Debate: Drop Shipping vs. Amazon FBA
The field of eCommerce has blown up over the past few years, with manufacturers allowing a growing number of drop shipping distributors and Amazon FBA becoming a more viable option for those with the capital to buy their own stock.
In fact, we JUST talked about this ourselves, on the latest Empire Flippers podcast.
But which eCommerce path is best? Should you be investing your hard earned money into product stock that may or may not sell or or should you play it safe by selling someone else’s inventory?
To answer this question, we’ve brought in some guys who do both for a living to hear what they have to say.
On the Drop Shipping front – Meet Anton Kraly
Anton has built an empire helping others dive into the world of eCommerce with his online training course, Drop Ship Lifestyle, where he’s taught and mentored thousands of students worldwide on getting started building profitable drop shipping sites.
He has over a decade of experience in online retailing and took his first eCommerce business from $0 to over $1.8 million by the age of 24. Impressive, right!
Learn more about Anton here.
In favor of Fulfillment By Amazon (FBA) – Meet Mark Brenwall.
Interestingly enough, Mark started out with drop shipping, but made the swap to FBA after creating a product that he wanted to put his own branding and label on, WOD Nation.
We spoke to Mark in November 2014 about how he built his brand from scratch, so be sure to have a listen to that as well.
To learn more about Mark and his brand, read here.
Rather than debate over which is better, we’ve asked Anton and Mark to answer four questions that will really give you insight into each platform so you can choose which model is best suited for your needs.
Before diving into the meat of it all, let’s quickly cover what drop shipping and FBA are so there’s no confusion.
What is Drop Shipping?
Drop shipping is a retail fulfillment model which means you purchase goods individually from a wholesaler and then they handle the shipping.
You create a website featuring products from your partnered wholesalers and sell them for retail pricing. When you place your order with the manufacturer you only pay wholesale, which is how you make your profit. They typically ship under your brand name.
For example, if you were selling dining room tables for $200 and the wholesale price was only $150, you would profit $50.
What is FBA?
FBA stands for Fullfillment By Amazon. As a retailer, you send product inventory to one (or more) of Amazon’s fulfillment warehouses, then advertise your products on Amazon. When it sells, Amazon handles the packaging, shipping and any returns that may happen. You determine the price so you are in control of your profit margin. Your products are eligible for Amazon’s free super saver shipping and Amazon Prime as well.
Theoretically this model is set up so you send, sell, then sit back and relax.
Okay, so maybe it’s not as simple as that, but you get the drift.
Here is an outline of what we will be covering:
- Why did you choose Drop Shipping or FBA over the alternative?
- What are the pros and cons?
- What do you wish you knew before choosing your ecommerce platform of choice?
- If you could do it all over again, would you go the same path – Why or why not?
Note: Anton submitted his responses via email so we have done our best to edit his responses as little as possible, outside of formatting. However, as Mark’s responses were shared through conversation, we have done our best to capture his message as clearly and true to his voice as possible. Both Anton and Mark have had final review of this before publishing, so it’s safe to say we did good.
Now – over to them!
Why did you choose Drop Shipping or FBA?
I’m not even sure if FBA was a thing back when I started my first eCommerce store in 2007. If it was, I was unaware of it at the time, so the decision was an easy one.
I started my eCommerce journey via importing. By the time I started drop shipping, I had actually already been importing for about three years, and I had already brought in dozens of product containers from China to the States.
Our transition from importing to drop shipping actually happened when brands who sold products similar to what we were offering asked if we were also willing to list their products for sale on our online storefront.
We decided to give this a try and quickly saw the potential. Our profit margins were smaller than when we were importing, but we were able to sell thousands of more products while serving many more buyers. It also led to our workload going down and overhead costs of a warehouse literally disappearing.
After about two years, we had completely transitioned from an importing company to a business that only sold other people’s products (aka drop shipping).
I started drop shipping first to test the market. I found a supplier on eBay for a jump rope, ran Facebook ads, sold it for $12-15 per piece which was profitable right away.
At the same time, I met someone here in Chiang Mai who was successful with FBA that encouraged me to try it. Because I knew I already had a market for it with my Facebook fan page, and my Facebook ads were working, I decided to go for it.
So, it wasn’t really a decision of one over the other. I always thought it would be cool to make a jump rope, and with drop shipping you don’t have your own products, so I wanted to put my own label on something and make it my own.
Also, the hassle of how I was doing drop shipping in the first place was a real pain in the butt. I would take all the orders through Shopify and then manually put them in eBay and ship from the eBay seller. I felt too exposed if the manufacturer was out of inventory or unresponsive because I was holding on to these orders from people without being able to fulfill them.
What are the biggest Pros and Cons?
Drop Shipping Pros
With drop shipping, the risk is very low. If you do things right, you can literally get approved with hundreds of suppliers and have access to sell tens of thousands of products within weeks.
