What Is Amazon Dropshipping? Definition, Process, & Common Questions

July 18, 2023

What is dropshipping?

Dropshipping is an Ecommerce business model characterized as a product supplier fulfilling customer orders for a product seller. Dropshipping sellers do not hold any inventory themselves. Instead, they rely on their supplier to ship the products directly to their customer after purchase. Dropshipping is considered a low risk, low reward Ecommerce business model.

What is Amazon?

Amazon is the largest online retailer in the world. Amazon provides Ecommerce sellers with a comprehensive solution for selling online, including easy-to-setup product listings, fulfillment services, and an advertising platform. Nearly anyone can signup and start selling Ecommerce through the Amazon Marketplace. In fact, approximately 2 million third-party sellers actively sell products to Amazon’s 300 million customers worldwide.

What is Amazon dropshipping?

Amazon dropshipping is a common business model used by 19% of third-party Amazon sellers. Amazon dropshipping works by listing a product on the Amazon Marketplace and tasking a product supplier with order fulfillment. Once a customer buys the product you listed on Amazon, you buy the product from your supplier and forward the customer shipping details so the supplier can ship the order directly to the customer. 

What is the process for Amazon dropshipping?

  1. 1
    Amazon seller signs an agreement with a dropship supplier
  2. 2
    Amazon seller lists the dropship supplier's product on Amazon
  3. 3
    Customer orders the product from Amazon
  4. 4
    Amazon seller receives the order request
  5. 5
    Amazon customer receives order confirmation from the seller
  6. 6
    Seller forwards the order to the dropship supplier
  7. 7
    Dropship supplier ships the order to the Amazon customer
  8. 8
    Amazon customer receives the product

Does Amazon allow dropshipping?

Yes, Amazon does allow dropshipping. However, Amazon has a strict dropshipping policy for third-party sellers. If you break the rules, you could lose your ability to sell on Amazon.

What is Amazon’s dropshipping policy?

  • You must identify yourself as the seller of record on all invoices, packing slips, packaging, and other items included with the product
  • Don’t include anything that identifies the third-party wholesaler, supplier, or manufacturer with the product or in the product description 
  • It’s your responsibility to accept and process any customer returns
  • Adhere to the Amazon Terms of Service in the seller agreement

What are the pros of Amazon dropshipping?

Lower risk

An Amazon dropshipper does not have to spend thousands of dollars on a bulk product order like many other Ecommerce business models require. When product ideas fail, a dropshipper can just move on with very little, if any, financial loss.

Pay less Amazon fees

Unlike other Amazon selling methods, dropshippers or high ticket dropshipping store owners only pay Amazon a monthly seller account fee and an 8% to 15% referral fee to sell products on the platform. You don’t pay Amazon to store your inventory, ship it, or handle customer service and returns processing like FBA sellers do.

Getting started is easy and quick

After signing up for a seller account in Amazon Seller Central, you can find products from online supplier marketplaces like AliExpress and list them on Amazon to start selling. There’s no waiting time after you find a product from a dropship supplier. You can start selling that product right away. 

What are the cons of Amazon dropshipping?

Low profit margins

Many aspiring sellers want to know, is Amazon dropshipping profitable? Well, Amazon dropshipping is profitable. However, after considering fees, Amazon dropshippers are left with a thin profit margin of just 15% or less. When using the dropship business model on Amazon, you can’t take advantage of discounted prices by bulk ordering, so profit margins are low.

Slow delivery

Amazon customers are accustomed to fast delivery, often in just two days or fewer. However, dropshippers rely on suppliers to fulfill orders, with many of those suppliers based overseas in China to get lower product costs. Therefore, dropshippers are stuck with slower delivery times and Amazon customers, especially Amazon Prime customers, will often choose the seller who can get them the product the fastest.

Lack of product quality control

You rely on your supplier to ensure a product of sufficient quality reaches your customer. If you work with a bad supplier, you risk Amazon suspending your account because Amazon requires sellers to maintain a strict order defect rate of under 1%. 

