Dropshipping on Amazon: Is It Worth It?
Dropshipping on Amazon: Is It Worth It?
With all the success people have had selling products on Amazon, it’s no surprise that there are plenty of people that want to start their own Amazon business. There are simply too many success stories to ignore. Almost everyone has a Prime account these days, and the Amazon website receives a massive amount of traffic, meaning an Amazon business is an excellent opportunity. However, not everyone has a bunch of money saved up to invest in a new business venture.
This is why many people end up dropshipping from Amazon in order to make money, as this strategy allows you to sell products without having to buy all of your inventory upfront. But how does this strategy work and is it actually profitable?
We’ve created this comprehensive step-by-step guide to give you all the information you need to get started. We go over what dropshipping is, what the rules are surrounding it, and how you can find great products to sell on Amazon.
Table of Contents
Keep reading to learn how to do dropshipping on Amazon.
What is Dropshipping?
The definition of dropshipping is a sales strategy that involves selling products without actually having to buy inventory beforehand.
Amazon dropshipping is the use of a dropshipping plan to sell products on Amazon without buying or owning them. Dropshipping through Amazon is a controversial topic as there are certain restrictions for this selling method (read more below).
How it works is dropshippers find products from suppliers, vendors, and distributors that they want to sell. Then they list them on Amazon, eBay, or wherever they’re selling from. When someone purchases the product the seller buys the product from the supplier and has it shipped directly to the buyer.
The big advantage of dropshipping is that it doesn’t require a large upfront investment. Sellers can go into business with little or no capital and they only have to commit to buying products once they’ve actually made a sale. There also aren’t any warehouse or storage fees with this strategy, which provides sellers with further savings.
Because of this, it could be a viable strategy for beginning entrepreneurs who don’t have a lot of money to invest in a new business.
You can sell a wide range of products with dropshipping, including clothing, jewelry, cosmetics, electronics, t-shirts, shoes, supplements, health and beauty products, toys, and more.
Is Dropshipping Legal on Amazon?
Before you consider dropshipping on Amazon, you should read and understand the platform’s rules around dropshipping. According to their policy Amazon does allow dropshipping, but there are three important conditions you need to be aware of:
Sellers can’t purchase a product from another online retailer and ship it directly to the customer.
Sellers must ensure their own business information is on the packaging. Products can not have any third party information on the packaging.
Sellers are responsible for any customer issues or product returns.
So, while Amazon’s terms and services state that dropshipping isn’t banned, these rules prevent sellers from practicing traditional dropshipping, since you can’t ship products directly from the supplier to the customer.
To legally dropship on Amazon, you will need to utilize the fulfillment by Amazon (FBA) program. With an FBA account, you can ship your products to Amazon, who will store the product for you and then ship it to the customer for delivery once it’s sold. However, you will have to pay for the inventory beforehand and have it shipped to Amazon before it can be sold on the platform. This negates one of the biggest benefits of dropshipping.
Amazon will also charge you fees on each sale for holding and shipping your items. But you still won’t have to store items yourself which is a big bonus.
Dropshipping is still a viable option on Amazon, but you should keep in mind that you’ll have to do things a little differently if you want to follow their legal requirements.
How to Start Dropshipping on Amazon
In order to start dropshipping on Amazon there are four steps you’ll need to follow:
Choose Your Products: The most important part of starting an Amazon business is choosing the right product or model to sell. You need to find products that are both in demand and also have relatively low competition. We go over how to choose profitable products in greater detail later in this article.
Find a Supplier: Once you’ve chosen your products you’ll need to find a supplier that you can source it from. Alibaba and Aliexpress dropshipping can work pretty well. Or you could try other major retailers like Walmart, or online Shopify and eCommerce stores, but the profit margins won’t be as good. There are also many companies that specialize in dropshipping, so do your research and look at their websites to see if there are any that suit your needs. A really good dropshipping partner will take care of the logistics and may even supply you with marketing materials for their products.
Set Up Your Supply Chain: If you’re following a traditional dropshipping model then there’s not much that needs to be done here. When you receive a sale you’ll simply place an order with your supplier and they’ll ship the product to the customer. Some suppliers will allow you to set up some automation so orders go directly to the supplier and then they can fulfil it for you without you having to get involved. However, if you want to follow Amazon’s rules you’ll need to sign up for their FBA program, buy some products beforehand, and then ship the products to Amazon.
Create Your Amazon Listings: Once you’ve completed the above steps you’re ready to sell on Amazon. Make sure you have some high-quality photos of your products and then write and post your listings. Once your listings are live you may choose to promote your products with Amazon ads.
How to Find Profitable Products to Dropship on Amazon
Finding the right products to sell on Amazon is arguably the most important part of being a successful seller. The products you choose to sell will either make or break your business, so you need to make sure you take your time and make the right decision.
With so much riding on the products you choose, we recommend you use the latest software and tools to help you identify the best products. This includes the Arbitrage & Dropshipping Tool, AMZScout Product Database and the AMZScout Pro Extension.
Quickly Evaluate a Product and Calculate Your Sales Margins
Amazon Arbitrage & Dropshipping by AMZScout was designed specifically with dropshippers in mind. It allows you to see important information about a product (whether the item is private label, if it’s ungated, if it’s considered hazmat, its BSR, ASIN, etc.) right at the top of the item’s listing page.
Even better, it also gives you access to a profit calculator. By entering in your costs for the product (purchase price and shipping) you can instantly see how much money you’ll make on every sale.
The extension even calculates your Amazon and FBA fees for you to make it easier.
