All you have to do is act as the middleman for other larger brands. You sell their products for them and keep a percentage of the sale as a profit.
Thousands of sellers are dropshipping on Amazon, and you can too! In this article, we’ll discuss the dropshipping business model, its benefits and challenges, and some tips and tricks to increase your profit margins. Let’s get started!
👋 Hi! This post is brought to you by Sellzone, a blog designed by Semrush to help your ecommerce business grow. Semrush is the online visibility platform trusted by seven million users and 30% of Fortune 500 companies. Take advantage of Semrush's ecommerce tools by entering Semrush AppCenter.
Follow us on social media to read the latest strategies from the ecommerce community, and don't miss new opportunities to increase your profits:
What is dropshipping?
Dropshipping is an e-commerce method used by retailers that neither manufacture nor keep their products in stock. It works as follows:
- You set up a website or online store selling products from another brand. You simply list those products by putting up photographs and descriptions. For example, let’s say you list a t-shirt from brand X for $10.
- A customer visits your website and clicks the buy now button on the shirt. You receive payment once the customer checks out.
- You pass on the order directly to Brand X or a wholesale supplier of Brand X. However, you only pay them a pre-agreed wholesale price of $6 instead of the full $10.
- They ship the item to your customer. You keep the difference of $4 as your profit!
Dropshipping thus makes it possible to sell products from other manufacturers, retailers, or wholesalers at a markup. This model is particularly suited for new e-commerce brands that would otherwise need significantly more time and money to start selling and connecting with wider audiences.
What is Amazon dropshipping?
Dropshipping on Amazon is the same as dropshipping in general. The only difference is that you list the item on Amazon instead of your own website. You can do this as long as you meet certain strict criteria.
Amazon’s dropshipping policy
● Seller identification – Customers should identify only you as the actual seller of the product. This means that all packing slips, external packaging, invoices, and other related information should contain your name.
● Third-party confidentiality – You must ensure all third-party information from packaging and invoices is removed before shipping.
● Management of return orders – Amazon dropshippers process all returns and related orders.
● Compliance with other Amazon policies – You must also meet all requirements for other sellers on Amazon.
You can read the complete policy here.
Is Amazon dropshipping legal?
Dropshipping is totally legal, and a standard commerce model practiced all over the world. 35% of online stores on the Internet are dropshipping today. Their market share is set to grow over US$196 billion by the end of 2022. You can reach out to wholesalers in your area, set up an online store, and start dropshipping today with no legal repercussions or extra fees.
Dropshipping on Amazon is also perfectly legal as long as you follow their policies. The best way to avoid getting banned from the platform is as follows:
- Find a third-party wholesale supplier who is not a retailer and doesn’t sell on Amazon.
- List their products on Amazon under FBM (Fulfilled by Merchant) and ask the supplier to ship the product whenever you get an order.
How much does Amazon dropshipping cost?
Amazon dropshippers can start with as little as $0. All you have to do is spend the time and energy to find good products that people are looking for. Thousands of customers visit the Amazon website daily and search for different items they wish to buy. Profit margins may be slim, but it is a good source of secondary income for those willing to put in the work.
What about Amazon fees?
The only fees that dropshippers pay are selling plan fees. For a risk-free start, you can choose the Individual selling plan and pay $0.99 per item actually sold, then upgrade to a Professional selling plan—a flat rate of $39 per month—once your business has scaled and you are selling over 40 items each month. For more details, see our quick guide on seller plans.
Is dropshipping on Amazon profitable?
The profitability of any Amazon seller depends on the demand for products they are selling, the marketing strategies employed to reach target audiences, and competitor performance. Dropshipping brands generally have more flexibility and quickly adapt to new circumstances, increasing overall profitability.
For example, you can lower your prices to beat your competitors and get more sales. You can still make a decent profit if you retail expensive items (such as home theatre projectors or music equipment). Similarly, you should find products that are guaranteed to sell well. Print-on-demand is remarkably popular, and due to its low starting cost, you have a range of options when it comes to adding markup as well.
