Amazon dropshipping can be profitable in 2024 with profit margins around 10% to 30%, according to Steve Chou. BlueCart estimates the average income of Amazon dropshippers between $1K to $5K monthly. However, Amazon has an 8% to 45% fee depending on the product type sold. You also need to purchase a selling plan to access Amazon's tools and services. This means that most Amazon dropshippers earn around 15% to 22% if they make a profit margin of 30%. In order to grow your dropshipping margins, you need to find products that are at least 25% cheaper than what's already existing on Amazon.
Some Amazon dropshippers perform wholesale product sourcing from retailers like Walmart and The Home Depot to purchase products at a lower cost. These retail stores are constantly running clearance deals, so you can buy very low and sell much higher. Other dropshippers use listing optimization strategies to score higher in Amazon’s A9 Algorithm and attract more visitors. Professional dropshippers even use dropship automation tools to speed up their entire process and focus on sourcing more lucrative products and niches.
Building and scaling your Amazon dropshipping business requires in-depth information on Amazon's Seller Performance Metrics, policies, and fees. In this article, discover interesting facts about the business model. Plus, we dive into its profitability, risks, advantages, and disadvantages in 2024. We'll also discuss another business model where you can take control over the entire business process and earn unlimited passive income.
5 Interesting Facts About Amazon Dropshipping Profit Margins
1. A Good Profit Margin for Dropshipping Products in Amazon is 15% to 30%.
Shopify's article entitled What Is Amazon Dropshipping? How To Dropship on Amazon in 2024 mentions the average profit margin of Amazon dropshippers to be at 10%-30%. But, you should expect 10% margins when you start dropshipping on Amazon. You need to remember the Amazon dropshipping fees, which take about 15% off your top line revenue. According to Reddit user Joeyoungblood, a good gross profit margin should be around 15% to 20%. He suggests controlling the Cost of Good Sold (COGS) like labor and advertisements to earn a decent profit. 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. Amazon Dropshippers Earn Between $1,000 to $50,000 Monthly on Average.
BlueCart and eComDimes' blogs reveal that the average income of independent Amazon dropshippers is between $1,000 to $50,000 monthly. Alternatively, Amazon dropshippers under an employment contract make $32,000 and $65,000 in dropshipping salary per year, according to ZipRecruiter's March 2024 data. Considering that the average profit margin is around 15%, those making $1K must have around $7K in gross profit monthly while those earning $50K need to put in around $335K.
3. Beginner Amazon Dropshippers Can Make Around $1,000 per Month if They Put In the Work.
Quora user Kaif Khan mentioned that beginners in the Amazon dropshipping industry can earn $1,000 monthly, given they consider factors like product selection, marketing/advertising, supplier reliability, and many more. Don't expect more than this at the beginning, especially on your first month. Even if you make a sale on your first day, it will be a small amount. You can get your earnings after 2-3 weeks.
4. You Can Start an Amazon Dropshipping Business With at Least $150-$250.
With Amazon dropshipping, you won’t need to pay anything until a customer orders a product. When they do, you'll need to purchase that product from your third-party supplier. This is called your product cost. Reddit user TonyDeMontana invested $150 to start his Amazon drophsipping business. He made a $400 profit, which he used to run his online business and purchase more products. Aspiring dropshippers also need to select a selling plan to gain access to Amazon's dropshipping tools and services. Amazon also deducts referral fees and other selling fees, depending on the product you sold.
Optimizing your listings and sales entail in-depth research to find a profitable product and marketing strategy. This costs nothing. There are many tools you can use to help you out like Google Trends, Google Keyword Planner, and Google Analytics. You can also hire a virtual assistant or purchase software to complete these tasks for your online store. Virtual assistant wages run around $2-$7 per hour while tools like MerchantWords run from $35-$149 monthly.
Costs to expect:
5. The #1 Reason Amazon Dropshipping is Not Dead and Still a Profitable Business is Its High Search Interest.
Dropshipping is still a growing industry. In fact, Grand View Research predicts that the global dropshipping industry will grow by 28.8% yearly until 2025. Because of this, Amazon is getting more strict with its policies. Google Trends also showed a significant uplift in online internet searches from October 2018. The "Amazon dropshipping" keyword peaked in the U.S. market in January 2023. The industry's growing interest also means beginners and aspiring business owners are saturating the space.
Amazon Dropshipping Profitability: The Good and Bad
The Good: Advantages of Amazon Dropshipping
You don't need to invest in physical inventory in Amazon dropshipping.
Dropshippers can take advantage of Amazon's large user base (200 million prime users).
There are no warehouse fees associated with Amazon dropshipping.
You don’t need to create your own products or brand.
Amazon dropshippers can list as many products as they want. They're not tied down to a few products because of inventory.
The Bad: Disadvantages of Amazon Dropshipping
It has a lower profitability than other Amazon FBA business models.
Amazon dropshipping has a low barrier to entry. This means you have more competition and less profit potential.
Amazon holds funds for 2-3 weeks, which means you will need other sources of income or cash flow.
Amazon dropshippers face the highest number of account suspensions. It can be repealed with the right documentations, but it takes time.
You may have to use credit in your supplier purchases.
You must handle customer service for supplier refunds and cashback.
What Factors Affect Amazon Dropshipping Profitability?
Competition, pricing strategy, Amazon fees, marketing initiatives, product cost, supplier response, and market demand are the primary factors that affect Amazon dropshipping profitability. They help Amazon dropshippers plan for future product offerings, third-party supplier partnerships, and business expansion. Jordie Black's article on Prisync highlights the significance of considering shipping costs, product markup, and other critical factors to come up with the right pricing for your products. A great strategy for mass selling and gaining loyal customers is to offer discounts or limited-time promotions. Quora user Nader Elbaz suggests initiating these marketing tactics to boost sales and gain a good reputation. This helps beginner dropshippers to increase their profit potential in the long run.