Here’s how it works:
Go to the product’s listing page on Amazon.
Open the extension.
See key stats about the item that you’ll need during the product research process.
Enter your costs to quickly calculate your sales margins and determine whether the item is profitable to sell.
If you’re interested in trying out this handy dropshipping tool, it’s available for a free trial. Use it on a few products you’re thinking about selling to discover how it can help you grow your business.
Use the AMZScout Product Database to Get Product Ideas
With so many products available it can be hard to narrow down your list and find ones that meet all of your criteria. This is where the AMZScout Product Database is particularly useful. It provides you with a number of search filters that allow you to quickly identify products that fulfill your requirements.
Once you open up the Product database you’ll be presented with a number of filters to choose from, including category, seller type, rank, price, estimated sales, reviews, size, weight, and more (see below).
Once you’ve indicated all of your criteria, click the “Apply Filter” button to generate a list of all the products that meet your requirements. Make note of all the products you’re interested in so you can research them further using the AMZScout Pro Extension.
Researching Products and Niches with the AMZScout Pro Extension
Once you have a list of three or four products or niches you’re interested in it’s time to dig deeper to find out if actually going to be profitable to sell or if the niche is too saturated. This is where you can use the AMZScout Pro Extension to do some more in-depth research.
Here’s how it works:
Once you have the Pro Extension installed on your Chrome browser, go to Amazon website.
Use Amazon’s search box to search for the products you’re interested in.
Once you have Amazon’s search results, click the AMZScout Pro Extension icon in the top right corner of your browser to analyze your results.
Once the Pro Extension is open you’ll be able to check a wide range of niche indicators, such as average price, average sales, average reviews, and more.
To quickly figure out whether a niche is profitable, look at the niche score. This score is a measure of the demand and competition in a particular niche. A score of 7 or higher means the niche will likely be profitable. If the score is 6 or lower you should probably find a different niche.
You can also click on products to see their individual product score, which will help you determine which products within a niche are the most profitable.
For other tips on researching products to dropship on Amazon, click here.
Dropshipping from Amazon
If you’re interested in dropshipping you may also decide to dropship from Amazon, meaning you’ll sell your products on other marketplaces and source your products from Amazon.
This strategy can work, but keep in mind that your margins will be low. When selling products online you make money by selling an item for more than you bought it for. This is usually achieved by buying an item from a manufacturer or a wholesaler in China or India at below retail value.
Most items selling on Amazon are selling at retail prices, which means you’ll have to price your products above that which will likely lead to less profit.
Dropshipping vs Other Methods
How does dropshipping compare to other sales methods? We’ve compared dropshipping to all of the most popular sales methods to help you determine which one is right for you.
Dropshipping vs Retail Arbitrage
Retail arbitrage involves going to brick and mortar stores, buying products that are selling for less there than on Amazon, and then reselling them on Amazon for a profit. Like dropshipping, it requires a smaller investment which makes it great for beginners.
However, retail arbitrage requires a lot of work and can’t be automated like dropshipping can be. For that reason, dropshipping is likely going to be more profitable and scalable.
Dropshipping vs Wholesale
Dropshipping and purchasing products from a wholesaler are similar approaches. Both involve sourcing products from a supplier at below retail prices so you can resell them on Amazon.
The difference is that with dropshipping you’re only purchasing one product at a time, whereas a traditional wholesale arrangement requires you to buy in bulk. While buying in bulk requires more capital, it also means you pay less per product, which leads to better margins. So, if you have the money to buy in bulk from a wholesaler this is a better strategy.
Keep in mind that if you plan to follow Amazon’s strategies and use their FBA program to dropship you’re essentially utilizing a wholesale strategy.
Dropshipping vs Amazon FBA
As we’ve discussed, Amazon FBA involves buying inventory and then shipping it to Amazon to store and ship to customers. In order to use the program, you’ll need to buy inventory beforehand which requires a bigger investment. However, if you want to follow Amazon’s rules for dropshipping you’ll likely end up using FBA anyway.
Dropshipping vs Private Label
Private label products are ones you’ve sourced directly from a manufacturer. They feature your own branding and may even be customized based on your specifications.
Creating private label products is obviously more expensive since you have to order in bulk, but like buying from a wholesaler it offers much better margins. It also allows you to create a unique product, which can help set you apart from the competition.
While creating and selling private label products is the most expensive strategy, in the long run it will likely be the most profitable.
Dropshipping: Pros and Cons
If you haven’t decided whether dropshipping is for you we’ve put together a list of pros and cons. There are a number of benefits to dropshipping, but there are also some negatives you need to be aware of.
Small Investment: Because you’re not buying or holding any inventory it requires a smaller initial investment than other strategies.
Easy to Start: Anyone can start a dropshipping business. You just need to find the right product and a good supplier.
Less Work: You can easily run and manage a dropshipping business from your home since your supplier does most of the work for you. Your biggest job is simply tracking your sales.
Low Margins: Because you’re buying products in smaller quantities you’ll pay more per product. This leads to lower profit margins.
Supply Problems: Because you don’t hold your own inventory you’re completely dependent on your supplier to keep your items in stock. This can sometimes lead to selling an item that’s actually out of stock.
Dropshipping on Amazon can be a profitable strategy if it’s done right. However, Amazon’s rules might prevent you from running a traditional dropshipping business, so keep that in mind before you get started. If you plan dropship on Amazon, make sure to use the OA&Dropshipping Tool and Pro Extension to ensure you find the right products to sell.