Dropshipping on Amazon can be highly profitable if you leverage its benefits and are capable of circumventing or mitigating its shortcomings. Let’s understand
Amazon dropshipping pros
● Flexibility – probe the market with products you deem are in high demand. Back out without having to expose yourself to inventory management costs, and try other products
● Minimal startup costs – dropshipping doesn’t include any production or inventory management costs
● Trial and error approach – unlike retailers that specialize in specific items, dropshippers can easily experiment with different product categories and expand their reach.
● Multi-channel selling - You can use dropshipping for your business while selling through a store on Amazon, on social media channels, in your own domain, or all of the above.
● Scalability: You can accept more orders and launch several items at once as you don’t have to worry about upfront inventory costs.
Amazon dropshipping cons
● Layered supply chain – without specialization, Amazon dropshippers often have to employ multiple companies for different items or fulfillment regions.
● Accountability for third parties – dropshippers are responsible for errors of both their suppliers and fulfillment partners
● Minimal margins – a small percentage of each sold product goes to the dropshipper.
● Stiff competition – due to easy setup, several individuals and companies opt for the dropship model
Dropshipping may be an excellent option for e-commerce stores-in-the-making whose founders have reliable contacts, but it’s not perfect for everyone. Other business models may be better suited for your business if this method provides too little profits or inhibits your growth.
Retailing branded products
In this business model, you design, manufacture, trademark, and sell products under your unique brand name. There are numerous benefits to this business model, such as building a brand identity, growing a base of loyal customers, working on brand recall, and more. You can also register with Amazon Brand Registry and add premium photos and videos to your product listing. Selling trademarked products can be exponentially more lucrative, but it is also a financially riskier option. A range of additional costs must be covered, such as manufacturing, inventory management, and shipping. Retailing branded products also require substantial starting capital and skills to sustain your store.
As a dropshipper, you can use individualized packaging and a well-designed website and actively work on improving your customers’ experience. This way, you can bring your customers’ dropshipping experience closer to that of a branded product.
Affiliate marketing is based on commissions paid to individuals and companies for their promotional contributions. People who choose this model do not sell, manage, or fulfil orders; instead, they help with advertising or promoting products already being sold on Amazon.
One of the main advantages affiliate marketing has over the dropshipping method is virtually zero startup and overhead costs. Since products aren’t handled, made, or shipped, the only cost revolves around distributing information (blogs, direct messaging, social media, and such).
The growth-based boundaries of this business model are relatively limited, as Amazon shoppers typically don’t have the same level of trust for advertisers as they do for merchants. Another significant drawback of this approach is that it yields profits based on actual sales; the advertising efforts themselves cannot be monetized.
Third-party fulfillment revolves around engaging other companies for storage, packaging, and shipping. These tasks can be delegated to a single company, a network, or several brands with no ties to each other. Similar to dropshipping, you are responsible for the products as if you made and shipped them yourself, and the information about the companies that helped you must not be disclosed to the buyers. In an ideal scenario, all tasks are outsourced to a single company. The same company governs inventory management, handling, and shipping, ensuring consistent and faster customer service.
This business model eliminates the biggest shortcoming of dropshipping – uncertainty. Dropshippers do not have readily available stock of items, so they need to notify Amazon dropship suppliers and trust that they will fulfill the orders in a timely fashion. On the other hand, third-party fulfillment lets you run promotions and bundle products with confidence.
- What are the typical delivery times for your target countries?
- What type of packing do you use?
- How long does your fulfillment process takes once orders are placed?
- How is the product going to be sourced?
- Are you a pro dropshipping supplier?
- Do you provide branding services?
- Are your rates standard or do they fluctuate with market conditions?
- Is there a requirement for a minimum order?
- Do you handle customs fees, or have the customer handle this themselves?
- Do you have an after-sales service that handles returns and refunds?
- What if the order is not delivered on time or there is a mistake with an order? How do you handle this?
How to start dropshipping on Amazon?
Once you have familiarized yourself with the basics, there are only a few simple steps you need to take to start dropshipping on this online marketplace.
