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Shopify Dropshipping Vs Amazon FBA Business in 2022

July 21, 2022

Shopify vs Amazon is one of the most common questions considered for anyone looking to get into E-commerce and make money online. Many people already know Amazon is the world’s leading E-commerce marketplace, but did you know Shopify has rapidly grown to be half as large as Amazon?!

According to Marketplace Pulse, Shopify’s Gross Merchandise Value (GMV), which is a measure of the total value of sales, is around 50% that of the Amazon Marketplace. In fact, Shopify is quickly gaining on Amazon, with both its sales and seller base growing at a faster clip over the past few years. 

The two platforms each have their own benefits and attract sellers for different reasons. Shopify is the platform of choice for dropshipping, while Amazon’s biggest draw is the Amazon FBA program. Both offer the potential to create valuable businesses, and you won’t believe how much either of these is selling for nowadays! 

Should You Go for Amazon FBA or Shopify Dropshipping in 2022? 

Both Amazon FBA and Shopify dropshipping offer E-commerce sellers fantastic opportunities. When deciding which platform you should sell on, you need to consider both the platform differences themselves as well as the differences between dropshipping and the FBA business model. We break down each business model so you can decide for yourself which option is best for your situation. 

What is Dropshipping With Shopify? 

Dropshipping is a popular E-commerce business model where a supplier holds all inventory for the seller until a sale is made and then ships the product on behalf of the seller to the customer. According to Shopify, sellers pay suppliers the wholesale price for a product while controlling the price the potential customer sees on the Shopify store. Therefore, Shopify dropshippers:

  • Purchase the products for a discounted price

  • Only purchase a product AFTER it’s bought by a customer
  • Don’t have to worry about storing products as inventory

Shopify itself is an Ecommerce platform whereby sellers create an online store entirely their own. Your customers only see the products you are selling, and not products from other Shopify sellers. 

What is Amazon FBA?

Amazon FBA is a business model that allows a seller the dual benefit of selling through the Amazon Marketplace and outsourcing order fulfillment to Amazon’s comprehensive logistics systems. Amazon FBA sellers send their product to Amazons warehouse and Amazon handles:

  • Packing
  • Shipping
  • Customer Support
  • Order returns

Because Amazon is an online marketplace, your products are shown alongside other sellers’ products. If you’re selling the same product as other sellers, you’ll often even have to share your product listing with them and compete for the Amazon buy box!

Can You Do Dropshipping With Amazon FBA?

Dropshipping with Amazon FBA is not possible because you need to send your products to Amazon to partake in the FBA program. With Amazon FBA, Amazon holds your products as inventory so they can provide their customers with rapid delivery, and Amazon Prime customers expect that delivery in two days or fewer.

Ease and Speed of Getting Started

Get Started Dropshipping on Shopify With a Computer, Some Marketing Knowledge and an Hour to Set Up Your Online Store

Unlike many businesses, you usually don’t need a business license to get started selling on Shopify. To reiterate, Shopify does not require you to have one to get started, but the legal body of your business’s geographic location may require it. Shopify only requires you to have a business license in two scenarios:

  1. You’re using the Shopify payment gateway
  2. You earn $20,000+/month on the platform

The two things you do always need to get started dropshipping on Shopify are:

  1. Shopify store
  2. Product to sell

Although your Shopify store can take you anywhere from 30 minutes to an hour to set up, finding a good product opportunity will take a bit longer. However, because you don’t actually pay for the product until after you purchase it, you don’t need to spend more than a few days to a week on product research. With dropshipping, you have more flexibility to test products in your store because there is less financial risk. Therefore, in about a week, you can have your online store ready and start marketing your first dropshipping product on Shopify.

Amazon FBA Startup Varies Dramatically Depending on the Business Model Chosen

Like Shopify, Amazon does not require you to have a formal business license to get started. However, unlike dropshipping on Shopify where we are talking about one business model, there are multiple business models you can use for Amazon FBA, each with varying degrees of difficulty. The two opposite ends of the Amazon FBA spectrum are retail arbitrage and private label. 

