Is Amazon dropshipping profitable? Amazon dropshipping can be profitable, though the profit margins are thin- at most around 15%. This low number is due to Amazon’s 15% fees. Without these Amazon fees, drop ship margins would be between 10% and 30%. So, in order to grow your drop shipping margins, you need to find products at least 25% cheaper than what's listed on Amazon.
To do this, you can try dropshipping from wholesalers. But, typically the profit margins are not much better. To make the largest Amazon dropship profit margins, you must use retailers like Wal-Mart and Home Depot. These retail stores are constantly running clearance deals, so you’ll be able to buy very low and sell much higher. However, Amazon restricts products that come directly from another retailer.
To get around Amazon’s policies, season a seller account that Amazon already trusts. With accounts like these, Amazon is much less likely to ask for the letter of authorization. While this can certainly work, there’s never a guarantee that Amazon won’t eventually catch up to you. Another business model, like local lead generation, is much more secure. And, you’ll hold full control over your business.The Amazon seller makes money as the middleman, finding deals online and listing it at a higher price on Amazon. Once you receive the order from the customer, you place the order to the distributor or retailer and they ship the product to the customer for you.
As a drop shipper, you spend a lot of your time researching and hunting down discounted deals online, even calling up suppliers / distributors to strike deals. However, the majority of Amazon dropshippers are making money in 2022 by finding cheaper deals from retail stores. Retail stores run sales to get any business they can. After all, their traffic is much lower compared to Amazon’s traffic.
Is Amazon Dropshipping Still Profitable in 2022? 10 Powerful Facts About Amazon Drop Shipping Margins
1. A Good Profit Margin for Dropshipping Products to Amazon is 30%.
But, you should expect 10% margins when you start dropshipping on Amazon. And, you need to remember the Amazon dropshipping fees, which take 15% off the top line revenue. So, if you start dropshipping with a 10% profit margin and don’t account for fees, you will be losing money before you make any.
2. Average Amazon Dropshippers Make Between $1,000 to $50,000 per Month.
So, the average Amazon dropshipping salary is between $12,000 and $600,000 annually. And, considering the average profit margin is around 15%, those making $12K must put in around $80K. Those bringing in $600K need to put in around $4 million.
3. Beginner Amazon Dropshippers Can Make Around $1,000 per Month If They Put In the Work.
Don't expect more than this at the beginning- especially your first month. Even if you make a sale on your first day, it will be a small amount, and it won't come to you for 2-3 weeks.
4. Amazon Dropshippers Make Around $250- $12,500 a Week.
Plus, Amazon withholds your funds for 2-3 weeks. So, even if you make a sale, you can’t access your funds right away. Amazon won’t release your funds for 2-3 weeks. So, you will either need capital or credit to purchase more goods to fulfill your orders or push your Amazon ads. Some automation agencies suggest this amount should be between $15,000-$30,000.
5. Dropshipping Can Make You a Millionaire.
But, it will take years of hard work and a lot of capital/credit to keep the products moving.
Dominick Carney might be a millionaire, as he has earned the two-comma club award. But, he doesn’t just do Amazon dropshipping- he has a few other businesses and sells a course, the Amazon Profit Guide. Likewise, Tommy Rodriguez might be a millionaire too, but he is probably bringing in most of his revenue from his Amazon automation company, Automation Empire.6.It Costs $3,000-$5,000 to Start Dropshipping on Amazon.
Costs to expect:
In other Amazon FBA business models, the purchase of bulk products makes up a large initial investment. But, with dropshipping, you won’t need to pay anything until a customer orders a product. When they do, you will need to purchase that product from your third party supplier. This cost, if you created your Amazon listing correctly, will be less than your sales price.
To optimize sales, you will conduct research to find a profitable product. This costs nothing. And, there are many tools you can use to help you out, like Google Trends.
You can also hire a virtual assistant or purchase software to complete these tasks for your online store. Often, virtual assistants work for $2-$7 per hour. Cost of software is typically subscription. MerchantWords runs from $35/month to $1490/year.
7. You Can Start Amazon Dropshipping With No Money.
To dropship on Amazon without money, keep less than 40 products listed at a time, use credit cards to ship products after a customer orders, and use a supplier that won’t require a resale or sales tax certificate. This strategy will get you a little extra capital, but don’t expect to become an Amazon millionaire without putting up an investment.
