Looking for a way to get started selling on Amazon but don’t want to spend a lot of time or money doing it? Enter: Dropshipping on Amazon!
If you ask an experienced e-commerce seller for a good way to get started selling products online without breaking the bank or spending a ton of time, chances are they’re going to tell you that dropshipping is the way to go.
In this article, we’ll cover the following:
- Recent updates to consider
- How does dropshipping on Amazon work?
- The advantages and disadvantages of dropshipping on Amazon
- How to start dropshipping on Amazon
- Five tips for success when dropshipping on Amazon
Recent Amazon dropshipping updates
Before you jump into dropshipping on Amazon, please make sure you fully understand Amazon’s guidelines on dropshipping so you don’t end up with a suspended account.
On May 21, 2021, Amazon sent out a reminder in Seller Central stating that they’ve updated their policy page to ensure all sellers clearly understand their strict guidelines with regards to dropshipping on Amazon.
If you violate the policy in any way, you may lose the ability to sell via FBM, or even have your account suspended.
In order to fulfill orders using a drop shipper, you must adhere to the following:
- You must be identified as the seller on all invoices, packing slips, external packaging, and any other information included or provided with the product. There should be no mention of your supplier or manufacturer.
- You are responsible for accepting and processing returns.
- You must comply with all of Amazon’s Terms of Service according to the seller agreement.
Do not — and I repeat — do not purchase products from another online retailer and have them ship the product to your customer. This is a big no-no from Amazon and they will suspend you for it.
Example: You list a coffee maker for sale on Amazon. A customer purchases the product, you purchase the same item from Walmart.com, and then enter in the Amazon customer’s shipping info. The Amazon customer receives a package with Walmart identifiers on it. THIS IS NOT ALLOWED!
If a customer receives a package from Walmart, they’re going to be very confused and frustrated, as they ordered from Amazon. You may instead practice what’s called retail arbitrage, where you purchase an item from another store such as Walmart and resell it on Amazon — as long as there is no mention of Walmart on a packing slip or the packaging.
How does dropshipping on Amazon work?
Dropshipping is an e-commerce method in which the seller takes orders on behalf of a manufacturer, distributor, or supplier. Then, when a customer buys the product, the seller uses their supplier to fulfill those sales.
Often, dropshippers reposition the sold goods as their own and the end consumer is never made aware that the goods came directly from the manufacturer. This practice is popular on e-commerce sites like Amazon, Ebay, and Shopify.
And while this may sound somewhat complex, we’ve broken it down for you to help you get a better handle of how it works and how you can start dropshipping in 2021.
Here is a diagram that teaches you the basics of dropshipping on Amazon (explained in further detail below):
- First, an Amazon customer (on the left-hand side of the diagram) purchases the product you’ve listed on Amazon.
- Second, once the transaction is finalized and you receive the funds, you purchase the product directly from the supplier (on the right-hand side of the diagram) and give them the customer’s information.
- Lastly, with the buyer’s information in hand, the supplier then sends the product to the customer.
One popular form of dropshipping is through print-on-demand.
Print-on-demand allows you to advertise customized products such as t-shirts, mugs, posters, and even books without purchasing inventory. Then. when the sale is made, the supplier creates the product for you, then ships it.
For example, when Disney “dropped the ball” on Baby Yoda merchandise in late 2019, many third-party sellers created their own print-on-demand merchandise to fill the void.
How does dropshipping compare to other methods of selling on Amazon?
Dropshipping is just one of many methods of starting a business on Amazon. Other popular — and arguably more lucrative — methods of selling products on Amazon include wholesaling and private label.
Wholesaling is when you purchase goods at a bulk rate from a supplier to resell to another retailer or distribute as a retailer yourself, and private label is a method of manufacturing your own products to sell on Amazon.
However, there are a number of advantages dropshipping on Amazon has over wholesaling and private label.
Low start-up costs
As opposed to other popular e-commerce methods like private label and wholesaling, dropshipping does not require you to own your own inventory. Instead, when you get paid by the consumer on the sale, you simply turn around and use a portion of the proceeds to purchase the product from the supplier and have them ship it to your buyer.
Fast to set up
Because you don’t have to own your own inventory when dropshipping on Amazon, it’s quick and easy to set up. Afterall, you don’t have to wait for your inventory to be manufactured and/or shipped to the fulfillment location. It’s ready to go. All you need is a sale!
Fully automated business
There are a lot of apps and plugins online that allow you to fully automate dropshipping on Amazon. For this reason, you can be (almost) completely hands off with your dropshipping business.
Amazon allows dropshipping
Note: In order to dropship on Amazon, you must purchase from the supplier or manufacturer. Purchasing from another retailer is strictly prohibited.
Easy to research
Dropshipping on Amazon involves selling pre-existing products from manufacturers. For this reason, you can use tools like Jungle Scout — an all-in-one platform for selling on Amazon — to see how well other sellers of that particular product are performing on Amazon. This gives you an edge when you start your dropshipping e-commerce business.
What disadvantages are there to dropshipping on Amazon?
Naturally, as good as dropshipping sounds in terms of its advantages, it does have a few disadvantages to consider.
Because the barriers-of-entry are so low with dropshipping, competition can be high. In addition, while there is some possibility of differentiation with the products you are selling, there is nothing stopping other Amazon sellers from selling identical products.
As such, price is one of the few levers you have to pull to set yourself apart from others, which can lead to a “race to the bottom.”
Slow delivery times
Often, goods that are dropshipped on Amazon are shipped from the suppliers and manufacturers. And often, those suppliers are overseas.
