Amazon FBA vs Dropshipping in a Big Comparison: Which Strategy of Marketplace Selling Promises Greater Success?

When researching the countless possibilities of making money via the Internet, one pretty easily stumbles across the terms “Amazon dropshipping” and “Amazon FBA”. After all, a large part of it deals with the sale and marketing of a wide variety of products that customers from all over the world can order from the comfort of their own homes. Anyone who regularly places orders with the click of a mouse can tell a thing or two about the numerous benefits of “online shopping”. Hardly anyone knows how to offer their customers a smooth and uncomplicated shopping experience as well as online giant Amazon.

The unbroken boom in ecommerce is by no means a figment of the media’s imagination. According to a recent study by the UN Conference on Trade and Development (UNCTAD, 2021), the share of global online sales in the total sales of all retailers rose by a whopping 19 percent last year. If one believes the numerous expert forecasts and possibly also one’s own intuition, this development is likely to continue in the future. Against this backdrop, participation appears more lucrative than ever for many business people and those who are on their way of becoming one.

The two business models Amazon dropshipping and FBA (“Fulfillment by Amazon”) are aimed at providing a simple and comparatively low-risk entry into the wide world of ecommerce. Both skillfully exploit global networking and advancing digitization. But what are relevant components of the different business models, what are the similarities and differences? What requirements must be met? And perhaps most importantly, which model promises the greatest possible success under which circumstances?

These and other questions are explored in this article. To this end, we do not only compare both business models in detail, but also look at the individual steps required on the way to a successful business launch. By the end of this article, you should be able to identify the most suitable option for you and start your Amazon adventure with conviction and self-confidence. Enjoy the read!

By the way: If you are already running your own online store, this is no disadvantage on the way to your own dropshipping and FBA business with Amazon. In fact, the opposite is the case: Together with our multiple award-winning listing tool magnalister, you will find optimal conditions for an easy and smooth start. In conjunction with the multi-channel fulfillment program (MCF), you can even ship those products that are sold through your own webshop via your Amazon store. Conversely, the proactive, simultaneous development of your own online store can make a significant contribution to minimizing risk. You will also learn more about this over the course of this article.

Find out more about the core features of the magnalister marketplace interface and the possibility to test the plugin in a 30 day free trial with full functionality here:

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Table of Contents

Amazon FBA and Dropshipping: What is it anyway and why via Amazon?

Dropshipping: Significant Advantages Meet Far-Reaching Limitations

Amazon FBA – More effort, more risk, but most of all: More opportunities

Prerequisites and steps on the way to a successful FBA or dropshipping business with Amazon

The direct comparison: Which business model is most promising?

Bonus tip: With magnalister, you can link well-known online marketplaces such as Amazon and eBay directly to your own online store – and in addition to increased sales, also ensure more independence

Conclusion: Dropshipping and Amazon FBA offer inexperienced merchants an easy entry into ecommerce – nevertheless, aspiration and perspective are different

Amazon FBA and Dropshipping: What is it anyway and why via Amazon?

As already indicated at the beginning, both dropshipping and Amazon FBA represent comparatively simple ways of participating in the rapid development of online business. This makes them particularly attractive for anyone who sees himself rather limited in their available resources. In addition to the financial resources, this naturally also includes the time aspect that must be accounted for in the development and maintenance of one’s own business.

As the name already suggests, FBA is an Amazon-owned add-on service that can only be used in conjunction with a (paid) seller account. In contrast to the “conventional” Amazon seller, as an FBA merchant you have access to the company’s unparalleled logistics infrastructure: warehousing, shipping, returns management and, to a large extent, even customer service are outsourced to the online giant at a corresponding fee, meaning you can concentrate entirely on procuring and marketing your products.

This contrasts with dropshipping, which is often referred to as “drop shipping” in German-speaking countries. Basically, it refers to the sale of products in the name of or on behalf of another retailer or supplier. As a dropshipper, you are primarily responsible for marketing the corresponding items, but not for the preceding and subsequent processes in the value chain. As soon as a customer decides to buy a product you offer, the actual supplier is informed and takes care of the shipping. The products are thus at no time in your own (physical) possession.

This makes one thing very clear: Dropshipping as a concept does not necessarily have to be operated in conjunction with Amazon. So why do so many choose the route of working through the prominent online marketplace? The answer is clearly to be found in the global presence and familiarity of the US company. As a retailer, you have access to a huge and largely recurring customer base from the outset. And these customers typically already come to the site with a firm intention to buy. There is hence no need for costly advertising campaigns to direct visitors to your own website or online store.