Extreme competition

As a dropshipper on Amazon, it can be very challenging to get sales because of the vast amount of options customers are afforded.There are 353 million products in Amazon’s product catalog competing for customers' attention, according to Retail Touch Points. Even worse, as a dropshipper, you’ll often find yourself selling alongside other sellers trying to win the Amazon Buy Box on the exact same product listing! 

Inability to build a brand

With an Amazon dropshipping business, you sell the product of a third-party company on an Ecommerce platform run by another third-party company. Therefore, you aren’t able to establish any brand loyalty and get repeat customers. This also means your business has no potential to become a valuable asset like other online business opportunities offer.

Complicated returns process

One of the biggest benefits of shopping on Amazon for its customers is the Ecommerce platform’s favorable return policy. It’s estimated that 5% to 15% of Amazon products are returned, according to Awesome Dynamic. However, returns with dropshipping can be much trickier than the traditional returns process because you have to coordinate the transaction between the dropshipping supplier and the Amazon customer instead of the customer just sending the product back to you.  

How to start an Amazon dropshipping business?

1. Set up an Amazon seller account

The first thing you need to do if you want to start making money dropshipping on Amazon is to set up an Amazon seller account. There are two account types in Seller Central:

  • Professional seller account - Sell unlimited items for $39.99/month
  • Individual seller account - Pay $0.99/item sold

If you want to start dropshipping with no money on Amazon, you can choose the Individual seller option where you only pay if you actually start selling items. However, Amazon pushes new sellers to sign up for the Professional account. To sign up for the Individual account, click “Learn more” on the new seller signup page and scroll to the bottom to find the individual seller link. You can always upgrade your account if your online store does well. 

2. Find profitable products to sell

There are two routes you can take when looking for a profitable product to dropship on Amazon. You can use a product research tool like JungleScout to find a product opportunity by analyzing competition and sales potential. Or, you can skip product research and go straight to finding Amazon dropshipping suppliers to work with. Since you don’t buy product inventory upfront, you can just list the products the suppliers have available and test how well they do on Amazon. 

When analyzing the profitability of a product, make sure to factor in the referral fee of the associated product category and the shipping fees charged by your dropshipping supplier.

3. Add products on Amazon

To start selling a dropshipping product, you need to add the product to your Amazon store. If you find the product from a very accessible source, such as supplier marketplaces like AliExpress and SaleHoo, there’s a chance the product is already selling on Amazon. If the product is already selling on Amazon, you can take the ASIN from the current product listing and use it to search for the product under “Add a product” in your Amazon Seller Central account. Then, just add the product to your catalog.

If your dropshipping product doesn’t have a product listing already on Amazon, you will need to create one in Seller Central. When creating a new product listing, Amazon requires you to include a UPC barcode so it can identify the product. You can either obtain the UPC code for your product from the dropshipping supplier or generate a custom barcode from GS1 if your supplier doesn’t have it.

4. Automate with dropshipping software

Many Amazon dropshipping reviews highlight that integrating tools into your Amazon drop shipping workflow is the key to success. Without tools, you’ll have to manually do tedious Amazon dropshipping work like creating orders, sending customer information to the supplier, updating Amazon with shipping details, etc. Also, prices from both dropship suppliers and Amazon are in constant flux, so it’s easy to lose track of products that are no longer profitable. The best tools to automate your Amazon dropshipping business include:

11 Essential Questions To Ask When Vetting Dropship Suppliers

  1. Is there a dropship fee? Usually dropship suppliers charge a special fee for dropshipping orders. 
  2. Do they already sell the product on Amazon? You don’t want to compete directly with your supplier for sales. 
  3. Do they require an upfront deposit? Some require money upfront for future product orders. 
  4. Can they provide a sample invoice? You can verify if there are any hidden or unexpected costs to consider. 
  5. How should you handle invoicing? Some suppliers prefer a single invoice for every order, while others accept a master invoice for all orders within a single time period.
  6. Do they have a UPC barcode for their product already? If not, you will have to go through the process of obtaining one yourself. 
  7. What is their return policy? Usually, if the supplier accepts returns, you will be required to file a return merchandise authorization (RMA) with the supplier and provide the customer with the supplier’s address to ship the product back. 
  8. How quickly is the order shipped? You need to guarantee they can get your customer the order in sufficient time. 
  9. Can they provide shipping and tracking information to you through electronic data interchange (EDI)? The process for receiving order tracking should be seamless. 
  10. Can they provide an inventory data feed? An inventory data feed supplies real-time inventory data from your dropshipping supplier to help avoid selling products that are out of stock. This is because Amazon has extremely strict inventory management policies. If your supplier runs out of product but your Amazon account is still making sales, your Amazon account could get banned by canceling too many orders. 
  11. What system do they use for submitting orders? There should be a way to automate this process so you don’t have to submit orders by hand. 