For that reason, shipping times from overseas suppliers can take up to a few weeks (or sometimes even months!) to reach the end user.
Lack of quality control
Because items are shipped directly from the manufacturer to the buyer, there is no way for you to control the quality of the product.
When you consider that products may travel 10,000 miles or more to reach their final destination, it’s easy to see how they could get damaged in the process.
How to start dropshipping on Amazon
Now that you understand a little more about dropshipping on Amazon and how it works, here’s how you can get set up as a dropshipper.
Step 1 – Set up an Amazon seller account
In order to sell on Amazon, you will need an Amazon seller account. You can get one by going to sellercentral.amazon.com. There, Amazon will offer you two choices for the type of account that you can start with: individual and professional.
Step 2 – Find a high-demand/low-competition product
Next, you will need to find a product to sell on Amazon.
You can do this by using a tool like Jungle Scout’s Opportunity Finder to find high-demand/low-competition product opportunities. And while you may have your own metrics to use for finding such products, I recommend starting with the following criteria:
- 100-300 unit sales per month
- Set competition to “very low” to “low”
- Fix the average monthly price from $20-$35
- Set niche score to 7+
This should give you an excellent number of product opportunities to peruse in all categories.
Also, when starting out, I recommend keeping things simple. Housewares, sports & outdoors, and patio, home, & garden are all great categories for beginners because they tend to be low maintenance.
Step 3 – Check a site like Aliexpress to see if the product is available
Once you have some product ideas, you will need to find a supplier.
The biggest connection to dropshipping products is Aliexpress. It’s a business-to-business website that puts e-commerce entrepreneurs in touch with suppliers who are looking to dropship their goods.
Just type in the search terms for the product that you are interested in selling and, just like Amazon, a variety of products will come up.
Once you click on one, you’re provided with a number of details. In the above example, you can see that the notebook/agenda planner costs $3.22 with free shipping into the US (and shipping is free).
The seller also offers 60-Day Buyer Protection on the product. (Be sure to note the delivery time, however, which is more than a month out!)
Step 4 – Create an Amazon listing
After you have a product idea and a supplier to fulfill that product, you’ll need to create an Amazon product listing.
From your Seller Central account, go to Inventory > Add a product. When the Add a Product screen comes up, click “Create a new product listing.”
First, you will need to choose your product category. Then, once you’ve done that, you’ll have to fill out the information for the listing itself.
When setting a price for your dropshipped product don’t forget to account for Amazon’s fees. If you are a professional seller, you will pay a referral fee of 8-15% depending on the category. Individual sellers pay an additional $1.00 per sale, too.
You can learn more about Amazon’s fees by category on their Selling on Amazon fee schedule.
Finally, as soon as you’re ready, you can publish your listing and start making sales.
Five tips for success when dropshipping on Amazon
Still seems pretty simple, right? That’s because it is!
Of course, creating a dropshipping business on Amazon is easy. But succeeding with dropshipping on Amazon takes a little more work.
Regardless, here are five tips to help you succeed with dropshipping.
Tip 1 – Promote your listing
In order to maximize sales, you will need to drive traffic to your product listing. This can be done a number of ways.
First, you have Amazon’s internal sponsorship program, Amazon Pay-Per-Click (PPC). With PPC, you create advertisements for your products that make your product appear higher in Amazon’s search results for keywords that you set.
Next, you can drive traffic to your Amazon product listing through external methods such as social media, blogging, email marketing, etc. While this method is a little more difficult to get going if you don’t already have a following for your brand, it can help you differentiate your product from your competitors.
Tip 2 – Focus on the customer
When you perform dropshipping on Amazon, you’re taking a lot of the hard parts of being an entrepreneur off the table. You don’t have to manufacture your product, nor do you have to ship it. All you have to do is make sure that the customer receives it and they are happy.
So, whereas you would normally spend your time running your business, with dropshipping you can invest your hours into customer service.
Plus, great customer service helps you get good product reviews. And good product reviews can make or break your products on Amazon.
Tip 3 – Focus on your brand
As I stated above, dropshipping’s chief disadvantage is that you will be selling a product over which you will have no final say in its development or design. In addition, other sellers will have access to the same supplier.
This leaves you with very little competitive advantage. Therefore, it’s important that you focus on the brand.
But even if your product is identical to your competitor, that doesn’t mean it has to be the “same.” For example, the brand YETI sells 40 oz stainless steel tumblers for $40 each. Meanwhile, their competitor, RTIC sells the same stainless steel tumblers for less than $20. Yet, somehow, YETI still dominates in that product category.
The reason is simple: people want to buy the YETI brand and the image it purveys.
Tip 4 – Get samples
Before you list your product, make sure you know what you’re selling. Bite the bullet and order a unit in advance. And if you can do it without the supplier knowing that you’re a potential dropshipper, even better.
Once the sample arrives, inspect it. How did it look when it arrived? How long did it take? Were the products as described?
All of these little details will help you predict how your customers will receive the product once you start dropshipping on Amazon.
Tip 5 – Cast a wide net
Because you have no start-up costs with dropshipping, it’s a lot easier for you to cast a wide net. In other words, you can list numerous products at the same time.
Some will fail. Others will succeed. Simply double down on what works and cut the rest.
As long as you follow Amazon’s rules, this approach is totally fine. Just make sure you stay organized and that you continue to focus on Tips #2 and #3.
Are you ready to start dropshipping on Amazon?
Hopefully, this article has gotten you excited to either start your first Amazon business, or to add to an existing one. But, if you need more motivation, check out our State of the Amazon Seller report; it’s full of helpful insights.
If you have additional questions or comments regarding dropshipping on Amazon, let us know down in the comments.