Typically, when someone buys something from you on Amazon, you ship them the item from the stock you have in a warehouse somewhere. Dropshipping flips that on its head—instead of shipping from the inventory you already have, you will be buying the item from a third party after you make the sale, and the supplier or warehouse partner, like SellerShipping, will ship it directly to the customer.
Technically speaking, dropshipping is a form of Fulfillment by Merchant (FBM), which is when you as the seller, or a third-party supplier fulfill orders from their own factories or warehouses, as opposed to Fulfillment by Amazon (FBA). They are not the same thing, however, as with FBM you could also handle the the storage and shipping yourself, whereas with dropshipping you don’t ever need to even look at a warehouse for storage.
The advantages of dropshipping include:
Inventory management
Firstly, it completely eliminates the hassle, costs, and risks of inventory management. Your overhead and start-up costs come down and you can spend more time and money on other parts of your business. You won’t need any money to begin with, and can list your products manually with an individual Amazon seller account. When you feel ready to sell professionally, you can shift to a professional plan for a monthly fee of approximately $40. This will also give you access to Amazon’s Selling Partner API (SP-API) service, allowing you to use external partners’ applications.
The risk of being stuck with large inventories that you can’t shift is gone, along with any penalties that could come along with that, such as damage to your inventory performance index (IPI) and the negative effect that would have on the rest of your operation.
It doesn’t hurt that the supplier or warehouse takes care of all the packaging and shipping, leaving you with more time on your hands.
Product range
Not having to rely solely on the inventory you already have also means that you get a wide selection of products you can choose from. You have far more flexibility to experiment with different product lines to see which formula can bring in the most revenue. This makes it easier to scale up your business, add more to your offerings and much more easily move into different markets to go after new customer segments, provided you get approval depending on the product category (read more about that below in the “Things to consider” section).
Low barriers to entry
Dropshipping also means that the costs of getting started are much lower than they would otherwise be—you don’t need to make a big investment into stock. You only buy when you make a sale.
Things to consider
Of course, you need to be aware of the potential hurdles you’ll have to overcome if you go the dropshipping route.
Competition
Lower entry costs are great, but not unique to you. Your competitors will also benefit from lower barriers to entry, meaning you’ll have to get creative to compete with them, especially given the lower margins that come from higher competition and Amazon fees (which you still have to pay and depend on product type), particularly if your focus is on budget products.
Dropshipping opens up a wide array of niches to sell to, but many are heavily saturated, which puts further downward pressure on margins. However, since you don’t operate from stock with dropshipping, you can easily replace non-profitable products with ones that sell better.
Warehouse selection (optional but has lots of advantages)
Having the warehouse do the heavy lifting on the preparing and shipping side of things is hugely convenient, but also comes at a cost. It means you have to do thorough due diligence before picking one—you need to ensure that they are a reliable partner with high standards for quality. Never forget that the third-party warehouse you choose can make or break your reputation as a seller. You can use tools like the SellerShipping 3PL warehouse for your order preparation management.
Finally, you have to make sure you never fall out of line with Amazon’s dropshipping policy. Speaking of which:
How do I stay compliant with Amazon’s dropshipping policy?
Amazon is totally fine with you dropshipping but has some strict requirements that you have to stick to. These include:
- You have to be the seller of record on any dropshipping sale. Any packing slips, external packaging, or invoices have to show you as the seller. Amazon strictly prohibits having no seller shown, or someone other than yourself—it would cause confusion for the buyer and wouldn’t give them a complete picture of their order or contact information they would need to get in touch with you.
- You must still be responsible for accepting and processing any items that get returned to you.
- You’ll also have to abide by all the other rules sellers are expected to follow through the Business Solutions Agreement and any applicable Amazon policies.
Run afoul of these conditions and you risk your account being suspended or even banned.
How do I set up an account and get started?
The first thing to do is create an account!
You’ll have to provide a range of information, including basic contact details like business email address and phone number, valid ID documentation, tax information, and bank account details. Creating a seller account on Amazon is like opening a local shop - it is a proper business. However, you can have an individual merchant account through which you can sell individually across many marketplaces in your own personal capacity.
Depending on the category of products you’ll be looking to sell, you’ll need to get approval from Amazon. For most of them, you won’t need to get approval, though in many cases you may need to get approval for certain sub-categories. Good news is that getting approval is usually pretty simple—typically, all you have to do is simply fill out a form or provide an invoice proving that you purchased that product.
Some categories for which you’ll definitely need approval, though, include:
- Collectible coins
- Entertainment collectibles
- Fine art (for which applications for new sellers are limited)
- Music, DVDs, and Bluray
- Sports collectibles
- Watches
- Chemicals
- Certain luxury brands
- Certain child products
Once you’re set up, there is an even easier and more convenient way to handle your dropshipping operation. With a specialized automated dropshipping software tool like SellerRunning, you can easily manage and automate aspects of inventory management, product search, stock and price updates, order tracking, and more. You can list thousands of ASINs and let SellerRunning take care of the rest, automatically managing your order process with the free, integrated SellerRunning House feature via SellerShipping warehouse.
Reach out today for a one-week free trial and use the promo code "WELCOME50" for a 50% discount on your first month.
Click here for a one-week free trial!