1. Set up an Amazon Seller Account
You can create an account from a mobile app or via desktop by visiting the brand’s official website. As mentioned, you’ll need to choose your selling plan (Individual or Professional) and fill in the required boxes before clicking ‘continue.’ Then, add the products that you wish to sell and set the prices.
2. Find the Best Product
You have an opportunity to retail anything, but given the stiff competition and reliance on markup to sustain your economy, it’s essential to find a good balance between popularity and price. Products that are already offered by thousands of sellers are usually not so profitable for retailers for two reasons – the product isn’t unique, and you’ll face rapidly changing prices as a byproduct of stiff competition.
Fortunately, some products are in reasonably high demand and keep running out of stock constantly (for example, cleaning products or pet food). Keep tabs on sought-after products that the market is missing. You can use Semrush's Product Research tool for Amazon to discover these hot products, find a suitable wholesaler, and get started with your first listing.
3. Find Your Supplier
When choosing a supplier, you must look out for factors such as online reputation, prices of individual products, and international shipping. Bear in mind that you can’t dropship products from other retailers. Some proven ways to connect with Amazon’s trusted dropshipping suppliers are:
- Google search – Look for supplier websites where you can fill out a form and sign up to be a dropship retailer
- Attend trade shows – You can meet and vet several suppliers in one place. Remember to present yourself as a serious retailer and not a newbie!
- Dropship directories - A third option is to purchase a vetted list of wholesale suppliers who work with dropshippers.
4. Sell Your Products
To start dropshipping on Amazon, you’ll need to create Amazon listings. This can be done from the Seller Central on your profile by tapping ‘add product’ on the Inventory screen. Select the category of the products you want to sell, and provide details for individual items (specs, price, name, description, and such). After you’ve entered all the information pieces you need, publish the listing to make the product available for purchase on the Amazon marketplace.
How to Improve Your Sales?
The key to improving your sales while dropshipping is to make your offering more appealing. The product isn’t yours, and you can’t personalize or customize it, but you can promote it. The best option is to invest in an Amazon PPC campaign so that your product shows up on the top of customer search results. Semrush's PPC Optimizer is the best way to save time and get more return on your PPC spend. Some other ideas to improve sales include:
· Excellent customer service: Answer questions in the section below the product’s description, and pay attention to the reviews.
· More products: Don’t be afraid to test the market with various products. Nothing is preventing you from listing toys, electronics, and gardening tools on the same account.
· Build a dropshipping brand: Arrange giveaway contests, hand out free samples, and entice shoppers to read more about your company by providing a detailed bio.
Dropshipping from Amazon to eBay
You can diversify your dropshipping ventures and gain access to a range of new potential customers if you start eBay dropshipping from Amazon. The process is relatively simple:
- Identify products that are in massive demand but cost too much on eBay
- Find the same products at lower prices on Amazon.
- List the products under your own eBay seller account at a profitable price. (Lower than eBay competitors but higher than the Amazon seller)
- When a customer purchases from you on eBay, simply repurchase on Amazon and ship to the eBay customer!
Amazon offers rapid shipping times, a host of buyer protection guarantees, and an extensive range of products in comparison to eBay. In addition, there are no footprints that would lead your consumers to your Amazon purchases, meaning that only you will know that they are resold. Finally, eBay dropshipping from Amazon is entirely legal, although if consumers find out about this venture, you may lose a few customers.
Although Amazon dropshipping may be a bit more complicated than regular dropshipping or retail, the numerous benefits it offers are well worth the trouble. With minimal risk and no setup costs, this is an excellent option for emerging brands to make a decent amount of money without needing too large of a starting capital. We hope that you’ve found this guide helpful and wish you the best of luck in your business ventures!
👋 Thanks for reading the post! Follow us on social media, and don’t miss new opportunities to increase your profits:
Ready to grow and scale your e-commerce business? Online retail is a bustling business, but it doesn’t come without challenges. So be careful to avoid these top 5 e-commerce mistakes that can cost you your customers.