8. Risks of Dropshipping Include Going Against Amazon’s Policies.
Few years ago, sellers could dropship much easier on Amazon. In 2022, you must:
Upload a letter of authorization - a piece of paper that says that you have the right to sell that product from the manufacturer or wholesaler that you're dropshipping from.
If you cannot get a letter of authorization, there are few ways around it.
9. To Make Over $10,000 Monthly Selling on Amazon and Dropshipping, You’ll Need to Use Retailers Like Home Depot and Walmart.
Dropshipping on Amazon can become profitable because other retailers are trying to compete with lower prices. They do this because they do not have the traffic or user base that Amazon does. So, some retailers might run a clearance. Dropshippers find these deals and list those products for higher prices on Amazon. These other companies ship the products directly to the customer.
The problem is Amazon has been cracking down on this practice by asking for a letter of authorization. This letter gives the dropshipper permission to sell a product on Amazon, but big retailers like Wal-Mart or Home Depot will not provide this.
So to get around this, dropshippers are using seasoned or older Amazon seller accounts, because these accounts face less (but not zero) scrutiny from Amazon. In the end, it’s less likely for Amazon to ask for the letter of authorization.
But, even if you remain under Amazon’s radar, you still have to be on top of your metrics, keep up with customer issues, and handle order fulfillment quickly. This is a lot of work when you have 5+ products listed, and you’ll need a virtual assistant to help you.
10. #1 Reason Dropshipping is Not Dead and Still a Profitable Business is…
Dropshipping is still a growing industry. In fact, Grand View Research predicts the global dropshipping industry will grow by 28.8% each year until 2025. Amazon is more strict with dropshippers but they do also understand it has its place. And, while this Google trend does show that interest in Amazon dropshipping is growing, that also means beginners are also saturating the space. So, it may take a long time for you to become profitable.
Pros and Cons of Dropshipping on Amazon?
What are the Benefits Enjoyed by Amazon Dropshippers?
No need to invest in inventory.
Being able to take advantage of Amazon's large user base. 200 million prime users.
No Amazon warehouse fees.
Don’t need to create your own products or brand.
Can list as many products as you want. Not tied down to few products because of inventory.
What Disadvantages are There to Dropshipping on Amazon?
Lower profitability than other Amazon FBA business models (more on this below).
More competition = less profitability.
Amazon holds funds for 2-3 weeks, which means you will need other sources of income or cash flow to fulfill orders.
Amazon dropshippers face the highest number of account suspensions, which can be repealed with the right documentations, but this takes time.
You may have to use credit.
You must handle refunds and cash back.
What are the Biggest Problems Dropshippers Face in 2022?
Supplier's Stock
If you get too many orders, your dropshipping supplier may be out of stock. Then, you will either have to cancel your customer's order (EXTREME red flag for your metrics), or scramble to find another supplier. If you're lucky, you'll find one with as low a price as your original supplier. If not, your margins get even smaller.
Logistics
It takes a long time for the dropship product to reach the customer. This is because Amazon does not handle the fulfilment process. Rather, your supplier will package the product and ship. To stay within Amazon's Terms of Service, they cannot identify themselves.
Amazon's Dropshipping Policy
Ultimately, Amazon disallows many aspects of dropshipping in their Terms of Service. They will put up every barrier possible against you to motivate you to use their Amazon FBA services. However, there are loop holes around it which we will discuss.
Can You Lose Money Dropshipping?
Yes, you can lose money dropshipping (as you can with any business). After all, with such a low profit margin and the 15% Amazon dropshipping fees, you may lose the money you put in right away if you aren’t prepared. If you do anticipate these fees, you can lose money when their dropshipping store is suspended- or closed- and they cannot access the funds that they have earned. Or, if customers return a product, the dropshipper will probably have to eat that cost
How Long Does it Take to Start a Dropshipping Business on Amazon?
With dropshipping, you're selling other company's products that are already ready to ship. As long as you find the right deals, you can start making money right away. But, it can take longer, if they suspends your Amazon account. (This is unlike private label where you're creating your own product and brand which can take 6 months or more.)
But, Amazon withholds your funds for 2-3 weeks. So, even if you make a sale, you can’t access your funds right away.
Is Dropshipping a Full Time Job?
It can be, but many dropshippers use different software to automate aspects of their business, like purchase order creation and inventory listing management, so they don’t have to watch their metrics themselves and manage their store full time. Some use virtual assistants to handle these tasks. Otherwise, popular software options include:
Is Dropshipping on Amazon a Good Side Hustle?