In other words, Amazon enables its merchants to get off to a smooth start without a lengthy ramp-up phase – provided, of course, a few basic rules are observed. Other benefits include easy international business expansion as well as additional services such as packaging and labeling.

Of course, simultaneous sales via the marketplace can also make sense if you already have your own sales network. For example, to increase the visibility of your own products and tap into additional potential at home or abroad. You can read more about the numerous advantages of the marketplace in our big Amazon beginners’ guide.

Dropshipping: Significant Advantages Meet Far-Reaching Limitations

The basic functionality of the dropshipping business model is the same in connection with sales via Amazon: Products are marketed and sold on behalf of a wholesaler or manufacturer; in return, a corresponding commission is paid. This varies, of course, depending on the type of product and the terms negotiated, but is typically in the region of 10 to 30 percent. Larger margins are possible, especially if you can demonstrate consistently high sales figures.

Caution: The costs that sales via Amazon inevitably entail are still deducted from the margin. An exact calculation of the achievable revenue is therefore a basic requirement before you can start selling. We provide comprehensive information on the costs incurred for the various product categories here. By the way: The customer does not notice this “brokerage business” when he looks at or orders the offered products on Amazon.

Easy and without much risk: The advantages of dropshipping via Amazon

Getting a foot in the door of the fast-moving and competitive field of ecommerce is not child’s play for everyone. In addition to financial risks, many shy away from the initial effort that can go hand in hand with setting up their own online store, for example. That’s where dropshipping comes in handy: With its low entry barriers, it offers an attractive opportunity for newcomers to get to know online commerce better and generate their first online sales in the process. Effort and risk remain minimal – and you as a seller remain flexible at all times.

1. Instant visibility: As a fundamental advantage of Amazon commerce, instant visibility among millions of visitors offers a huge advantage over alternatives such as your own online store. In this case, the advertising drum on social media and other marketing channels typically has to be beaten tremendously, which in turn generates excess costs.
2. Extremely low capital requirements: One could say: It doesn’t get any cheaper. In fact, the financial outlay is minimal due to the “intermediary role” that one assumes as a dropshipper. Costs are only incurred for the Amazon seller account, marketing materials such as product images and, if applicable, Amazon advertisement (PPC). Sales fees are retained from achieved sales and thus do not represent an initial burden respectively an actual overhead.
3. Low effort & quick start: With dropshipping via Amazon, a retailer literally sits in a feathered nest. Dropshipping is certainly not a foregone conclusion and certain requirements must be met. Compared to FBA and other alternatives, however, the time required from making the decision to the first sale is very manageable. More information is available at the end of this chapter.
4. Manageable risk: The logical consequence of the previously mentioned points. Dropshipping – especially in connection with the Amazon marketplace – offers an attractive entry opportunity for anyone who would like to try out self-employment without taking great risks. Especially for the young and inexperienced, the widespread business model therefore forms a suitable entry point.
5. Automation features: Once your products are posted on the marketplace, all you have to do is forward orders for sales to the manufacturer or wholesaler in an efficient manner. Numerous plugins and tools offer assistance, meaning you can easily scale your business without significant support.
6. Maximum flexibility: You don’t need your own warehouse, products or distribution channels. In other words: Complete flexibility. What many see as a disadvantage also comes with its own benefits. If you find that a product does not reach your clientele as desired, you are not stuck with the goods you have already paid for, unlike with FBA & other business models. In addition, you are not dependent on the reliability of a single manufacturer of your products.

Numerous limitations form the other side of the coin: Disadvantages of Amazon dropshipping

Anyone who does not purchase a product at any time naturally has no say in its design. It is therefore all the more important to select a convincing product package in advance. In addition, the profitability of dropshipping is very limited compared to alternative business models such as Amazon FBA. And this is all too logical, after all a big portion of the profit goes to the wholesaler, who only gives you a share for marketing the items. Finally, for said reasons, building a brand with long-term success is also difficult for dropshippers, which means one often has to jump from one trendy product to the next.

