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A Complete Guide to Dropshipping on Amazon

August 27 2021 11:45
Winnie
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Amazon dropshipping is gaining steam as more e-commerce retailers want to focus on business growth and leave fulfillment to someone else. The numbers paint a pretty picture: nearly 34% of Amazon orders are fulfilled by drop shippers, proving that dropshipping on Amazon can be a viable business model.

On top of that, there’s the general power and scope that comes with associating your business with Amazon. More than 150 million people use the Amazon mobile app each month, while an estimated 112 million people are Prime members. In short, people love and trust Amazon, and drop shippers can tap into the trust and massive audience the company has earned to make a living for themselves.

Here’s your complete guide to dropshipping on Amazon and our best practices on how to get started.

What is Dropshipping?

Let’s start with a definition: dropshipping refers to the way in which online orders are fulfilled. Rather than keeping inventory in stock, retailers can use dropshipping to have orders fulfilled and shipped by the supplier or manufacturer.

Think of it as having a physical store with only pictures of items on your shelves. A customer tells you what they want, then you contact the supplier of that item and they ship it to your customer.

How Does Amazon Dropshipping Work?

Amazon’s Fulfilled By Merchant (FBM) offers dropshipping as an option for sellers, with a few requirements.

●      You must be the seller on record for all of your products.

●      You must identify yourself as the seller of all of your products on your packing slips, shipping containers, and other items that customers might see.

●      You are responsible for receiving and processing returns, not the dropship supplier.

●      You must comply with all Amazon policies and your Amazon seller agreement.

Using the FBM option, you can link your Amazon Seller Central account to your e-commerce store where you are already dropshipping products. Instead of having items fulfilled by Amazon, the merchant is responsible for fulfillment when an order is placed. As the merchant, you can hand off this responsibility to your dropship partners, provided you follow Amazon’s rules for dropshipping.

Here’s how the process might look:

●      You list an item for sale on Amazon.

●      The customer places an order.

●      You send the order details to your dropship fulfillment partner.

●      The partner will ship the item to the customer.

●      You collect the payment. 

This means you don’t have to carry inventory, nor do you personally have to fulfill each order yourself. Removing these critical steps from your workload gives you more time to find new products to dropship, market your business, and expand your operations.

The Business Benefits of Dropshipping on Amazon

The dropshipping model is creating big business opportunities. More than 23% of all global online sales in 2019 alone were the product of dropshipping, amounting to more than $122.3 billion in revenue. The benefits to the seller make this a compelling path to follow:

Lower Overhead Costs

Dropshipping is a business model that helps to keep operational costs as low as possible. For starters, you’re not having to pay Amazon for the fulfillment, which can range from $0.99 per item to $40 a month or more. In addition, there’s no need to purchase inventory upfront, which can free up your capital for advertising. This also means you won’t end up stuck with items that don’t sell well, nor do you have to pay for warehouse space to store inventory.

Faster Scalability

With lower overhead and no inventory or warehouse space, you can scale your business faster. You’re not dependent on retail space or a certain number of employees to ship orders. Much of the operational side of your business is done for you.

Broader Product Offerings

Physical inventory takes up space, which can limit the type and variety of products you offer. When your dropship partners are holding the inventory for you, you can offer unlimited products, sizes, and quantities without incurring additional costs.

Increased Flexibility

When markets shift and consumer preferences change, your business can fluidly adapt. Not being burdened with physical inventory means you can shift your offerings without losing any investment in your business.

Ready-Made Audience

Specific to Amazon dropshipping, retailers can tap into Amazon’s ready-made audience with ease. You don’t have to work as hard to earn trust from customers and you don’t have to market yourself as much since millions of people already know about and shop with Amazon.

Downsides of Amazon Dropshipping

We’d be doing you a disservice if we only highlighted the benefits of dropshipping on Amazon. Dropshipping as a whole does come with some potential downsides that are worth weighing in your decision.

For starters, dropshipping means products never enter your hands. You don’t have the benefit of seeing the product size, look, feel, and quality for yourself. This also means relying on generic product photos instead of taking your own.

Plus, the need for choosing trustworthy, reputable dropshipping partners is high. Your drop shipper must be trusted not to ship the wrong item or broken or damaged goods. This reflects on you, the seller, and can result in costly returns and damage to your reputation.

Last but not least, there’s a lot of competition in the drop-shipping model. Many retailers that rely on drop shipping have a hard time standing out because they are not able to offer products that are unique to their brand.

The good news: many of the above challenges can be mitigated when you choose the right dropshipping partner.

How Much Can You Make Dropshipping on Amazon?

Dropshipping on Amazon can be a lucrative business model, especially since the bar to entry is relatively low and inexpensive. The profit on each item varies, but many drop shippers can expect to make roughly 15% profit.

The average markup for drop shippers is anywhere from 10% to 30% per item. When an item is sold on Amazon, the platform takes 15% of the sale right off the top. Your profit margin can be higher if you manage to win the Amazon Buy Box, but this is the exception, not the rule.

So, let’s say you are selling a kitchen gadget whose wholesale price is $20.00. Adding a 30% markup would make that item $26.00 in retail value. If Amazon takes 15% (about $3.90), you’re left with $22.10. So you’d make about $2.10 on that sale.

Increasing your margins may increase your profit, but keep in mind that you might outprice yourself over your competitors. You can more easily justify a higher price once you start building your reputation (e.g., earning reviews, 5-star ratings, etc.), so make this a priority as you are starting out.

How to Set Up Dropshipping on Amazon

If you want to dropship on Amazon, you will need to connect Amazon to your store so you can easily manage orders from both channels. Shopify offers this integration, along with many other e-commerce platforms.

Follow these steps to start dropshipping on Amazon.

Step 1: Find a Trusted Dropship Supplier

Your drop shipping partner can make all the difference in your Amazon success. You want to find a partner that offers a variety of products that sell well, as well as one that has a reputation for quality, speed, and accuracy. What’s more, you should consider the margins for each product you might sell. Accessing products at a low price gives you more flexibility in your own pricing strategy, which can help you to maximize your margins.

Step 2: Create an Amazon Seller Account

If you haven’t already, create an Amazon seller account and choose the Fulfilled by Merchant option. This option means you (not Amazon) will be responsible for fulfillment.

Connect your Amazon seller account to your Shopify store or other e-commerce platform, as well as your drop shipping partner (like Doba).

Step 3: Import Dropship Products to Your Amazon Store

Doba makes it easy to bring new items into your Amazon store. You’ll need to create new product listings for each item in your store.

Once the products are added, you can monitor sales in real-time and know that fulfillment is handled for you. You’ll receive notifications when customers make a purchase so you can keep track of your earnings.

Start Dropshipping on Amazon with Doba

Doba is a leading provider of dropship products for Amazon sellers. We integrate directly with Amazon to make it easy to track sales, find new products in a range of categories, and ship items fast to boost your seller reputation.

Get started today with a free 30-day trial — it’s the only Amazon drop shipping integration you’ll ever need!