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Amazon Dropshipping Review: Worth Trying? or Bad Business? 5 REAL Sellers Weigh In

April 28, 2022

Our Amazon dropshipping review compiles the actual opinions of 5 sellers. Amazon dropshipping is a legit business, but you'll need to watch your metrics closely. These metrics require meticulous work, all for a business model with low profit margins and a high risk of suspension. The successful Amazon dropshippers are making good money (6 figures) but they are also playing in the grey zone, figured out a way to get around the Amazon TOS by using aged FBA accounts. The key to profitability is to still dropship from retail stores like Wal-Mart or Home Depot while avoiding account suspensions.

What is Amazon Dropshipping?

Amazon dropshipping involves listing an image on Amazon. The image has no stock to back it up. A customer buys the product depicted in the listing. The drop shipper orders the product from product suppliers. This supplier ships it directly to the customer.

When you hear the term Amazon drop shipping, it’s most likely the speaker is discussing this option.

Dropshipping From Amazon

Some Amazon sellers follow an alternative drop shipping business model. This type of dropshipping involves listing a product image on a site other than Amazon. Drop shippers might use eBay, a Shopify store, or their own website.

The customer purchases the depicted product. The seller buys it from Amazon. Amazon ships the product directly to the customer. Essentially, it’s a way around some roadblocks you’ll face when dropshipping on Amazon.

If you decide to do this, then you should pick products that are not Amazon prime because they will ship those products in Amazon boxes.

Pros and Cons of the Amazon Dropshipping Business Model

General Pros of Amazon Dropshipping

There is a large customer base, and demand is high for the correct products.

You won't have to pay a large initial investment for inventory or any Amazon warehouse fees.

You won't have to create your own products or brand, like private label or Merch by Amazon.

Due to low initial investment and no need to house physical inventory, there is a lower barrier to entry.

Can list as many products as you want

Take advantage of Amazon's trust

Won't need to find your own customers. Less marketing efforts since Amazon has the traffic.

General Cons of Amazon Dropshipping 

Dropshipping has one of the lowest profit margins of all other Amazon FBA business models.

Unlike Amazon FBA, you must handle all refunds and cash back disputes. Amazon will side with the customer.

Because there is more competition and the price of dropshipping goods is high, your profits will plummet. 

It's extra hassle to fulfill orders since you don't have your own steady supply. You depend on the inventory of various suppliers and sometimes they may run out and catch you off guard.

Amazon holds funds for 2-3 weeks. During this time, you will need to buy the products out of your own pocket. If you don't have cash ready, you need to use credit cards.

Amazon dropshippers face a lot of account suspensions because of their dislike for customers getting confused getting shipped products in Wal-Mart boxes or other retailers and that causing confusion. In order to combat this, they require a Letter of Authorization but this is sometimes difficult to get.

Not eligible for Prime and the Amazon buy box

What Disadvantages Are There to Dropshipping on Amazon? 5 REAL Sellers Weigh In

aaron goldstein

Aaron Goldstein: “Once I Saw the Bloodbath on Amazon… in 2021, I Decided I Needed to Find Another Platform.”

Aaron Goldstein has been working through this business model for years, and started Amazon dropshipping. Now, he has moved his business to Facebook Marketplace. Here’s why:

  • In the early days, Amazon worked well with dropshippers. But, in 2020, Amazon requested an invoice that demanded an information on the product's origin. Amazon also introduced letters of authorization from the product’s manufacturer or other inventory source. Receipts were no longer sufficient.
  • Once an option for easy money, it’s no longer sustainable because of the crackdown on policy.
  • Aaron wants to work online. He doesn’t want to deal with customer complaints.
  • Amazon doesn’t trust new sellers. So, they watch you closely for 3-6 months. (One way around this is to buy an aged account- usually $4k to $5k. This may keep Amazon from watching you too closely, but it’s still a risk.)

Can You Dropship on Amazon Legally?

Yes, you can dropship on Amazon breaking no laws. But, you need to be mindful of Amazon’s policies regarding dropshipping. Bookmark the Amazon dropshipping page. Read through it at least once a month. Ensure you don’t miss any changes.

Their policy clearly states that they're against dropshipping from retail stores like Wal-Mart or Home Depot. However, Amazon dropshipping is profitable by dropshipping from retail stores. To get around this people use seasoned account which doesn't get looked into as much by Amazon for the Letter of Authorization.

How to age an Amazon seller account??

This is the recommended timeline to age a seller account.

Joey gaule

Joey Gaule: “I Don’t Actually Know If I’m Even Going to… Receive This Money.”

