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Do you want to start an online business with no inventory management and shipping responsibilities but still like to make a good profit?
If that's the case, dropshipping may be the easiest business model for you to follow on Amazon in 2022.
Due to the ease of doing it, dropshipping is experiencing constant growth in the eCommerce landscape. It’s been forecasted that its volume will grow over 475 billion dollars by 2026.
Dropshipping entails providing an online retail storefront to manufacturers/suppliers. In other words, the manufacturers/suppliers outsource customer-facing to a seller with an eCommerce business platform. The seller (dropshipper) gets a commission from the manufacturer/suppliers for providing this service.
To start a successful dropshipping gig, you need to know some essential tips and tricks about the business model. In this Amazon dropshipping guide, we will try to cover the following topics:
By the end of this article, you should have a clear idea of how dropshipping works and if it is the appropriate business model in line with your budget and needs.
So without further delay, let's start.
Dropshipping Ecosystem: A customer places an order with a dropshipper on Amazon. The dropshipper then forwards the order to the wholesaler/manufacturer of the product. The wholesaler/manufacturer then fulfills the order and sends the product to the customer.
As a dropshipper, you provide an online store to product manufacturers. This business is based on a strong and cohesive liaison involving two to three parties. These parties are:
The job of an online retailer is to promote the product, maintain a robust online presence, and find customers interested in purchasing the listed product. In addition, the retailer takes and tracks orders, entertains customer queries, and ensures a good shopping experience for shoppers. These retailers use a large platform like Amazon or Shopify to make sales and are known as dropshippers.
In the dropshipping ecosystem, wholesalers are the party that purchases the product in bulk and ships them to the customers on demand. They sign an agreement with online retailers/sellers/dropshippers that make them (wholesalers) responsible for inventory management and order delivery. On the other hand, the contract directs dropshippers/retailers to take orders from customers and manage all the communication with them. The dropshipper charges the wholesaler on each sale made.
Manufacturers are either directly involved with the online retailer or through the wholesalers. They don’t sell the product directly to the end consumer. In many cases, retailers tend to directly source the product by signing contracts with manufacturers.
By signing up on Amazon as a seller, you can become the online representative of the product while the manufacturer dropships the product to the customer. In short, the Amazon seller is registered as the responsible individual for marketing, making sales, and referring the orders to the supplier. At the same time, the manufacturer takes care of the product manufacturing, packaging, and shipping.
The flow of dropshipping trade works like that:
Starting a dropshipping business may seem easy and hassle-free. However, you first need to map out some major Dos and Don'ts to build a stronger foundation for your dropshipping business. For this purpose, we have three essential pieces of advice for you.
Your pricing strategy alone can make or break your dropshipping business. When selling similar branded products along with several other sellers, your pricing determines whether you win the Buy Box or not. Therefore, you’ve to team up with manufacturers/wholesalers that can offer the lowest possible wholesale prices. Similarly, you must keep your margins thin to give customers the best (lowest) price.
Dropshipping space can get quite unkind to you if you can't find manufacturers/wholesalers that offer reasonable prices or don’t compromise your margins.
As a dropshipper, making your customer the number 1 priority is essential and ensuring that your customer service is as efficient as possible. So, have a proactive approach when it comes to customer queries and complaints.
In the case of dropshipping, order deliveries and quality assurance are rarely in your control. However, ensuring that your supplier always sends good quality products to customers is still doable.
You need to choose the right niche for your business to run a niche-based dropshipping store. First, pick a niche that you are interested in. It is essential because if you do not enjoy what you do, it will get tedious and exhausting within months.
However, personal interest should not be the only parameter in picking a niche. Before deciding on a particular niche, you must also assess the sales volume, competition, margins, etc of that product category. For that, you will need to carry out intelligent product research. Some tools can be helpful for such an inventive lookup of dropshipping products.
For instance, Niche Finder is an interactive tool for Amazon sellers to help them select the niche they want to operate in. The tool promptly gives you an overview of a niche by analyzing buyer demand, competition, investment, and revenue potential.
