Amazon Dropshipping: What You Need to Know First
When it comes to dropshipping on Amazon, it comes down to this:
Should you spend your precious time selling on Amazon, making good money for an unpredictable amount of time? Or...
Spend it building an eCommerce business that will last and continue to bring you money years into the future?
Which sounds better?
In this article, I'm going to cover why dropshipping on Amazon might not be the best way for you to build your eCommerce business on.
The (REAL) Truth About Dropshipping on Amazon
There are a lot of different ways to drop ship, but the one I get asked about the most is Amazon dropshipping. To help answer whether you should use Amazon to drop ship, let’s take a look at some of the pros and cons of selling on Amazon.
First up, are the pros to Amazon
Pro: Very Large Audience
A lot of people are very concerned with traffic, and how to get it to their store. After all, traffic is the cornerstone of any eCommerce business.
One of the best parts of Amazon is that it has around 2.5 billion visitors each month that are looking to buy.
Now this doesn’t mean that all that traffic is going to come across your door step… But it does mean there is already a pool of people ready to purchase, which is hard to pass up.
The good news is Google PLAs have even more reach, so if you do what I teach and build your own dropshipping store, you’re going to have a rich pool of people to market to.
Remember, with Google PLAs you’re only targeting those who are likely to buy. Rather than hoping that the right people show up to your drop ship Amazon store.
Pro: Easy Set-Up + No Hosting
A lot of barriers to starting your own dropshipping business are technical ones. People think they have to be web developer to have a beautiful storefront.
With Amazon, you aren’t registering URLS, working with a hosting company, and doing a bunch of back-end work on your site.
Instead, you just use their process and list products on their site. It is a lot less daunting to people who believe the myth that you have to know a lot about technology to create something that sells, something professional looking.
Selling on Amazon Pros:
- Very Large Audience
- Easy Set-Up
With that being said, let’s take a look at the cons of selling on Amazon…
Con: Not A Sellable Asset
One of the most exciting things about building your own store is that you’re building a sellable asset. It’s something that people new to eCommerce overlook. After you find some success, your store has a real value if you ever want to sell it. That’s because buyers are interested in finding dropshipping stores that are already successful.
With Amazon, you don’t have a sellable asset. It’s almost a flea market type structure, where you pay for a booth. You don’t own the flea market, you’re just a vendor in it.
Con: No Access To Customer Data
If you’re new to eCommerce you may not know that having customer data is crucial to growing your business.
With data and emails you can build a meaningful relationship with your audience, which you’ll use to sell new products. It’s called the Lifetime Value (LTV) of a customer.
With Amazon dropshipping, you aren’t privy to the customer data… leaving you with no way to scale your business.
Con: Your Store Could Disappear Overnight
Now Amazon can use that customer data that I previously mentioned to discover what new niches are profitable and then expand their very own line into your niche.
This happens more often than you would think and pretty much shuts down your store overnight. Since Amazon owns every part of the transaction, they can offer a better price than you’ll be able too.
Not to mention they will have their product rank above yours because it’s their site after all.
Con: Suppliers Won’t Work With You (Especially Local) if you're an Amazon Dropshipping
With the flea market nature of selling on Amazon, a lot of suppliers won’t want to associate their brand with you. Instead, if they want an Amazon presence, they will just set up their own store. Basically there is very little upside to work with you.
Selling on Amazon Cons:
- Not a Sellable Asset
- No Access to Customer Data
- Your Store Could Disappear Overnight
- Suppliers Won’t Work With You
Now that you have some pros and cons, I want to talk about how you get products to sell on Amazon.
How to Drop Ship Products
The main goal of this article is to help show you why drop shipping on Amazon might not be the best way for you to build a real brand that provides real value to your customers and your bank account.
Let’s first start by taking a look at the three different ways you can make money– from literally anywhere in the world– using the drop shipping business model.
Arbitrage is the first way to drop ship, and it’s the most common way to drop ship on Amazon. Basically, this model consists of buying from one place to sell to another.
So in this example, especially selling on Amazon, a lot of people try to source products from a company like Walmart. These drop shippers try to find products with low prices that sell for more on Amazon! In this scenario, Walmart would be the supplier.