1. Little influence on products: This point basically speaks for itself. Since dropshippers have little to nothing to do with the development and production of the products, their control over things like functionality and design of the merchandise is of course severely limited. However, with a little luck and/or a sustainable contribution to the manufacturer’s sales, a certain degree of influence is not impossible.
2. Low(er) profit margin: Everything has a price. In the case of Amazon Dropshipping, this lies in the limited profit margins per product sold. As already mentioned above, the costs for marketplace sales and, if applicable, fees for advertising campaigns within the platform are deducted from the proportionate margin. This aspect can only be countered by higher sales volumes.
3. No long-term branding potential: The vision of many Amazon sellers in the medium to long term is to build up their own brand, which from a marketing perspective is self-sustaining to a certain extent. Unsurprisingly, dropshipping is clearly the wrong model for such an endeavor. Dropshippers usually act dynamically in response to market conditions, often jumping from one trend to the next as soon as the chances of profit are deemed higher elsewhere. It is very difficult to build a loyal customer base in this way.
4. Long delivery times and difficult customer service: Since goods are not stored locally but shipped directly from the manufacturer or supplier, customers usually wait much longer for their orders. If products are purchased from Asia via AliExpress, for example, waiting times of several weeks are not uncommon. In conjunction with more difficult quality control and the fundamental dependence on the supplier, this poses particular challenges for the company’s own customer service.

Amazon FBA – More effort, more risk, but most of all: More opportunities

As already mentioned at the beginning, Amazon takes over the entire goods handling and fulfillment for its sellers as part of its FBA program. Typically, the products are shipped ready-packed from the manufacturer to one of the numerous Amazon logistics centers. There, the goods are first stored and then shipped on to the end customer in due course. In return, Amazon retains additional fees based on the type, storage period, dimensions and weight of your items. In addition, services such as packaging, labeling or repackaging can be used.

Self-determination and long-term perspective: The advantages of shipping through Amazon

The advantages of Amazon FBA are to a large extent already derived from the disadvantages of dropshipping just described. In addition, things like automatic Prime status are strong arguments for the well-known fulfillment service.

1. Immediate visibility and sales boost through Prime status: Just as in the case of dropshipping, Amazon’s entire visitor base is open to you right from the start, when using FBA. What’s more, by participating in the FBA program, you as a merchant automatically receive the coveted “Prime status”. This guarantees Prime customers fast delivery times and excellent customer service – and gives you greater visibility in search results as well as higher purchase rates.
2. Full control and influence: As an FBA merchant, you source your own products directly from the factory. This means you are actively involved in the development and manufacturing process. While some merely have their own logo printed on the corresponding items, others arrange for significant adjustments to functionality or appearance. The goal should be to differentiate from existing competitors (if necessary) through modifications and offer the best product package to prospective customers. For tips on other differentiation opportunities such as “bundling,” see our separate article on worthwhile Amazon products.
3. Higher profit margin: Unlike dropshipping, in the case of Amazon FBA, the majority of the margin remains with you as the merchant – even after deducting all additional fees. In order to generate a sustainably healthy income stream, this makes you less dependent on permanently high sales figures.
4. Building your own brand: As mentioned earlier, this is one of the main goals of many FBA sellers. Building a well-known and reputable brand name has numerous benefits. For example, long-term customer loyalty and retention grows, and sales can also be boosted through cross-selling. Basically, there are significant positive interactions between your various items, for example with regard to product marketing.
5. Easy internationalization: Admittedly: Selling products across your own national borders is never completely “easy”. However, FBA makes it as smooth as possible. This is helped by the worldwide logistics centers and various shipping programs as well as rates that aim to do just that.

Good things come to those who wait: The drawbacks and challenges of FBA

By now it should be clear that Amazon FBA demands more from you in direct comparison to the dropshipping model – in terms of time, business skills, but obviously also financially. What may be a disadvantage for many is an opportunity for others to excel and breathe life into their own ideas. Whether a challenge or simply a disadvantage, you should consider the following aspects in your deliberations:

1. High capital commitment: All items are purchased by you before they are sold, even though you often don’t even get to see the finished products (since they are sent directly from the manufacturer to Amazon). The clear goal is to earn a return on this initial investment as quickly as possible. Nevertheless, the capital is tied up for a certain amount of time and uncertainty about actual success is always a factor. In the worst case, you are left sitting on your products.
2. Time expenditure: Due to an increasing competition in many areas, it is essential to select your own products systematically from a multitude of alternatives. Even more important than with dropshipping is the search for manufacturers when shipping through Amazon: In addition to the cost aspect, suppliers sometimes differ greatly in their reliability, willingness to cooperate and, above all, flexibility when reordering fresh goods. In addition, you can expect, among other things, legal-regulatory tasks (customs / import, product codes, tax, legal texts, etc.).
3. Additional fees: This point is, of course, very relative. The apparently high FBA fees make it possible to completely dispense with your own product warehouse and fulfillment. Compared to dropshipping, these fees in turn enable a significantly higher margin. Nevertheless, caution is advised: If you have an unfavorable product selection and the wrong pricing structure, the margin can quickly shrink due to the sum of the costs. Also keep in mind that unforeseen issues like returns can incur irregular additional fees. Especially in areas like fashion and apparel, it’s important to factor this into your cost calculations.
4. Limited product selection: The cost structure of FBA ensures that not just any product will lend itself to the fulfillment service. Large and/or heavy products in particular often incur costs that are difficult to absorb through traditional sales figures. In addition, selling via Amazon FBA offers significantly less flexibility compared to dropshipping. Once you’ve committed to one product and one manufacturer, you can’t move on to the next one without further ado if you’re not successful.
5. Dependence on Amazon: A very important point that many sellers tend to forget or ignore. Especially if you are aiming to build a large and successful brand in the long term, you have to be aware of your own dependence on Amazon Marketplace. Not only is the competition constantly growing. You are basically helpless in the face of potential changes in the price structure or even disadvantageous company developments. This is another reason why we strongly recommend the (simultaneous) development of other sales channels, for example in the form of your own online store. More about this further down in the article.