Joey Gaule is a YouTuber and 7-figure dropshipper. Here's his opinion on the Amazon dropshipping store:

  • Many trainings do not emphasize that dropshipping is against Amazon’s Terms of Service.
  • If you violate these policies, or provide a poor customer service experience, Amazon will hold your money.
  • You may have to use credit cards to order more products while Amazon holds your funds.
  • Some of his fellow sellers received messages from Amazon claiming that they had used ASINs incorrectly on products they weren’t even selling.
  • This business model is not long term, because he is in fear of being suspended.

Can You Dropship on Amazon Without Stock?

Yes. You do not need stock to dropship on Amazon.

While this is a great perk, it’s where things went wrong for Joey. Since he didn’t have stock in an Amazon fulfillment center, he wasn’t able to fill orders while he was on vacation. When he returned, he had dozens of Amazon sales but hadn’t been able to fill them and take time off.

steve chou

Steve Chou: “Just Because Something is Easy Doesn’t Mean That It’s Better.”

Steve Chou is a straightforward eCommerce store guru with years of experience. Here’s what he says about Amazon dropshipping:

  • Since you are not making your own brand, you can’t scale this model very far into the future.
  • Drop shippers can only use a wholesale supplier, not a retailer. You cannot use AliExpress or eBay.
  • Dropshipping on Amazon earns you tiny margins, around 10%. You might get margins up to 30% if you’re lucky.
  • You won’t be the only one on Amazon selling the same product. So, you and other sellers will get into a price war. Soon, your tiny margins will be even smaller. Keeping up with price changes is complicated and time-consuming.
  • Because of your small margins, you won’t be able to spend money on ads and promotions.
  • You must cover the cost of returns often.
  • Amazon hides customer data from you. So you won’t be able to inspire secondary sales.
  • Amazon can ban you if you violate the Terms of Service.
  • Many worldwide brands already have their own stores or sellers with a close relationship with them. They don’t want to add competition.

Do I Need a Website to Start Amazon Dropshipping?

No. Steve Chou has multiple stores on very own websites. With Amazon dropshipping, you won’t have to purchase a domain, design your website, fill it with copy, and generate traffic. You will make an Amazon Seller Central Account and have access to Amazon’s trusting customers. 

paul j lipsky

Paul J Lipsky: “Selling On Amazon Has Become More Frustrating.”

Paul J Lipsky has had enormous success dropshipping on Amazon and eBay. He is the face behind Dropshipping Titans, which used to teach Amazon dropshipping. Here’s why he stopped selling this course:

  • Prior to 2021, dropshipping from Amazon Prime was much easier. That year, they grew strict. Amazon banned accounts. Prior to this, dropshippers and Amazon worked fairly well together. As long as the seller took care of customer service, Amazon didn’t stand in their way.
  • Because this is an FBM model, the Amazon dropshipper handles returns. In the old days, the seller had more time to take care of this with great customer service. Now, Amazon automatically approves most returns, returning the product to the seller’s house. 
  • A-Z Claims, which deal with problems with a product, are closed almost immediately by Amazon in favor of the customer. In the past, sellers had time to respond.
  • Sometimes, Amazon will mark tracking numbers as invalid just because they didn’t come from Amazon.
  • Amazon watches new sellers closely for the first few months. If you cannot get through those months of learning curve without getting suspended, you most likely won’t succeed.

How a Seller Dropshipping on Amazon Handles Returns

If you catch a return request before Amazon approves it, you will need to get a shipping label from your supplier. This can take some time, and Amazon can jump in before you can pass it on to your customer.

If the label arrives on time, the seller gives it to the customer, and the customer uses it to return the product to the supplier. Depending on the condition of the item, the supplier will then return the money back to you.

Kevin pak

Kevin Pak: “Most Drop Shipping Businesses Use Retailers Because They Have Better Margins.”

Kevin Pak is a “multiple 6-figure Amazon seller”, working through a private label business model. Here’s why he won’t switch to dropshipping soon:

  • Amazon does not let you dropship from retailers. It’s against their policies.
  • So, you must use wholesalers, which makes your already tiny margins even smaller. Dropshippers on Amazon have a 10% profit margin, while Kevin makes a 30-35% profit margin in private label.
  • Private label takes more time than dropshipping, which is faster money. Kevin wants a sustainable business that he might sell in the future. He can make a more valuable brand with private labelling, which often pays out 3-5x of the annual revenue of the Amazon store.

Where and How Should I Connect AliExpress to Amazon for Dropshipping?

You should NOT use AliExpress to dropship on Amazon, at least right away. To use AliExpress, Alibaba, Walmart, and Home Depot you should first season your account slowly or with Amazon FBA. This might lower your chances of Amazon asking for a letter or authorization, and so you may be able to avoid suspension. 