To sum it up, choose a niche that interests and also boasts healthy business performance indicators (high sales, lesser competition, higher margins). Also, don’t forget to validate your shortlisted niche through a specialized tool like Niche Finder.
Roughly 10 out of 100 sellers on Amazon use the dropshipping business model. The number may seem small, which is why it is essential to know that a well-thought-out business plan plays a significant role in the success of a business.
Amazon dropshipping can be profitable if your business is designed around reliable products with high demand in the market.
As a longer supply chain means lesser profit, you need to set competitive prices for your product to leave yourself at least a 10-15% margin after deducting referral and account fees and other expenses, including the payment to the wholesaler/manufacturer.
All in all, dropshipping is a low-risk option with fewer expenses in comparison to other Amazon business models. The profit of your dropshipping gig depends on the product of your choice and your pricing strategy more than the business model itself.
When you mull over starting a dropshipping business, the most crucial question is, "will Amazon dropshipping be profitable for me?”
As discussed in the beginning, the dropshipping industry is a successful one and is estimated to reach half a trillion mark in the next 4-5 years. So, there's still plenty of juice in this eCommerce domain, and new dropshippers have a lot of room to start and grow.
As of now, an Amazon dropshipper can make a minimum of $1,000 every month, given that they build a thriving business ecosystem.
For a dropshipping business to run smoothly, it is important to operate with a recognizable brand, products with high demand and low supply on Amazon, good customer service, and competitive prices.
If a dropshipping business on Amazon has all the qualities mentioned above, a dropshipper can make up to $50,000 per month.
Dropshipping on Amazon requires very little money as compared to FBA business models. Dropshipping does not require the seller to purchase inventory, thus saving a significant chunk of money in this area.
It doesn't mean that dropshipping is absolutely free. You need a minimum of $1,000-1,200 as your initial investment. It will cover the Amazon fees (more on that later) along with any initial payment (e.g. security deposit) to the supplier.
Although dropshipping is one of the most convenient business models for Amazon sellers, it does have shortcomings like every other business model. Since the seller is not in charge of the inventory, it is possible to face some trouble on the customer services front. Some of the major disadvantages of dropshipping are as follows.
As we’ve discussed the supply chain management of dropshipping earlier, there are multiple parties involved in a dropshipping business. While it has its perks, there may also be problems with finances and profit management.
Unlike the Amazon wholesale business model, where the retailer purchases the product in bulk, the dropshipping business is all about sourcing a product when a customer orders. As a result, it saves the retailer the expense of buying products and the fulfillment fees.
However, products bought in bulk are cheaper compared to single-item purchases. Also, a manufacturer/wholesaler fulfilling the dropshipping orders may not quote prices where you can carve a substantial retail margin for yourself. On top of that, Amazon fees will also eat into your revenue.
In short, Amazon dropshipping margins remain very low. Nonetheless, you can also make good profits with dropshipping by generating higher sales volume.
As you are not in charge of the inventory, it is possible that your customers may be left dissatisfied with the delivery of the products. If they are unsatisfied with the received order and want a refund, you will be responsible for taking it up with them. On the one hand, you cannot ensure the quality of each product shipped to your customer. On the other hand, you also have to deal with the unpleasant return and refund process.
Sometimes, suppliers can miss an order, ship the product late, or worse, send the wrong order or damaged product to the customer. Although these are rare scenarios, there is still a possibility.
It is essential to know your suppliers, find a backup supplier and ensure that you do not engage with manufacturers/wholesalers that don’t have a good reputation in the market.
Relying on someone else's inventory is definitely risky. As mentioned earlier, having a backup supplier is extremely important to avoid unpleasant situations.
There is a chance that your supplier may run out of the product, as they deal with many retailers/dropshippers. Therefore, it can directly impact your business as your supplier running out of stock means that you are out of stock. This could also result in getting bad feedback from customers.
Dropshipping entails extreme competition in many product categories. As a result, you can find several dropshippers competing for the same listing with their offers. In other words, the race to get the prized Amazon Buy Box has too many contestants. A dropshipper needs to strike a perfect combination of account health, seller profile, and reasonable prices to ensure they can stay ahead and win the Buy Box.