Easily Start Selling on Amazon FBA With Retail Arbitrage

If you decide to go the retail arbitrage route, you can sign up for a seller account with approval in 24 hours, according to AMZ Scout. Then, you can take a few hours to go to retail stores in your area and use the Amazon seller app to scan items to find a retail arbitrage opportunity. Even though you'll be in tough competition to win the buy box as you share the product listing with other sellers, you can start earning money in as little as a week!

It Takes a Few Months to Get an Amazon FBA Private Label Business Up and Running

On the other hand, Amazon private label is a completely different story. With private label, you need to spend between 1 - 4 weeks doing product research as once you commit to a product, it’s a large investment to have the product manufactured in bulk and shipped to an Amazon warehouse. Amazon FBA sellers using the private label model usually source products from China, so shipping can take a month or longer. Between Amazon FBA product research, manufacturing, shipping to Amazon, and optimization of your product listing, JungleScout notes that it takes about 3 months before you’ll start making your first private label sales. 

Pricing, Fees, and Payments

Shopify Plan Pricing

If you want to check out dropshipping on Shopify before you commit, you can try it out free with their 14-day trial period. There are multiple monthly options to choose from, including the Basic, Shopify, and Advanced Shopify plans. Each Shopify plan charges a flat rate fee as well as transaction fees. However, you can avoid the transaction fee by using Shopify Payments as your payment gateway. 

Aside from their main plans, Shopify also offers:

  • Shopify Starter for $5/month to sell products through social and messaging apps.
  • Shopify Lite for $9/month for in-person sellers or sellers who just want to add a buy button to an existing website. 
  • Shopify Plus at $2000/month for enterprise grade businesses with high volume. 

Amazon FBA Pricing and Fees

Amazon has two seller plans: Individual and Professional. The individual plan is quite limited, so the majority of FBA sellers go with the $39.99 Professional plan so they have access to enhanced features like access to Amazon PPC advertising and qualifying for placement at the top of product listings. 

Unlike Shopify, where the fees end at the monthly seller plan, with Amazon FBA, there are additional costs owed to Amazon for handling order fulfillment. Although your business could incur additional FBA-related fees beyond these, the most common three in every situation are:

  • Referral fees (8 - 20% for most items)
  • Fulfillment fee (based on product type, size and weight)
  • Monthly inventory storage fee (based on product size)

Payment Options Shopify vs Amazon

Aside from the already mentioned Shopify Payments, Shopify offers over 100 other payment gateway options to choose from to make sure your customers can pay for your products. Shopify even enables you to use Amazon Pay! 

Amazon doesn’t provide nearly the vast amount of payment gateway options Shopify does. However, it probably isn’t necessary because customers can use most major debit and credit cards to pay through Amazon Pay. 

Product Sourcing

Shopify Dropshippers Get Products From Marketplaces With Business to Consumer Suppliers

Shopify dropshippers get products from suppliers that are willing to ship directly to the consumer like you will find on AliExpress. Products on AliExpress are dirt cheap for a few reasons, including that you are purchasing straight from a manufacturer in a country with low labor costs. Technically, those consumers you’re selling to can just purchase directly from AliExpress themselves… IF they spent the time looking. The fact is, many people don’t understand the marketing game of E-commerce so they’ll still buy from familiar places like Amazon or find your Shopify store through an ad on Facebook. 

The people who will find your product on AliExpress are other dropshippers. One of the biggest drawbacks of dropshipping is that other dropshippers are likely to find and sell the same product as you.

Amazon FBA Sellers Usually Go Straight to the Manufacturer 

Amazon FBA sellers use Amazon’s warehouse to store their products, so they usually buy products in bulk for the lowest possible price/unit. The larger the deal you provide the manufacturer, the lower the per unit cost will be. Amazon FBA sellers find suppliers on B2B marketplaces like Alibaba or Thomasnet. Amazon FBA product sourcing comes with a much higher commitment than dropshipping product sourcing, so expect to spend more time vetting suppliers if going the Amazon FBA route.

A major benefit of sourcing from manufacturers in bulk is that you’re able to request minor improvements to products. This allows your business to differentiate itself from the rest of the competition. 

