The Beginner’s Guide to Amazon Dropshipping
Kris Hughes, July 7, 2020
We've all daydreamed about ways to make a living without working eight-hour shifts under bright, fluorescent lighting in offices with drab interiors. The promise of more freedom to live a flexible lifestyle has drawn people from all over the world to sell using Amazon dropshipping as their chosen method.
Selling on Amazon is one of the world's most popular side gigs, hobbies, or in some cases, full-fledged seven-figure business models with over 2.5 million people active in the Marketplace and over 40,000 items sold per minute.
Yep, per minute.
Accordingly, Amazon dropshipping is one of the most popular styles of selling on Amazon. It takes inventory control off the hands of the seller and instead places it in the hands of third-party logistics companies and Amazon to handle the details.
For the uninitiated, these can be murky waters. E-commerce is inherently complicated, but taking careful, calculated steps when you first get started, dropshipping can be a game-changer.
What is Dropshipping?
Dropshipping allows you to sell items on Amazon without ever having to handle the items.
Here is a simple description of the steps:
First, you create a store on Amazon.
You contract with a dropshipper to fulfill your customer orders.
A customer buys one of your products.
Your Amazon store sends the product purchased to your dropshipper.
Finally, your dropshipper prepares the order and ships it directly to your customer.
With this method, you don't touch the merchandise you sell, and order fulfillment is the responsibility of Amazon and your dropshipper.
Here's what it takes to get your Amazon dropshipping adventure underway.
How to Dropship on Amazon
Dropshipping on Amazon is relatively straightforward. But there are a few rules and regulations to follow.
Amazon won't get fussy as long as you stick to the following standards:
Make sure you are the merchant of record for your products
Packing slips or other materials you provide with your product orders should always identify you as the seller
Be responsible for handling returns, refunds, and any other customer disputes following your sales cycle
Comply with conditions outlined in your seller agreement, and any other applicable Amazon policies
As long as you keep things kosher, Amazon's alarm bells won't get rung. Trust us; you don't want their attention for the wrong reasons. Getting out of “Amazon jail” can be a time-consuming, business-damaging, and costly process you want to avoid.
Following Amazon's expectations and e-commerce blogger advice isn't enough to separate yourself from the pack. Some well-known best practices can help you take control of your Amazon business.
Let's check these out.
Amazon Drop Shipping Best Practices
Dropshipping on Amazon shares best practices with other business models. Spending time on product research and doing an in-depth competitive analysis is vital before you list your first product. If you don't take the time here, troubled times await.
Beyond the basics, here are some best practices to consider:
Don't try to be a loss leader. It may seem tempting to offer a product at a cheaper price point to win more business in the early-going. Yes, it can work. However, your brand can earn a reputation for being “cheap” or undervalued, and you don't want that. Find another element of the product on which you can compete.
The presentation is everything. Money spent on your brand, packaging, and overall aesthetic is money well-spent. Even if you find a less competitive niche (which you should), there will still be some competition. Taking time to consider your brand's message. Tell your story. That can be a valuable separation point.
Try lighter products and use ePacket for shipping. Shipping costs from overseas suppliers can derail your profit margins. To mitigate cost burdens, consider selling lightweight products that are shippable in an ePacket.
Be ready to pivot on a dime. Even best-laid plans sometimes don't pan out. An in-depth competitive analysis of your niche is essential. However, don't become married to the niche you choose. Being ready to pivot on a dime when opportunities arise - and they absolutely will (remember fidget spinners?) - will serve you well as a new Amazon seller.
Dropshipping is a powerful business model for new Amazon sellers to use. But, it isn't all sunshine and daffodils. Some substantial challenges come with the territory.
Let's take a look at the pros and cons of Amazon dropshipping.
Pros and Cons of Amazon Dropshipping
Dropshipping comes with some significant advantages, but also some hurdles.
First, the pros:
Inventory isn't weighing you down. The inventory control learning curve can be steep. It can often be too big a hill to climb for new Amazon sellers. Dropshipping takes the burden of handling physical inventory off your hands so you can stay laser-focused.
It keeps startup costs low. Using other shipping methods - in particular, Amazon Fulfillment by Merchant (FBM) - can get cost-prohibitive. Just think of all the supplies you need to ship on your own! That should be enough to deter you from FBM.
The increased ability to test more products with less risk. When you dropship, you can work smaller order sizes and various suppliers. You don't commit to huge production runs, which can leave you with excess product you can't unload. Dropshipping provides the freedom to work through periods of trial and error to find a product that's your first big winner.
Now, the cons:
Less control over the fulfillment process. When you relinquish inventory control and fulfillment of customer orders to a third-party, there can be some frustrations. If the dropshipper makes errors outside of your control, these errors still affect your business.
Lower profit margins than other fulfillment options. Amazon drop shippers often see lower profit margins than those who use FBM or Amazon's other fulfillment option, Fulfillment by Amazon (FBA). It's simple economics: Because you're buying fewer products from your suppliers, you'll pay more per unit, thus decreasing the margin.
Maintaining a high customer service standard is challenging. Because the fulfillment and inventory control process happen externally, customer service issues become burdensome. Treating each customer issue with a high standard can be daunting, if not impossible, if you're running a tight ship.
Amazon dropshipping isn't for everyone. But it's a relatively safe option for beginning Amazon sellers to consider. When executed correctly, the rewards outweigh the risks, and the pros outweigh the cons.
It's not a foolproof, perfect system, but can be a profitable one for those willing to roll with the punches and cede some control.
It's not for the control freak.
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