Another method of drop shipping is using AliExpress– a Chinese marketplace.
With this drop shipping method, you are sourcing products from Chinese factories to ship to customers all over the world. Drop shipping from China may sound like a good idea, considering many factories are located in that country.
However, what is tricky about this method is that most people use Oberlo, which is pretty much a middleman app. And as you may know, using a middleman is a huge mistake I see new drop shippers making.
Domestic Dropship Suppliers
The third drop shipping method I want to discuss is selling for suppliers in your home country. With this method you are building a drop shipping business, and selling for suppliers in your home country.
For example, I am from the States, my businesses are in the States, and I am selling for suppliers that are located in the States.
If you are drop shipping from Australia, you would look to drop ship for Australian suppliers. That’s how domestic drop shipping works.
HOW TO START
YOUR OWN BUSINESS
WITHOUT PRIOR KNOWLEDGE OR EXPERIENCE
Amazon Dropshipping: What Works?
So, in case you were wondering, no you don’t need to use Amazon with the above drop shipping methods.
Since there are a lot of different drop shipping strategies, here’s a quick example of the shopping experience.
Let’s say our customer’s name is Sarah. She’s on the internet, sees your ad, and lands on your Shopify store.
Once she places her order, you have a few different options for fulfillment:
- Arbitrage Model: You could go to Amazon, buy the product, and have it shipped to Sarah.
- Use a Middleman: You could also have Oberlo linked to your store, which would be fulfilled from a third party supplier (most likely AliExpress).
- Domestic Suppliers: The last option is working with a domestic supplier, which means they are based in the country you’re doing business in.
Again, these are the main ways that most people actually run drop shipping businesses to use as a fulfillment method.
Amazon Dropshipping Using the Arbitrage Model
Let’s tackle the arbitrage model using the same scenario from above. Now, here is the thing - can this work? The answer is, yes.
However, one of the biggest problems here is that you have to make sure these products are always in stock.
When your orders are coming in on Amazon and you have to fulfill them, you are not working with the supplier who is telling you how much inventory they have.
You are going to another website, buying these items, and then shipping it to the customer that bought from you on Amazon. Not to mention, the packaging is going to come from Wal-Mart, and that starts to lead to serious customer service issues.
Even though I know people are using this method and making some quick money doing so, I have two reasons why I would never recommend this model.
Problem #1 Customer Service
Arbitrage requires quite a bit of manual work. When you order the products from Amazon, you have to private message the sellers and ask them to not include any slips, invoices, and packaging from Amazon.
Otherwise, your customer will receive something from Amazon, becoming confused and angry. This isn’t a good business relationship, which leads to problem #2…
It’s not a business.
Problem #2 It’s Not a Business
Plain and simple, with this model of drop shipping on Amazon you are not building a sustainable business. You are building a quick project, trying to flip a product to make a couple of bucks.
Maybe you can get $10 if you score a large enough gap between the Wal-Mart price and the Amazon price...maybe.
The arbitrage model could be a hobby or something to experiment with for a short time, but stay wary.
Issues with Dropshipping from Amazon:
- Not sustainable (not consistent selling products)
- Too much manual work for small profits (lots of private messaging to customers)
- No barriers to entry means lots of competition
- Customers will occasionally receive Amazon packaging on accident (leading to frustrated and angry complaints)
Dropshipping with AliExpress
If you are still set on drop shipping with Amazon, your next option would be using a website that gives you a bit more freedom– like AliExpress. AliExpress allows for more freedom by offering private label products.
For example, instead of selling branded Sharpie markers, with AliExpress, you could sell a ‘private label’ product, such as Anton’s Famous Orange Marker. This leaves you with a little bit more control.
A private label product is manufactured by a contract or third-party manufacturer and sold under a retailer's brand name.
Yet, using AliExpress to drop ship isn’t without its flaws. If you want use AliExpress to drop ship on Amazon, you are going to run into the issue of long lead times.
Even the fastest ePackage shippers on AliExpress– we’ve tested all of them just to see– take weeks to deliver the item to your customer!
If you are familiar with Amazon, you know about their impressive shipping speeds. Most of the world is used to Amazon delivering packages in two or three days, not two to three weeks.