Inventory and Startup Costs

No Inventory Required for Shopify Dropshipping

Even though you don’t deal with inventory because you only purchase a product after you sell it with Shopify dropshipping, there are still a few other startup costs to be aware of. 

Basic Shopify plan:

You need a Shopify seller plan, and the $29/month basic option has everything you need to get started.

Custom domain:

Although you can use the free myshopify.com url that comes with your account, it’s best to use a custom domain to enhance the appearance of your business. You can purchase a custom domain through Shopify starting at $14/year. 

Sample products

With drop shipping, your products go directly from the supplier to your customer. Therefore, it’s essential to get product samples from your supplier to make sure the product meets quality standards, the packaging is adequate, and so you can verify you receive the product in the specified shipping times. 

Marketing

When just starting out, you’ll need to rely heavily on marketing to push your product in front of potential buyers using Google Ads and/or Facebook Ads. According to a study of Shopify stores by Littledata in 2022, the average conversion rate for the platform is about 1.4%. That means, if 1000 people visit your Shopify store, you can expect to make 14 sales. Green Drop Ship lists the average cost per click of Facebook Ads as $1.86. Therefore, to get those 1000 people to your website, you will need to spend around $1860 on average. However, the initial goal of marketing for drop shipping is not to make a profit, but to generate awareness of your brand and learn the market so that you can fine tune your campaigns to realize a higher conversion over time. 

Aside from the above essentials, Shopify also offers several applications you can integrate with your store to enhance your selling capabilities that cost anywhere from free to $499/month. However, depending on your starting budget, you can worry about incorporating these down the line.

Webinopoly recommends having a starting budget of $2,000 - $3,000 to get started dropshipping on Shopify. This budget should keep you afloat for a few months while you learn the ropes and grow your store. 

Inventory and International Shipping Add Up for Amazon FBA Sellers 

As mentioned, there is more than one business model when selling on Amazon FBA. While you could theoretically get started with a few hundred bucks if selling retail arbitrage, we’re going to focus on the most common FBA selling model. According to JungleScout, the majority 59% of Amazon use the private label model. These are the necessary costs associated with selling private label through Amazon FBA. 

Amazon Professional seller account:

If you want to sell over 40 items per month and access the full list of features allowed to Amazon sellers, you’ll want to go with the Professional seller account for $39.99/month. 

Product research tool:

With around 2 million active sellers on Amazon and around 3,000 new sellers joining the platform per day according to eDesk, the Amazon Marketplace is extremely competitive. If you want the best chance of finding a suitable product opportunity, you’ll need to employ the help of a product research tool like JungleScout or Helium10. Amazon product research tools range in price from $29/month for the basics up to $200+ for advanced capabilities. 

Product sample: 

Many Amazon FBA sellers have their products shipped directly from the supplier to an Amazon fulfillment center. However, you’ll want to inspect your product from the manufacturer before your first order to validate quality. Expect to pay between $50 - $100 for your product sample and express air shipment, according to Alibaba. 

Quality assurance inspection: 

Even if the product sample checks out, that doesn’t guarantee a satisfactory portion of the final products will meet standards. Therefore, it’s best to employ the help of a factory inspection to ensure production standards are being met before completing payment to the factory. According to Inspectaman, the cost of factory inspection in China ranges from $180 - $320. 

Product bulk order: 

The cost of ordering in bulk to stock Amazon with your inventory can cost from $500 - $10,000+ depending on the product you choose and minimum order quantity (MOQ) required by your manufacturer. 

International shipping and import duties: 

As most Amazon FBA sellers are either from China or source products from China to get a cheaper product cost, international shipping and import duties are a common cost consideration and vary depending on the amount of product, size of product and type of product. 

Branding: 

When you create a private label product, you at least need a logo to brand the products as your own. Branded product packaging is also common and helps to distinguish your brand. You can find quality designers on Fiverr for $10 - $100+ for a simple logo project. 

Amazon PPC: 

Amazon FBA sellers have the benefit of advertising directly through the Amazon marketplace. When starting out, you should have an adequate size budget for advertising so your store can start to generate sales and move up in organic ranking. According to JungleScout, Amazon PPC costs range from $0.05 to $10+ depending on the category of your product.