What Amazon Dropshipping Products are the Most Profitable?
Clothes and footwear, health & beauty, and kitchen & dining products are the most profitable Amazon dropshipping products, according to Anna Baluch's article on Forbes entitled 13 Profitable Dropshipping Products To Sell In 2024. Home decors, pet essentials, and baby products are also among the top 6. The COVID-19 pandemic set the stage for increased e-commerce purchases in 2020 and beyond. In his March 2024 YouTube video, founder of Supreme E-com AC Hampton mentioned top-selling products like wireless solar-powered security cameras, pet-related products, and neck support products.
How Much Can You Make From Amazon Dropshipping?
You can make anywhere from $3,000 to over $50,000 monthly from Amazon dropshipping, depending on your products, niche, and market. Reddit user Thehighgroundgang mentions earning $3K per month in profit from a $10K revenue. He also commented on how some successful dropshippers like Steve Tan, co-founder of The Ultimate Dropship System, make a 7-figure income yearly. In another Reddit thread, user Donniecrunch reveals how he makes a $5K to $50K profit monthly, while user Real_Nobody_4210 earns $9K per month. You can make significant money on Amazon dropshipping, given you put in the time and effort needed to grow your business.
Can You Lose Money in Amazon Dropshipping?
Yes, you can lose money in Amazon dropshipping if you don't manage your product quality, third-party suppliers, shipping process, and product pricing, as stated in Wei Linchao's article on BESTFULFILL. You can incur refund charges, chargebacks, negative customer reviews, and legal drawbacks. This leads to fewer purchases and lower monthly revenue. With such a low profit margin and the 8%-15% Amazon dropshipping fees, you can easily lose the money you invested.
How To Increase Profitability in Amazon Dropshipping?
Amazon Dropshipping vs FBA: Which is More Profitable?
Amazon dropshipping can be more profitable than Amazon FBA if you know how to source products that are lower than market average and find a reliable wholesaler. However, many Amazon FBA business models are more profitable than Amazon dropshipping in terms of net profit. Amazon FBA and Amazon dropshipping have very similar profit margins. The average for Amazon FBA is 10%-20%. But there are many Amazon business models that fall under the Amazon FBA category.
Amazon Dropshipping
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 Dropshipping More Profitable Than eBay Dropshipping?
Yes, Amazon dropshipping is more profitable than eBay dropshipping because of lower fees in the long run. However, when talking about eBay dropshipping vs Amazon dropshipping, the former has fewer costs than running an Amazon business for the first 200 listings. During this time frame, you won’t have to pay for anything. But, if you continue past 200, you will pay an insertion fee of $0.35 per 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 takes a cut from your sale, including shipping. Selling on eBay also requires much more time for keyword and product research. But, eBay is more forgiving than Amazon with dropshipping and their dropshipping policy.
Is Shopify Dropshipping More Profitable Than Amazon Dropshipping?
Yes, Shopify dropshipping is more profitable than Amazon dropshipping because it doesn't have the 8%-15% Amazon fee. On Shopify, some sellers make up to $100,000 in revenue yearly. If you already have a Shopify store, you can bring your customer base over to Amazon through the Amazon sales channel. However, you can get free organic traffic on Amazon 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 distinct skill set.
Amazon Dropshipping FAQs
Amazon dropshipping can be a full-time job, but many dropshippers use different software to automate aspects of their business like purchase order creation and inventory listing management. This means that 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 Merchant Words (keyword research), JungleScout (product ideas and research), and FeedCheck (customer review management).
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 a source of 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 lowering metrics. There's a strong chance that the dropshipper would be suspended. Without automation, this seller could not take a vacation without risking his entire business.
It takes 3-6 months to start a dropshipping business on Amazon, according to Quora user Grace Dorsett. Some beginner Amazon dropshippers take less than 3 months. It all depends on your skills, foundational knowledge, and motivation. 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 suspend 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.
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.
Why Starting a Local Lead Generation Business is More Profitable Than Amazon Dropshipping
Amazon dropshipping offers lucrative income if you have built a solid presence and customer base. However, local lead generation is more profitable because it doesn't have seller fees and Amazon fees. The Amazon dropshipping business model is risky in the long-term because you're relying on Amazon's terms of service or policies. If you unexpectedly break a rule, your account could get suspended anytime. And you can lose all your hard-earned money.
According to Liran Zablo, Content Manager for AutoDS - Automatic Dropshipping Tools, you can earn a significant profit by setting a 15% break-even fee and a 50% profit margin. However, Amazon dropshipping has higher fees and stricter rules in 2024 and beyond. Amazon fees can go as high as 45% for Amazon device accessories. You also have little control over how Amazon advertises your products. Pus, you need to deal with 24/7 customer service, supplier product shortages, and market saturation.
Alternatively, the local lead generation business model is simpler and more profitable. Its localized niches offer you less competition and more opportunities for business expansion. You also don't need to deal with stressful customer service and exorbitant platform fees. All you need is to create websites for each local service niche you want to venture into. Then, you must rank them organically on search engines through the dynamic SEO strategies. Once your sites are ranked, free leads start pouring in. You can then forward the leads you collect to local businesses and earn around $1K for each lead or over $10K per site.
Save yourself from the stress of handling multiple product and supplier issues, customer concerns, and third-party platform policies. Choose local lead gen and establish a stable passive income stream.