If you know how to build a good website and if you know how to get products uploaded properly, you can be up and running in no time.
Drop Shipping Cons
First off, there are a lot of scams out there. If you ever find a supplier by searching “your niche + drop shipper”, you are going to fail. The only way to drop ship profitably is to work with real suppliers (aka brands) who focus on creating great products and then have retailers handle the sales for them.
None of those paid drop ship memberships or eBay to Amazon drop shipping garbage works. There is only one way to be successful when drop shipping. and that is to become an internet-retailer for the best brands within your niche. Don’t even use the term “drop shipping” if you want to be successful with this business.
With that being said, this is still a super competitive game. For example, I find a lot of my suppliers and niches by looking at what successful people are already doing. Because there is a lower barrier of entry to drop shipping than with something like private labeling, my competitors can do this to me as well.
The biggest pro is that once you are ranked in Amazon and things are selling, it’s pretty much hands off. You can run external ads to your listing, send off press releases, have giveaway promotions, and do all the things people do to get higher rankings in Amazon. Or you can choose to not do any of that and just sit back and collect your money.
Building your own brand and putting your label on your products is another thing I really like about Amazon. I find it’s a much better business than selling someone else’s product. I also have my own Shopify store, the Facebook fan page and all the social channels, and Amazon is just one more extension of that.
Everyone has their own philosophy on Amazon. Some people say, sell what sells such as sunglasses, keychains, iPhone cases. They don’t need to tie together. If there’s opportunity in one product, sell that.
I’m starting the other way. I started with a niche (similar to drop shipping) and I build all the products around that niche. There are pros and cons to that too.
I’m building a brand, so hopefully people are searching for WOD Nation, but I may be going to market with products that are already saturated. For instance, I tried to sell the foam roller. It was a good product, but was super saturated and had a low profit margin.
The problem for me and a lot of Amazon sellers is that there’s not much you have to do. If I could hit a button and make a few more sales I would, but because Amazon doesn’t give you a lot of reporting, you don’t know what keywords are converting and what people are searching for. You can see your conversion rate, but you don’t know how they found your product.
Starting with an FBA product is very expensive. If you don’t have $5000 lying around you can’t get into Amazon. Even with the jump rope, the first order was about $3000 and that was a relatively small order. It’s a risk.
Also, it takes a lot of time to talk to manufacturers in order to figure out what their pipeline is like, how many units they can make, how long will it take once I’ve submitted an order to manufacture, and who will do the shipping for me.
There’s a brand called Amazon Basics and as soon as they see a good product they go with it. Amazon is now making their own jump rope and that’s listed at number one. Amazon Basics has videos in their listings, and pictures in their descriptions, which we can’t, We can’t have those things, so it’s definitely a negative. You’re definitely playing in someone else’s sandbox. It’s also a negative for drop shipping because you’re selling someone else’s product.
The pros far outweigh the cons though, or I wouldn’t be doing it.
What do you wish you knew before starting?
I wish I knew about drop shipping earlier on. While my business was thriving while on a 100% import model, I did not see the opportunity for growth via drop shipping simply because I was not aware that the business model actually existed.
I also wish that I learned how to cut certain suppliers earlier on. I would say that 95% of the time the suppliers that I work with are excellent. With that being said, I have run into issues with certain suppliers in the past and I’ve given them the benefit of the doubt too many times. I wish I would’ve realized that it’s ok to cut off suppliers who do not respect our business and our customers as much as they should.
Everything about business is “learn as you go”. I would have loved to know how to manage inventory as that’s probably my biggest issue right now.
It’s also a super cash heavy business. China doesn’t take credit cards so when I buy jump ropes or any of my products, I’m sending them thousands in cash via wire transfer. In order to get up to that, it takes some selling and some time.
You really have to think long game.
Starting over again, would you choose the same path?
Definitely! I’ve been at this for almost 10 years now and I’ve made a lot of mistakes along the way, but I’ve also done a lot of things right and I am happy to say that I’ve never stopped learning.
I know I struggle with the same problem that most of us entrepreneurs do – the “Shiny Object Syndrome”. In business there are so many paths to take, but I can 100% say that I am happy I chose eCommerce and have devoted most of my time for the past 10 years figuring out what works, and what doesn’t. Every day is a learning experience, and that’s what makes it worth it.
Yea, I would. It’s been super fun to build a brand of my own products and it’s been super profitable.
Of all the things I’ve done in my past,this feels like the most solid business I’ve ever created. I love the creativity side and the business side of the business. It’s amazing to see an idea come into fruition.
A massive thanks to both Anton and Mark for taking the time to shed some light on this topic.
Now, over to you!
Who do you think “won” our debate? Or are both clear winners? Drop shipping or FBA – which do you prefer?
If you want to know about the e-commerce business model in general, then check out our Youtube video explaining how it works.