After adding up all the private label costs when selling on Amazon, we recommend most businesses to have $6,000 - $10,000 of startup capital available. 

Customers and Competition for Them

Customers Are 100% the Responsibility of the Seller When Dropshipping on Shopify

As of 2020, over 450 million online consumers buy from Shopify merchants. This is a positive indicator as to the ability of Shopify owners to promote their stores and consumer interest in buying from Shopify merchants. However, Shopify is not an online marketplace that supplies its own customers like eBay or Amazon. As a Shopify merchant, you are competing for an overall piece of the E-commerce pie instead of competing for customers of a single marketplace. Even though there are around 1.75 million merchants using Shopify to sell, competition is with the entire E-commerce market and not just a single marketplace. 

Besides obtaining your own customers when you drop ship from Shopify, you’re also responsible for providing customer service to those customers. Handling customer complaints and returns with professionalism is integral to establishing a loyal customer base and positive reviews.

Amazon FBA Provides the Customers and Serves Them Too

As an Amazon FBA seller, you have access to an enormous pool of loyal Amazon customers. According to JungleScout, there are 310 million Amazon customers globally. Many Amazon customers are also big spenders, with 200 million taking part in the Amazon Prime membership and spending, on average, nearly $2,000 per year on the platform! However, there are 1.9 million active sellers competing for those customers according to eDesk, which makes selling on the Amazon Marketplace highly competitive. 

On a positive note, when you outsource fulfillment to Amazon FBA, you don’t have to deal with any of the customer service, like complaints or returns. Amazon handles all of this for you and does so to the highest quality. Amazon is a customer first business and even though you are the seller of the products, your customers are Amazon’s customers, so they put a major emphasis on keeping them happy. 

Product Visibility and Generating Sales

SEO Optimized Shopify Site to Rank on Search Engines

A Shopify store has its own unique domain, which is ranked in search engines like Google and Bing. Shopify store owners improve the visibility of their website and products by using SEO in product pages. It’s not uncommon for Shopify store owners to create additional pages in their stores like an “About Us” or “Contact” page to provide search engines more information about the business like most websites do. Many sellers even incorporate a Shopify blog page to increase reach and visibility through content marketing. By targeting the right keywords to incorporate into your website pages and blog, your Shopify store can rank on page 1 of Google

Facebook Ads and Google Ads To Generate Shopify Sales

Shopify dropshippers rely heavily on paid advertisement to drive traffic and generate sales. Facebook and Google Ads are two of the most common paid advertising channels for dropshippers. According to Green Drop Ship, Google Ads are best for immediate sales, while Facebook Ads are useful for increasing brand awareness, so it's common for Shopify dropshippers to include both in their marketing plan. 

Amazon’s A9 Algorithm Determines Ranking on the Amazon Marketplace

For sellers in Amazons FBA program, the primary goal is to rank well on Amazon, which itself is an enormous search engine. Just like you would do when attempting to rank well on any search engine, using good SEO practices is critical for ranking on Amazon. By using Amazon SEO in product listings, FBA sellers can efficiently have their products indexed for relevant keywords. Then, Amazon’s A9 algorithm uses a variety of factors like conversion rate and sales velocity to determine where products rank for those specific keywords. 

Use Amazon PPC Advertising to Generate Sales

When people go to Amazon, their intent to purchase is much higher than if they were to type something into Google. For that reason, Amazon FBA sellers usually stick to Amazon’s on-platform advertising, Amazon PPC. Amazon PPC allows you to skip the line and showcase your product on the top of the search results page for keywords that you target. A good Amazon PPC strategy can go a long way for Amazon FBA sellers. 

Control Over Digital Experience

Shopify Customizable Themes

Shopify offers a variety of free and paid themes to create an attractive online store specific to your brand and niche. It’s fairly simple to set up and make adjustments to a Shopify store by using their page builder, similar to making a WordPress website. For sellers who are after advanced features for their online store, further customization features are available with an upgrade to Shopify Plus. 

