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The Double-Edged Sword o Dropshipping

A Comprehensive Guide of Amazon Sellers

Posted by Amanda Stein on 2023-07-05 | 5 minute read

In short,

Dropshipping on Amazon presents unique challenges, particularly because you, as the seller, must be the sole point of contact for the buyer, and this can be difficult due to limited knowledge and influence over the product.

The Double-Edged Sword o Dropshipping

Dropshipping is an economic model which allows you to sell to a client without handling the products or inventory in any way. The buyer buys from you, but the order goes directly to the manufacturer or a storing facility that sends the product to the buyer. This is regarded as the easiest e-commerce business a seller can create hence it is a very popular method.

What is dropshipping?

The most obvious advantage is that you don't handle the products. You are in charge of selling them and handling the user, but you are not part of the manufacturing, the storage or the shipment of the products.

This means you have much less to handle and you can focus on selling.

It also means that your time to market is significantly lower. You can find a product to dropship, set up a listing and start selling it today. Compare this to preparing a backlog of products, handling storage and so on.

Another often overlooked parameter is the upfront costs that can be critical for many small businesses. Such costs are greatly reduced for dropshippers creating their e-commerce business

The advantages of dropshipping

This business model of using a third party supplier that manages inventory, has it's shortcomings. Since you are only a charge of a small part of the product lifecycle, this automatically effects your profitability. Since everyone makes a profit on their end, profits that theoretically could have been yours go to the manufacturer, the storing facility and so on. This may also mean you will not be able to offer competitive prices which will drag you down in the Amazon marketplace.

Another shortcoming of the dropshipping model is that you have limited influence and limited understanding of the product. This might make you a less than ideal seller which will effect your ability to communicate with the customers, differentiate the product from a sales perspective and so on.

The last disadvantage we will discuss might be the biggest, especially for Amazon sellers. Who is the point of contact for the buyer. The communication will be with you, of course, but you need to be able to supply good enough answers, answers that sometimes only the manufacturer knows.

In Amazon's case, it is strictly forbidden to involve anyone other than you in the eyes of the buyer, making things a bit more challenging. We will refer to that in detail in the next paragraph.

The disadvantages of dropshipping

As an Amazon seller you must comply with Amazon's specific guidelines, and the issue of dropshipping makes no exception.

Before becoming a drop shipper, make sure you understand and closely follow Amazon's [drop shipping](sourcing-and-supply-chain-management.html#inventory-management-mastery) policy . The main point you must understand is that you must be recognized as the sole seller in the eyes of the buyer. All the invoices, product inserts, slips and even the packaging must indicate you as the seller. A violation of this rule can get your account suspended. There are other stipulations (e.g. you must assume responsibiliy of returns, must have an adequate seller agreement) so make sure you carefully read the policy.

Is dropshipping allowed in Amazon

As mentioned above drop shipping has its advantages and disadvantages. It is a very useful method for some sellers, and an excellent starting point since it takes a lot of the load off from selling on Amazon. If you are looking to start selling on Amazon and don't have a product of your own, drop shipping is definitely a smart way to go to get your first sale as soon as possible. .

Should I drop ship on Amazon

Good chances you've already heard of FBA, but how does it connect to selling with no inventory?

While you still have inventory, as an Amazon FBA seller many of the inventory related tasks are being handled by Amazon and not yourself. This makes inventory management a whole lot easier.

The way it works is that you are in charge of shipping products to one of the Amazon fulfillment centers (Amazon's warehouse facilities). From that point on, Amazon is taken care of all logistics.

Amazon FBA and how it works

FBA stands for Fulfillment by Amazon, a practice where you are in charge of delivering the products to an Amazon fulfillment center but from that moment, they are the ones who handle it. All storage, shipping and returns are done by Amazon. Think of the time saved when Amazon ship orders or handle their return.

A good example of the depth of the responsibility assumed by Amazon is that if a buyer gives you a negative feedback that deals with shipment, Amazon will remove it.

Another big advantage is that FBA products are often promoted in the Amazon markeplace and get higher sales rank. This means, all else being equal, you are likely to get more product sales for an FBA item than a FBM (Fulfillment be Merchant) product.

The advantages of FBA

The main disadvantage of being an Amazon FBA seller is that you are subject to FBA related fees and payments. These payments obviously effect your bottom line so it's advised to crunch the numbers before making a decision

The disadvantages of FBA

There are obviously a million parameters to weigh in but in our perspective, FBA is very worthwhile. The extra costs are easily offset by the extra sales and the reduction of time spent on managing your inventory, can do wonders to your Amazon business and to maximize profits.