Amazon has strict conditions regarding dropshipping to ensure a safe and secure business experience for customers and sellers. These policies require the registered seller account to be the Seller of Record (SoR). An SoR is an individual with the legal rights—given by the manufacturer—to represent the product as their own.
An SoR is responsible for financial management, order processing, fulfillment, and business taxes while also dealing with product returns and refunds. In short, an SoR owns the product sold through their Amazon retail listing.
Here, we are listing down some of the Amazon Dropshipping policy violations that can get you into legal trouble and may cost you your seller's account on Amazon.
If the receipts, name on the package, and invoices do not identify you as the seller of record, you cannot send products directly from other retailers to your customers. Apart from direct shipping, shipping any product with a seller's name different than yours on the package, its receipts, and invoices is also strictly prohibited.
The customers must not receive any shipment containing your supplier's information. In addition, all the receipts and package details must be registered under your own name.
The Amazon seller agreement must not be violated. Otherwise, your seller account will get suspended, and you will be unable to run a dropshipping or any gig on Amazon.
Finding a supplier for your dropshipping business on Amazon could be tricky if you are new. However, it can easily be done with good research. You need to ensure that your supplier is reliable and dropships good quality products.
Following are some ways that you can use to find dependable dropshipping partners.
Keeping an eye on your competitors may sound creepy, but it can be super helpful. By finding a competitive dropshipper, you can place an order with them, and by the company's return address mentioned on the parcel, you can access the supplier. From there on, you can further increase your supplier network.
Consider Google your best friend. By using the right keywords like "distributor", "wholesale retailer", "mass resellers", “suppliers for Amazon dropshipping”, and other relevant search queries, you can find yourself the right supplier.
It is worth remembering that wholesale suppliers do not promote their business well, so it may take a while before finding yourself the right partner.
Directory sites can be greatly helpful. These websites are databases with detailed information of all the legitimate suppliers compiled in one place. Using such directory sites, you can reach out to multiple wholesalers and manufacturers.
The best and most convenient way to find yourself a supplier is to contact the manufacturer of the product directly. Talking to the manufacturer will help you identify legitimate and professional suppliers.
You can request the manufacturer for a list of all their wholesaler clients to see which one suits your requirements best. You can also ask the manufacturer/brand if they can be your direct dropshipping partner without intermediation from a wholesaler/distributor.
You can see Amazon marketplaces to find all the brands sold in the product category you want to deal in. Shortlist those brands and then drop them emails (usually the help or seller support desk). Your email should introduce you and your intention for writing the email.
Amazon charges every seller a specific amount of fees in the name of a monthly subscription fee, referral fee, selling fee, refund administration fee, etc.
The Amazon monthly subscription depends on the seller's account plan. For example, an individual seller account plan can be accessed free of cost (at $0.99 per sale). In contrast, the professional seller account requires the seller to pay a $39.99 monthly subscription fee (no charges per sale), which is applicable when the seller has active listings.
Amazon facilitates the process of making a sale for the listed sellers. For this purpose, it deducts a fee on each item sold on the listed product. Generally, the referral fees range from about 8% to 15% on each sale, depending on the product category.
If you refund a customer for a product, Amazon will refund the referral fee you paid on the sale. However, this will be less than 20% of the total applicable referral fee.
There are multiple platforms for Dropshipping, including the major ones like Amazon, Shopify, etc. These websites have different requirements and conditions for dropshipping.
To give you a better idea of which one among Amazon and Shopify is the best platform to start your dropshipping business, we will compare both.
Shopify allows you to design your own website for selling/dropshipping your product. This is beneficial as it is the same as renting a building for your general store. However, this means that you will need to learn:
In the case of Amazon, it is all available to you right there on Seller Central. You do not need to launch a website for your product. All you need is an email address, a contact number, and a bank account to get started as an Amazon seller.