Prerequisites and steps on the way to a successful FBA or dropshipping business with Amazon

First of all: We have already published a large number of articles on the entire process of getting started on Amazon, from personal requirements over bureaucratic procedures to product research. We therefore only touch on the individual To Dos in this overview. Depending on your needs, you should take a look at the following articles in addition to those already linked:

• Amazon guide for beginners: Personal suitability, preparations, product research.
• Preparations for Amazon FBA: Complete guide, starting capital, success factors
• Amazon sales fees: Detailed fee overview incl. sample invoices
• Tips & tricks for store opening: Registration, product listing, success strategies
• How-to for product research: How and where to find promising products

There is, of course, a bit more to do in the case of FBA, but the basic agenda is the same. Points that apply exclusively to FBA have been marked accordingly. Among other things, the following tasks need to be completed in the run-up to the first sale:

1. Company formation & opening a business account: Many merchants start with a sole proprietorship, which can later be converted to a limited liability company if needed. For joint ventures, a partnership under the Civil Code is recommended at the beginning. A bank account and at least a trade license are basic requirements for selling on Amazon and should be taken care of early on.
2. Tax number, VAT ID, EORI number: The first two can be applied for directly at the relevant tax office. The EORI number (Economic Operators’ Registration and Identification) is required for importing goods from abroad and makes customs clearance much easier by quickly identifying you as a merchant. It is usually not required for intra-European manufacturers.
3. Check the necessity of insurances (primarily FBA): As an FBA merchant you usually become a quasi-manufacturer of your products. Unless you decide to become a limited liability company right from the start, the full liability risks of your entrepreneurial activities lie with you. Depending on the type of product(s) and target market(s), it is therefore important to protect yourself against various risks. We recommend seeking professional advice before starting your business.
4. Opening an Amazon seller account: The process is mostly self-explanatory and can be started through this website. In connection with Amazon dropshipping we advise a Professional Seller Account from the start, while in case of FBA the decision depends on the expected sales.
5. Product research: Probably the most time-consuming and at the same time most important part of the agenda. We recommend product categories with the lowest possible barriers to entry, which at the same time have consistently high sales volumes. Look for niche markets where competition is still manageable compared to the search volume.
6. Manufacturer/supplier research (primarily FBA): A fundamental question typically arises between intra-European and Asian manufacturers. Besides a huge cost difference, differences in quality as well as delivery times should definitely play a role in your considerations. In our experience, the personal fit with the manufacturer is also very important.
7. Creating the product listing: Besides the selection of suitable products, this is the core of your business. The goal must be to present your product to customers in the best possible way, but without deviating from the truth. A successful product listing includes professional and informative product descriptions as well as high-quality images. The content should also be legally compliant and optimized for the relevant search terms.

Depending on the type of products sold, additional tasks such as applying for various certificates may be involved. Therefore, be sure to inform yourself in advance about any special features of your favored products and product categories!

The direct comparison: Which business model is most promising?

To better answer this question, let’s take another look at all the points collected so far in a tabular overview:

If you go through the various aspects one after the other, you will quickly realize that there is no clear answer to this question. “It depends”, as the American would probably say at this point. If you are just taking your very first entrepreneurial steps and do not have any resources worth mentioning, dropshipping, especially via Amazon, can offer an excellent and almost risk-free way to get started in ecommerce. Outsourcing large parts of the value chain to the manufacturer or wholesaler allows full focus on the core of the Amazon business – presenting and marketing the products.

