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Amazon Dropshipping 101: The Ultimate 2021 Guide

Amazon dropshipping isn’t for everyone. Read our guide to understand how dropshipping on Amazon works, the pros and cons to consider for your business.
Amazon Dropshipping 101: The Ultimate 2021 Guide
Marine Levert

By Marine Levert

 

February 3, 2021

Dropshipping is a flexible and inexpensive fulfillment method that’s increasingly popular with retailers of all sizes. Unlike traditional shipping options, dropshipping allows you to send goods without carrying inventory or paying overhead costs. As published in Business Tech Weekly, more than one in four (27%) of online retailers now use dropshipping as their primary method of fulfillment.

Much like Easyship, dropshipping is a favorite way to quickly, easily and cost-effectively ship to buyers anywhere in the world. In this guide to Amazon dropshipping, we show you everything you need to know about Amazon dropshipping. This includes how dropshipping works, the pros and cons, plus a complete step-by-step guide on how to dropship on Amazon.

Table of Contents

Amazon Dropshipping Guide
Photo by pexel sagar soneji on Unsplash

What is Amazon Dropshipping?

Dropshipping is an eCommerce model in which the seller doesn’t keep the items it sells in stock. Instead, the seller receives online orders and passes the order information to a manufacturer, distributor, or third-party supplier who then fulfills the order on the seller's behalf.

Anyone can dropship on Amazon. The only requirements are that you get approved for an Amazon seller account, comply with Amazon's requirements, and enable a third-party provider to fulfill your orders.

How Does Dropshipping Work?

Amazon dropshipping is a straightforward 3-step process:

1. A customer purchases an item listed by a seller on Amazon

2. Upon receiving the order, the seller purchases the product from the supplier

3. The seller submits the order to the supplier who then sends the product to the customer

As a seller, you profit on any difference between the price listed on Amazon and the manufacturer's price. In this way, the seller acts as a middleman connecting the buyer and manufacturer.

Sellers must comply with Amazon’s dropshipping policy. This policy includes a set of merchant rules for dropshipping, including:

  • You are the seller of record for your products
  • Identify yourself as the seller on all packing slips and related documentation
  • Remove any packing slips, invoices, external packaging, or other information identifying a third-party shipper prior to sending
  • Accept responsibility for processing customer returns
  • Comply with the terms of your seller agreement and all applicable Amazon policies.

As a seller, you are NOT allowed to:

  • Purchase products from another retailer and have that retailer ship to your customers
  • Ship orders with packing slips, invoices, or other information indicating a seller's name or contact information other than your own

You can also dropship using the Fulfilled by Amazon (FBA) program. This program allows sellers to ship products to Amazon warehouses. For a fee, Amazon delivers the inventory on the sellers' behalf.

Say you’re enrolled in the FBA program and a customer places an order on your website. Amazon will pick, pack, and ship the order directly to your customer. Amazon will also handle customer service and returns, plus provide tracking information to the customer.

The core benefit of using the FBA fulfillment method is access to Amazon Prime Shipping. After all, it’s no secret that Prime is much-beloved for its fast and reliable delivery times. By using FBA, you can delight buyers with impeccable deliveries that increase the likelihood of return purchasing.

The main cost of Amazon FBA is sometimes you pay seller's fees on certain product types. Additionally, if your product languishes in Amazon’s warehouse for more than six months, you may be required to pay a long-term storage fee.

Dropshipping allows you to sell products while saving on inventory and shipping costs.

Pros & Cons of Amazon Dropshipping

Dropshipping with Amazon incurs both benefits and drawbacks. This section explains the key details so you can make the right choice for your business.

Pros of Amazon Dropshipping

  • Zero warehouse costs: Dropshipping with Amazon means you can ship products to customers without actually holding any inventory yourself. Whether you’re shipping directly from third-party suppliers or through Amazon FBA, you needn’t worry about the expensive overhead costs of maintaining a warehouse.
  • Large and loyal customer base: Amazon services more than 300 million active users, making it a highly recognizable and trusted brand. This means you can expect to get views for your products and find the right audience with the right marketing strategy.
  • Diverse product categories: With over 30 product categories available to target, Amazon dropshipping lets you experiment with different offerings and product niches. It’s best to double down on your most profitable categories.
  • Faster deliveries, better customer service: Amazon FBA handles all returns and customer service requests for sellers. Meanwhile, buyers receive their packages faster because Amazon dropships these items via expedited Prime shipping.  
  • Lower costs: The dropshipping model liberates sellers from carrying inventory, paying for warehouse space, and more. This reduces your operating costs, boosts profits, and simplifies your life at once.