SUMMARY

Dropshipping on Amazon is difficult. There are countless issues with Amazon's Terms of Service that make it even worse. The main issues with this business model include:

  1. Amazon will almost always side with the customer.
  2. The product margins are miniscule.
  3. You can make quick money, but it's not sustainable.
  4. You must have the documentation to back up anything you sell.
  5. Getting sales a second time is tough because Amazon hides customer data from you.
  6. Amazon doesn't give sellers a fair chance to handle their own claims and returns.
  7. If Amazon thinks you broke a rule, they can ban your account.
  8. When Amazon bans your account, you lose access to your funds.
  9. It can take a long time to appeal your account closure. Sometimes, it's impossible.

How to Make Money with Amazon Dropshipping: Best Practices

6 Best Practices for Suppliers and Profit Margin

  • Use tools to find a profitable product before setting up a listing on Amazon Marketplace. You can use Zoro for product research, or Repricehub for price monitoring.
  • Directly reach out to dropshipping wholesalers. If you know of a product you’d like to sell, you can find the supplier through its UPC barcode. You can also find suppliers at trade shows or in the directory at wholesalecentral.com.
  • Vet your suppliers. Find out if they sell products on Amazon themselves. If they do, you won’t be able to beat their price and make a profit. If this is the case, it’s time to find a different supplier.
  • Ask your suppliers about hidden costs. This can help expand your profit margin. Find out if they charge any additional fees to dropshippers. Ask about their shipping and handling fees. Also, find out if they require a deposit or other upfront cost. Once you have a good relationship with them, you might negotiate this.
  • Get a definite answer about how your supplier will handle external packaging. In order to stay within the Terms of Service, they cannot identify themselves. Instead, they must display your online store logo and information only.
  • Find out what your suppliers provide. How will you get your money back? Can they provide an inventory management feed? (Amazon will request this to make sure your product isn’t out of stock.) Do they support Electronic Data Feed, so that you can see updates in real time?
  • Make sure your product listing matches the product sold exactly, down to the ASINs and UPCs.

Best Practices to Avoid Suspension

See your metrics by going to your Amazon seller account. Click performance and account health. Your Amazon account will include these: 

  • Watch your metrics to avoid suspension. Amazon calculates your metrics on a 60-day window. So, anything that happened over 60 days ago will drop off.
  • Your order defect rate must remain under 1%.
  • Do all you can with great customer service to avoid A-Z Claims. Allow customers to return products they have an issue with. Try to solve the issue before Amazon steps in.
  • Work for a good product review. Negative feedback = 2 stars or fewer. Again, do all you can for your customer to avoid this low Amazon review.
  • Never cancel your orders. Your cancellation rate must be less than 2.5%. If a buyer asked to cancel an order, it won’t count against you. If you must cancel an order, you can ask the customer to cancel to get around Amazon.
  • Keep your late shipment rate less than 4%. One tactic is to give your delivery more time than you think it will take. A customer who expects their package in 10 days and gets it in 6 will be happier than someone who expected it in 6 days and gets it in 7.
  • Make sure your tracking numbers are correct and upload them on time.
  • Start your account slowly, by listing one product every few weeks. Or, start with Amazon FBA for the first 3-6 months. This will help Amazon trust your store, and not watch you as closely.
  • Purchase an aged Amazon account that already has history. This account will already have Amazon's trust.
  • Consider automation for purchase order creation, repricing, inventory listing management, product data syncing, order fulfillment and tracking. A VA can even list products for you. This will free up your time (but minimize your margins.)

Conclusion: Is Dropshipping Worth It On Amazon?

An Amazon dropshipping business can be worth it because it can allow you to sell more products faster without having to take the risks & time of investing in your own products. This Amazon business model has the greatest chance of fast money with the least amount of initial investment. But, the suspension risks, small profit margin, and amount of ongoing work required to fulfill orders is something to consider. 

There are still plenty of people doing dropshipping on Amazon and making 6 figures, because they're willing to play in the grey zone of Amazon's terms of service. They used aged accounts that do not get flagged as much for the letter of authorization, so they're still able to dropship from retailers like Wal-mart and Home Depot.

In the end, research this business model thoroughly before starting. Make sure you are well aware of the risks, and if you can get around the suspension, you can make good money.

My Online Business Portfolio in 2022

Amazon FBA: $15K NET per month (After 50% split with a partner)

Local Lead Generation: $52K NET per month

Amazon FBA is a great business model but like all businesses it has its challenges, particularly how competitive it's becoming as more big brands & suppliers began selling on FBA themselves 2-3 years ago.

Another business model I've had a lot of success with is local lead generation. It's simple and less competitive. It might be a better fit for some people.

Click here to learn all about it: Local Lead Generation vs. Amazon FBA

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Ippei Kanehara
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$52K per month providing lead generation services to small businesses

Ippei.com is for digital hustlers, industry leaders and online business owners.

His #1 online business recommendation in 2022, is to build your own lead generation business.

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