If, on the other hand, you have great ambitions in terms of sales and profits from the outset and are aiming to build up your own brand in the medium to long term, there is no way around Amazon FBA in a direct comparison. The price for full control over product design is significantly higher investments and additional fees. And yet: In contrast to independent sales, the entire fulfillment process is outsourced to Amazon. Another big plus: The automatic Prime status of your products boosts visibility in search results and signals fast delivery times and excellent customer service to potential customers.

Ultimately, this doesn’t have to be an “either/or” decision whatsoever. Many retailers start dropshipping first, and then use the experience and financial resources gained to launch their own Amazon FBA business. However, what should not be disregarded here under any circumstances: The increased liability risks as well as the enormous dependence on Amazon. Remember: In the case of FBA, Amazon not only provides its own platform, but also the logistics warehouse and the distribution channels. An efficient way to minimize risk is running your own online store simultaneously. In the following chapter you will learn how our listing tool and webshop plugin magnalister can help you do exactly this.

Bonus tip: With magnalister, you can link well-known online marketplaces such as Amazon and eBay directly to your own online store – and in addition to increased sales, also ensure more independence

As we have already indicated, building a standalone online store using well-known systems like Shopware, WooCommerce or Shopify can make sense on many levels. In addition to higher margins on your product sales, you primarily reduce your dependence on Amazon, which results from being tied to the in-house marketplace. In addition, you proactively prevent the market entry of financially strong and competent competitors, first and foremost Amazon itself. In short, you combine the best of both worlds while reducing your risk.

This is exactly where our listing tool magnalister comes into play, which can secure decisive competitive advantages for you as a retailer. Regardless of whether you already run your own online store or are planning to do so in the future: as a webshop plugin, it offers everything you need for effective management between online store and marketplace – making it much easier for you to get started and for ongoing product and order management. Once you have set up your online store and configured magnalister, you can connect numerous other marketplaces in addition to Amazon in no time at all, thereby exploiting the full potential of your products. Fulfillment under certain conditions can still be handed over to Amazon as part of the MCF program.

The magnalister plugin is available for many of the well-known webshops and can be tested in a 30 day free trial with full functionality.

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With magnalister you benefit from the following features for efficient multi-channel distribution:

• Central product upload: Time-saving and efficient upload of products to all connected marketplaces
• Price synchronization: Prices are matched fully automatically or individually (per marketplace)
• Inventory synchronization: Current stock levels are synchronized and thus unwanted cancellations are avoided
• Automatic order import: Import and manage marketplace orders
• Attribute matching: Match product variations and features with marketplace attributes*
• Order status matching: Automatically match order status (e.g. “shipped” or “cancelled”) with marketplaces
• Invoice upload: Send invoices automatically from the webshop
• Interface customization: Customize the plugin via so-called hook points as you desire**

* Not supported by all marketplaces

** Requires programming knowledge. Not available for cloud (SaaS) systems, as no intervention is allowed by the manufacturer.

Experience all the features of the magnalister interface in detail in a free on-screen tutorial from magnalister.

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Conclusion: Dropshipping and Amazon FBA offer inexperienced merchants an easy entry into ecommerce – nevertheless, aspiration and perspective are different

Over the course of this article, we have taken a closer look at two of the most popular business models of online commerce: The Amazon FBA program and its somewhat scaled-down counterpart, dropshipping, which is especially popular among beginners. Both represent legitimate and promising ways to participate in the inexorably growing online business. At the same time, time-consuming and cost-intensive steps in the value creation process are outsourced to other parties.

A key difference between the two options is the trade-off between initial effort and long-term profit potential: As seen in this guide, Amazon dropshipping is considered the fastest and easiest way into online retailing, but offers sellers manageable long-term prospects at best. When using FBA, on the other hand, you source and design your own products from the outset. This means an additional expense that should not be underestimated compared to dropshipping. On the other hand there is the possibility to build a sustainably successful brand.

Which of the two business models is most suitable for you, depends entirely on your own requirements, preferences and, above all, long-term goals. Quite a few people take their first steps in dropshipping before switching to FBA after some time. Others see their dropshipping business as a permanent and flexible sideline, and still others start right away with FBA in the marketplace jungle. Whatever you ultimately decide on, be sure to take a look at our linked articles first. In addition to exciting insights, we provide many valuable tips and assistance for getting started and achieving sustainable success with Amazon.

In order to exploit additional potential and reduce your own dependence on Amazon, it can also make sense to maintain your own online store. In this context, we would also like to refer to our plugin magnalister: As an interface between your online store and many well-known online marketplaces including Amazon, our tool effectively supports you in the area of product listing and order management, so that you can fully concentrate on selling your products and the expansion of your ecommerce business.

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