To FBA or not to FBA

As they open their professional seller account, Amazon sellers sometimes contemplate between these options. The answer to the question is simple, it depends.

Drop shipping can be a great option for some sellers while FBA can do wonders to others.

The decision depends on many factors, such as your product, the competition and your personal preferences.

As a rule of thumb we would say that drop shipping is ideal when you are starting out in Amazon or when your idea for a product is not robust.

FBA is a great option as you scale and want to increase your sales and customer base.

Frequently Asked Questions & Answers

  1. What is a key disadvantage of the dropshipping model?
  2. Answer: A significant disadvantage of the dropshipping model is that you have limited influence and understanding of the product, which can hinder your ability to effectively sell and differentiate the product.

  3. How does limited product understanding affect the dropshipping model?
  4. Answer: Limited product understanding can affect your communication with customers and your ability to differentiate your product from a sales perspective.

  5. Who is the point of contact for the buyer in a dropshipping model?
  6. Answer: In the dropshipping model, you, the seller, are the point of contact for the buyer.

  7. Why is it a challenge to be the point of contact for the buyer in a dropshipping model?
  8. Answer: It's challenging because you need to supply good enough answers to the buyer's questions, answers that sometimes only the manufacturer knows.

  9. What is a specific challenge of dropshipping on Amazon?
  10. Answer: On Amazon, it's strictly forbidden to involve anyone other than you in the eyes of the buyer. This makes communication a bit more challenging.

  11. What are the disadvantages of dropshipping?
  12. Answer: Disadvantages of dropshipping include limited product understanding and influence, as well as the need to be the sole point of contact for the buyer.

  13. What is the role of the seller in the dropshipping model?
  14. Answer: The seller acts as the intermediary between the buyer and the manufacturer, often being the only point of contact for the buyer.

  15. How does Amazon's policy affect dropshipping?
  16. Answer: Amazon's policy makes dropshipping more challenging as it forbids the involvement of anyone other than the seller in the eyes of the buyer.

  17. Why is it important for a seller to have a good understanding of the product in dropshipping?
  18. Answer: A good understanding of the product allows the seller to better communicate with customers and differentiate the product from others in a sales perspective.

  19. What does Amazon's specific guideline imply for sellers using dropshipping?
  20. Answer: Amazon's specific guideline implies sellers must comply strictly with their rules, including handling all communication with buyers themselves.

  21. Does dropshipping have more disadvantages or advantages?
  22. Answer: The advantages or disadvantages of dropshipping vary depending on the specific circumstances of the seller, such as their knowledge of the product and their ability to communicate effectively with customers.

  23. What is required of a seller to be successful in dropshipping?
  24. Answer: To be successful in dropshipping, a seller needs to be able to communicate effectively with customers, understand and differentiate their product, and navigate the guidelines of the platform they're selling on.

  25. How does the dropshipping model affect product differentiation?
  26. Answer: The dropshipping model can limit a seller's ability to differentiate their product due to a limited understanding of the product itself.

  27. Why is it essential for the seller to supply good enough answers to the buyer's questions in dropshipping?
  28. Answer: It is essential because sometimes these are answers that only the manufacturer would know. It's crucial to maintain customer satisfaction and trust.

  29. How does the dropshipping model limit a seller's influence?
  30. Answer: The dropshipping model limits a seller's influence because they don't have control over the manufacturing process or the logistics of the product.

  31. How does Amazon's policy affect the communication process in dropshipping?
  32. Answer: Amazon's policy requires that all communication with buyers must be handled by the seller alone, making it more challenging as the seller must have a good understanding of the product.

  33. Is it possible to involve the manufacturer in communication with the buyer in dropshipping?
  34. Answer: In most cases, especially on platforms like Amazon, it's not allowed to involve the manufacturer in communication with the buyer.

  35. How can a seller overcome the challenge of limited product understanding in dropshipping?
  36. Answer: Sellers can overcome this challenge by investing time in learning about the product and liaising closely with the manufacturer to gain a deeper understanding.

  37. Why is it forbidden to involve anyone other than the seller in communication with the buyer on Amazon?
  38. Answer: Amazon's policy is designed to ensure a consistent customer experience and to maintain the integrity of the seller-customer relationship.

  39. What is the biggest disadvantage of dropshipping for Amazon sellers?
  40. Answer: The biggest disadvantage for Amazon sellers may be the strict requirement to be the sole point of contact for the buyer, requiring a deep understanding of the product to communicate effectively.