And guess what? On top of that, you are almost guaranteed to get negative reviews, and returns will be a bigger headache than your customers even imagined.
If your customer returns the product, it’s not going back to China. Thanks to Amazon’s very lenient return policy, all of these products are returned back to YOU. Because of this, I do not recommend this model if you want to drop ship on Amazon.
How to Make Money on AliExpress
The way AliExpress drop shippers usually make money is by selling on their own Shopify stores. On Shopify, you can get away with a less-than-perfect customer service experience. Bad reviews won’t break the bank.
On the other hand, if your customers on Amazon aren’t happy, they tell the world, and you could get banned from the site.
If you are drop shipping with your own store, maybe you can get away with not having the best customer service. That’s the category a lot of these AliExpress drop shippers fit into.
Issues with Drop Shipping from AliExpress:
- Always trying to catch the latest trend
- Inexpensive & sub-par quality products
- No MAP policies
- No branding whatsoever
- Long lead times
- No barriers to entry
How to Use Amazon to Drop Ship Domestically
The third method of drop shipping on Amazon is how you can actually build a real business.
The best example I can give you would be if I sold a simple paddleboard in my drop shipping business. If I had a good business relationship with the paddleboard suppliers, I could ask, “What's my cost, what's my wholesale cost, what's my MAP cost, and what's the MSRP?”
Then I sell the paddleboard and the company fulfills the order. We’re all familiar with this process!
This model is one that works well to drop ship on Amazon.
Now, I am not saying it just because it's what we do. We use this model because it's what works.
Think of it this way: basically you are selling these products that are on Amazon, and your supplier is in your home country. When an order is placed, you tell your supplier to ship them out. A few days later, your Amazon customer gets their product.
After that, they are either happy with your product or they are not. Either way, if it gets returned, the product goes right back to your supplier. Now you can start to see the benefits with a model like that.
However this method is not perfect and has issues of its own...
Issues with Domestic Dropshipping on Amazon:
- You need to do market research
- You need to build a website BEFORE you apply
- You need to earn the trust of top-tier suppliers
- It takes real work to get started
Finding Suppliers for Amazon Dropshipping
I have been in the eCommerce industry for more than a decade, and I have learned a lot of things along the way. One of the biggest being that about 70-80% drop shipping suppliers and brands will forbid you from selling their products on Amazon.
This is all part of what makes a good drop shipping supplier, well... a good supplier.
The reason many drop ship suppliers don’t want you to sell on Amazon is because there isn’t much of a benefit to sell there. The last thing these suppliers want is 20 different companies like us having a price war on Amazon or eBay.
So if you’re reading this, you are probably thinking, “Thanks Anton, I just read a huge blog post only to find out I can’t dropship on Amazon??”
Well, that’s pretty much true. However, you can get suppliers who don’t mind if you sell on Amazon. And if they don’t mind, it may be well worth your efforts to give drop shipping on Amazon a shot.
If You’re Still Set on Amazon Dropshipping, Consider This...
If your suppliers tell you NOT to sell their products on Amazon, here is what I recommend you do: Get approved with the individual suppliers in your niche. Then sell their products as their brands making you the retailer.
Think about it: when you go to a Walmart or a Target, they don't sell their own products, they sell products for different brands.
In your case, you would have five different brands. Then you build a Shopify store with all of their products listed on your website. THEN, you drive traffic to your website through Google. Check out a few of our example stores in our Ultimate Dropshipping Guide.
The idea of selling on Amazon is attractive because there are so many people shopping there every day.
But get this... Google Shopping and Google Product Listing Ads have even more people searching around for products to buy!
So...Should you be Selling on Amazon?
I hope you found this explanation helpful. If you were excited about drop shipping on Amazon and I just burst your bubble, I’m sorry. But this is the truth– whether you like it or not.
I am telling you this from my experience in the business. This is how we have consistently been able to drop ship profitably. It's not drop shipping on Amazon. It's not drop shipping on eBay. It's not drop shipping from China. It's not doing the arbitrage model.
It's working with legitimate brands, developing real business relationships, building a real business, and using Google as the primary driver of sales.
If you got something out of this post, please leave a comment below. If you have any questions, throw them in the comments! I'm more than happy to get down there and help you out.
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