Is Amazon good for dropshipping?

Amazon is not very good for dropshipping when considering all the factors. It usually isn't recommended as the best sales channel for a drop shipper. So TikTok dropshipping might be a better option if you have a winning product and want to make sales fast. Amazon's high competition and strict policies around dropshipping make it difficult to be successful. 

The Ecommerce platform doesn't like dropshipping because they don't earn as much money from dropshippers as they do Amazon FBA sellers. Also, the deceptive nature of dropshipping puts their business at risk if their customers catch on and are uncomfortable with the fact that their product did not come from the Amazon seller they bought from.

When comparing eBay dropshipping vs Amazon dropshipping, eBay is a better alternative if you have little to no capital to get started in Ecommerce. If you have a few hundred dollars to invest into a website and advertising, Shopify dropshipping is best for dropshipping overall because of the ability to make your dropshipping store into a long-term business. 

How does Amazon dropshipping compare to other Amazon business models?

Amazon dropshipping compares to other Amazon business models as the least risky to get started with because you don’t need to invest much money upfront. Also, Dropshipping is the only Amazon business model where you can’t take advantage of the FBA program. If you want to take advantage of Amazon FBA but don’t have much money to invest, online arbitrage and retail arbitrage are good options with lower capital requirements. If you have around $5,000 or more to invest, Amazon wholesale or private label are more robust business models for long-term success on Amazon. 

However, there are other ways to make money on Amazon beyond selling physical products. Another less risky option to make money on Amazon is with affiliate marketing through the Amazon Associate program. Amazon affiliate marketers just recommend Amazon products to earn a commission on the sale.

Amazon dropshipping FAQs

How much money do you need to start dropshipping on Amazon?

You need between $0 and $500 to start dropshipping on Amazon. The amount of money you need depends on many factors like what Amazon seller subscription you choose, your dropship suppliers' policies, whether the Amazon product already has a listing setup, and whether you decide to use paid tools for your Amazon dropshipping business. For example, if your dropshipping product doesn’t have a product listing yet, you could benefit by investing some money into an Amazon SEO expert and running Amazon PPC advertisements to drive sales quickly.

Do you need a license to dropship on Amazon?

You do not need a license to dropship on Amazon. However, if you want to avoid paying sales tax on your dropshipping products, you should obtain a reseller's permit. A reseller's permit enables you to avoid paying sales tax when you buy a dropshipping product to resell.

How risky is dropshipping on Amazon?

Amazon dropshipping is not very risky in the beginning because it doesn’t require much money to start. However, Amazon dropshipping can become very risky over time. That’s because Amazon has strict policies and can shut your Amazon account down instantly if your account status fails below an acceptable threshold. A 6-figure Amazon dropship seller could lose their entire business and income stream through many reasons like choosing a bad supplier or a technical error from a dropshipping tool they decide to use. 

How does Amazon dropshipping compare to local lead generation?

Amazon dropshipping and local lead generation both enable you to make money online by acting as the middleman between a business and customer. With Amazon dropshipping, you coordinate the sale of a product between your dropshipping supplier and Amazon customers. With local lead generation, you coordinate the sale of a service between a local business and a customer. For those looking for a long-term business opportunity, local lead generation may be a better alternative. That's because you own your business assets instead of relying on third-parties to run your business, like with Amazon dropshipping. 

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  1. This is beneficial information about drop shipping. It helps me clear my mind and question about the drop-shipping Amazon model. I read all the questions from top to bottom.


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