You have a lot of control over your brand designing and representation when you are dropshipping on Shopify. Although it has advantages, the major downside is that it is time-consuming, and you may need a lot of time to learn technical skills for designing your brand themes. Similarly, if you want to hire a professional, that will also cost you a lot of money.
On the contrary, Amazon takes care of everything website related. Therefore, your selling procedure is always standardized according to Amazon's terms and conditions. This is helpful as customers expect a specific experience while shopping on Amazon. On the other hand, in the case of an online store on Shopify, they may never be too sure about what to expect from you.
Shopify has comparatively relaxed procedures in comparison to Amazon when it comes to the process of order fulfillment. You can connect your website on Shopify to multiple dropshipping apps and suppliers that can easily carry out order fulfillment.
As discussed, Amazon has strict policies regarding the dropshipping business model. These policies include not mentioning your third-party supplier on Amazon receipts, invoices, and shipment packages. Also, Amazon doesn’t provide a channel/platform to connect with your dropshipping partner (manufacturer/wholesaler).
By a fair comparison, it can be seen that both platforms have their upsides and shortcomings. Nonetheless, Amazon is easier for entrepreneurs entering the domain, whereas Shopify may seem complicated to newbies.
You cannot start your dropshipping gig without any money. However, you can begin your dropshipping journey on Amazon without injecting major investment into your operations. As already discussed, dropshipping does not require any inventory purchase, saving the storage fee for fulfillment centers and other fees (inspection fees, shipping fees, etc).
Moreover, you may not have to carry out aggressive PPC campaigns or no paid promotions at all, which are usually needed to promote Private Label listings or an Amazon store. Then, you can list your product for free by signing up for the individual Amazon seller account.
You can attract an audience of interest through effective planning and strategic pricing. Your supplier will ship the item to the customer once you make a sale, and you can make payments to the supplier and Amazon using the money the customer pays you.
In short, you need more time investment than a capital investment to start a dropshipping gig and succeed at it.
Dropshipping on Amazon from AliExpress is easy and convenient. All it takes is basic research before starting a business (like researching the product and its sellers, keyword research, reviews for the existing listings of the product, etc) along with an analysis of wholesalers and suppliers on AliExpress. For this purpose, you need to:
You need to choose the right product for a successful business. For this purpose, checking the trending products on Amazon with fewer competitors is your first step. If you have already decided what to sell on Amazon, you can simply skip to step 2.
Check the reviews of the supplier on AliExpress. It will give you a fair idea of how reliable your supplier is.
If the supplier has loads of 4-or-above-star reviews, it can be considered a good start for you.
The more products a supplier sells, the better it is for you. This is because it ensures that the supplier supplies a good quality product, also indicating that your chosen product has a good sales rate.
The next step is to add your offer for the existing ASIN. Once you have signed up on Amazon as a seller, you can promote your product and start targeting your audience with the right keywords, an attractive product description, and other business tricks.
Since you’ll sell a branded product with an existing ASIN and established consumer base, you don’t have to worry about listing content and its optimization. Instead, you must maintain good account health and set a competitive price to win the Buy Box and boost your dropshipping sales.
Once you receive an order from your customer, you will send the order to your supplier. The supplier will dropship the order to your customer and charge you for the item at wholesale prices.
To summarize the procedure:
Additionally, it is important to ensure that your product supplier or manufacturer is not listed as a seller on Amazon. This could reduce your sales since a manufacturer can sell the product to its sellers at a lower price and with a more efficient service.
Dropshipping can prove to be a profitable gig if the business plan is well mapped out. You will need a highly demanded product, a reliable supplier, and an effective pricing strategy to get your dropshipping business running in a short time.
There are certainly some shortcomings of this business model. But once you do proper research to shortlist the product you want to sell, study the marketplace, determine your target consumer base, and vet and pick a reliable supplier, you can easily make a living through your Amazon dropshipping business.
Are you scouting a product for your dropshipping gig?
Use ZonGuru’s Niche Finder, which provides crucial indicators like product demand, competition level, investment estimate, and revenue potential for the given category. All this analytical information helps you make informed decisions while shortlisting products for dropshipping or any other Amazon gig.
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