Cons of Amazon Dropshipping

  • Greater competition: Dropshipping has a low barrier to entry due to its low cost. With more sellers in the market, competition increases. It’s important to remember that other sellers on Amazon can sell the exact same products as yours.
  • Decreased profit margins: With many sellers sharing Amazon, competition can induce a “race to the bottom” in terms of pricing. If prices need to be adjusted down to stay competitive, the seller’s bottom line can suffer.
  • Slow delivery times: Amazon third-party dropshippers often rely on overseas suppliers and manufacturers. This means that products may take a few weeks or months to reach the buyer, unless you’ve taken additional steps to guarantee timely delivery.
  • Elevated customer expectations: People expect a fast and painless delivery experience, which Amazon typically provides. In turn, when using Amazon for dropshipping, it’s vital to meet peoples’ expectations – or you may lose customers. You can use Easyship to calculate shipping costs, ensure delivery timelines, and dazzle customers with a seamless experience that wins repeat business.
  • Zero quality control: When items are shipped directly from the manufacturer or supplier to the buyer, you as the seller have no control over the product quality. There is a possibility that packages may get damaged during the journey to the buyer.

Is Amazon Dropshipping Profitable?

Dropshipping is popular because it saves many businesses money. That said, there is no gold standard on profits. Everyone should determine if dropshipping is a cost-effective option for them.

Profitability hinges on finding suppliers that reliably sell you items at a low price. Once you’ve secured this partnership, you’ll want to price your products to cover your Amazon fees and any other expenses, plus your margins. Your margins must be high enough to profit on each shipped item. Venturing into less competitive product niches is a great way to avoid competitors, price wars, and therefore remain profitable.

If you pull the price lever correctly, dropshipping on Amazon can be a very profitable business.

pile of boxes ready to be dropshipped on Amazon
Photo by curology 

The Step-By-Step Guide to Dropshipping on Amazon

Here’s a complete walkthrough on how to dropship on Amazon.

1. Create an Amazon Seller Account

You need an Amazon Seller Account to start dropshipping. Visit Amazon Seller Central to create an account in just minutes.

2. Find Products To Sell

What will you sell on Amazon? Aim to generate a list of both high-demand and low-competition products because these will sell best. Using tools like Jungle Scout’s Opportunity Finder helps you to identify product opportunities by category so you can sell what appeals most to your audience.

3. Find a Supplier

Once you’ve selected your products, it’s time to find a dropshipping supplier to fulfill orders on your behalf. You can visit Aliexpress.com to find low-cost dropshipping suppliers, or read about eCommerce sites for wholesalers to find the perfect option for you.

4. List Your Products on Amazon

You create product listings in your Amazon Seller Central account. Go to the “Inventory” tab, scroll down to “Add Product,” then click “Create New Product Listing.” Complete the required information fields, click publish, and voilá!

5. Promote Your Amazon Store

Visibility is key to generating sales. This means you should design a marketing strategy to drive traffic to your Amazon store. A mix of social media, paid ads, and affiliate marketing is a great place to start. It’s also important to optimize your product descriptions, as these allow you to drive the most paid and organic traffic to your store pages.

Dropshipping from Amazon to eBay

Dropshipping from Amazon to eBay is another form of triage. The seller identifies a product listed on Amazon at a low price, then sells it on eBay at a higher markup. The seller's profit margin increases, as a result, and this difference allows many dropshippers to stay profitable in their product niche.

Here’s the catch: although the buyer purchased the product on eBay, it arrives in Amazon packaging. This can cause confusion and degrade the customer experience. In some cases, the disconnect causes the buyer to investigate the purchased item, which can expose the seller as a reseller that’s inflating prices.

In these situations, the supplier may also learn that the seller is using them to sell price-inflated items, which can sour a partnership. Scenarios like this can tarnish a seller’s reputation and ultimately undermine their business.

Finally, Prime members are forbidden from dropshipping from Amazon to eBay, per Amazon’s policy:

“Prime members are not permitted to purchase products for the purpose of resale, rental, or to ship to their customers or potential customers using Prime benefits."

Given the risks, it’s likely best to avoid this approach to dropshipping.

Amazon vs Dropshipping Alternatives

Amazon dropshipping isn’t for everyone. Alternatively, you can dropship using eBay, Shopify, or your own eCommerce store.With eBay, you’re required to guarantee customers that they will have their orders fulfilled within 30 days of the list ending.

Dropshipping via your own eCommerce store is more hands-on but offers more freedom. This way you’ll enjoy full control over the site design, avoid paying third-party fees, and will be able to build your own brand.

Amazon Dropshipping 101: The Recap

Amazon dropshipping is a fast, easy way to sell online without creating your own store or even carrying inventory. You may prefer to use other dropshipping providers like eBay or Shopify.

Easyship makes it simple to dropship with Amazon.

We integrate in just seconds with your Amazon Seller account, provide varied shipping options, and ensure you always get the lowest rate. You’ll also get exclusive access to our 250+ network of couriers, a robust fulfillment center network across the globe, plus 24/7 help when you want it. And that goes for Amazon, eBay, Shopfiy, or your personal eCommerce store.

Sign up for a free Easyship account today to get started! You could save up to 70% on shipping as you realize your dream of becoming a successful dropshipper.