Yes, Amazon dropshipping can be a good side hustle as it can provide passive income. Some sellers make thousands in profits while only spending an hour or two on their small business a week. But for others, Amazon dropshipping work takes up 70-80 hours a week. To minimize your hours, you must automate certain aspects of your business if you wish to make your Amazon dropshipping business passive income.
Amazon has strict customer service rules which essentially require the seller to be available 24/7. Because you need to order an individual product every time a sale comes in, the seller can become overwhelmed quickly. Here’s a real example of this happening: One seller took a vacation after starting to sell. He came back to find countless customer complaints. This led to a snowball effect, ultimately leading to lower metrics and a strong chance that he would be suspended. Without automation, this seller could not take a vacation without risking his entire business.
How Do You Become a Successful Amazon Dropshipper?
Is Amazon FBA More Profitable than Dropshipping?
Amazon FBA and Amazon dropshipping have very similar profit margins. The average profit margin for Amazon FBA is 10%-20%. But there are many Amazon business models that fall under the Amazon FBA category.
Overall, these other Amazon eCommerce models have a higher profit margin than dropshipping.
Dropshipping Profit Margin
10-30%
Wholesale
Up to 50%, fixed
Retail Arbitrage
Possible to sell products that will provide a 50% profit margin, but a realistic number is closer to 20-30%
Private Label
25-30%
Passion Product
28-35%
Homemade
52% of Homemade Amazon FBA sellers make between 11% and 25% profit margins
Merch by Amazon
Earn at least 13% of the cost of the shirt sold
Kindle Direct Publishing
Fixed 60% royalty rate on paperbacks
Is Amazon FBA Better Than Dropshipping?
Dropshipping has a lower barrier of entry than Amazon FBA models, like wholesale and private label, so it's easier to start. However, drop shipping requires much more management of customer complaints. This is because of late shipping times, lack of tracking numbers, relying on different suppliers with their own logistics, lack of automated systems, and more.
In other words, Amazon private label and wholesale are a lot more work to set everything up, but these become more passive later. Dropshipping requires more ongoing attention but much fewer hurdles to get started.
Automation is the only way to remain free of your Amazon seller account for an extended period. With Amazon FBA, there are fewer issues and fewer Amazon shopper complaints because Amazon takes care of the packaging, shipping, and handling. Plus, you’ll be able to have Amazon prime eligible products. These are the only products that can win the Amazon Buy Box, and without the Buy Box your profit margins will significantly drop.
Control Over Your Business: What is the Difference Between Dropshipping and Amazon FBA?
The Amazon dropshipper has more control over their business. This is because a large pre-purchased inventory won't tie you down.
But, as long as you’re on Amazon’s platform, they have ultimate control of your Amazon store. If you break their Terms of Service, they can suspend your Amazon seller central account. When this happens, they can also withhold your money for months. Learn the Terms of Service and follow it for changes. If you are a drop shipper, follow your Amazon metrics closely.
eBay has fewer costs than running an Amazon business. For your first 200 listings, you won’t have to pay anything. But, if you continue past 200, you will pay an insertion fee of $0.35/listing/category. If you choose to list a single item in various categories, pay this fee per product category.
You will pay a final value fee of 10%. This final value fee takes a cut from the final value of your sale, including the shipping.
When choosing between dropshipping on Amazon or eBay, also consider: selling on eBay successfully requires much more time on keyword and product research. But, eBay is more forgiving than Amazon with dropshipping and their dropshipping policy.
On Shopify, some sellers make up to $100,000/year in revenue. It has similar profit margins to dropshipping on Amazon… without the 15% Amazon fee. Furthermore, if you already have a Shopify store, you can bring your customer base over to Amazon through the Amazon sales channel.
However, on Amazon you can get free organic traffic if there's not as much competition for that product. If you're dropshipping on Shopify, chances are you'll need to buy traffic using paid ads. This can get expensive, and requires a completely different skill-set of knowing how to create great Facebook ads.
Is Shopify Dropshipping profitable? It can be if you become a great marketer that can create viral ads.
Conclusion: Is Amazon Dropshipping Still Worth It?
Amazon dropshipping is still bit risky long-term because you're playing in the grey area of Amazon's terms of service. However, if you're willing to play in the grey zone, there are some easy, fast money opportunities. Still, if you're interested in an online business where you'll have the final say, no fees, and a much higher profit margin, local lead generation might be right for you.