Amazon Offers Familiarity

Amazon allows FBA sellers to create product listings in order to sell on the Amazon Marketplace. Aside from adding your own copywriting and product images, you can’t customize the overall design of your product listing. However, Amazon has a massive and established customer base that seeks familiarity when navigating Amazon, anyway. Even Shopify notes that this familiarity helps Amazon convert on sales at a higher clip than most other E-commerce stores. 

Enhanced Customization Ability on Amazon When You Join the Amazon Brand Registry

Although it’s neither cheap nor quick, completing the steps required to join the Amazon Brand Registry allows an FBA seller enhanced capabilities to showcase their brand. Once accepted into the Amazon Brand Registry, you’re allowed access to A+ Content and Amazon Storefront. 

Amazon A+ Content

Also referred to as Enhanced Brand Content, Amazon A+ Content allows you to replace the usual plain text product description on your Amazon product listing with improved visuals like:

  • Custom paragraph headers and images
  • Product comparison charts
  • Enhanced image and text layouts

Amazon Storefront (Amazon Store’s)

Amazon Store’s are essentially custom branded websites that are hosted on Amazon, where you can showcase all your products without interference from other brands’ ads. They allow potential customers to easily navigate around your entire product portfolio instead of having to search out each individually. You can easily customize the feel of your store with an easy-to-use drag-and-drop page builder and readymade themes, and they even come with your own custom Amazon URL. For example, Amazon.com/Ippei.

Timetable for Profitability

Expect 6 - 12 Months for Profit When Dropshipping on Shopify

Even though startup costs are low, don’t expect to turn a profit with dropshipping on Shopify overnight. You’ll have to test products and fine tuning your marketing before something hits that is profitable. Shopify dropshippers can expect to spend 6 - 12 months running their business before it makes a profit. Once you find a profitable product opportunity, SellBery outlines the average profit margin of a dropshipper between 15% and 20%. 

Most Amazon FBA Sellers are Profitable Within a Year

There are many factors that influence how long it takes to make money with Amazon FBA, but most sellers do so within one year, according to JungleScout. A realistic expectation is 6 - 12 months, however, it’s not always the best idea to start taking profits from the business at that time. Most Amazon FBA gurus recommend continuing to reinvest money back into the business until you have 4 - 5 products that are generating stable revenue. Amazon FBA businesses with just 1 or 2 profitable products are risky because Amazon seems to regularly raise its FBA fees and also because your product may become obsolete if another seller brings a superior product to the market. When the business becomes profitable, data from JungleScout shows that only 19% of sellers realize underwhelming profit margins of 10% or less, while nearly half enjoy a solid profit margin of 11% - 25%. 

Scalability and Potential to Build a Valuable Asset

You Can’t Scale a Shopify Business Without a Team

Scaling a Shopify dropshipping store can be difficult because of the nature of dropshipping in that you can’t push down product costs by purchasing in bulk. However, it’s still very possible. Just ask the team of Austrian entrepreneurs who scaled their pet product business from $41,000/month to over $500,000/month in revenue! The secret to their success was finding the right supplier to provide an excellent product and then hiring a team to handle customer support so they could focus on higher-level operations needed for scaling. 

The right supplier and team can do more than just allow you to scale a dropshipping business. They enable you to create a valuable asset that can either generate passive income or that you can sell for a hefty profit! According to website consulting service, The Website Flip, dropshipping businesses commonly sell for 18x to 36x their average monthly profit. 

Uncapped Potential for Scaling an Amazon FBA Business

If using a scalable business model like wholesale or private label with the benefits of Amazon FBA, your business has minimal limits. As your business grows, you can push down product costs by buying in higher quantities. Furthermore, outsourcing the bulk of your operations to Amazon’s fulfillment network allows you to spend more time finding additional product opportunities to expand your business. 

Allowing Amazon to handle fulfillment and customer support enables a FBA business owner to generate income somewhat passively. Hiring further support to assist with product research, inventory management and marketing further extends passive income potential. Once your Amazon business has an established product and the necessary support in place to generate stable sales, it becomes a highly valued asset. According to Marketplace Pulse, Amazon FBA private label businesses sell for 4 - 8x a seller’s yearly take home profit!

Support for Sellers

24/7 Support for Shopify Sellers

Shopify provides 24/7 email and live chat support as a key feature on all of its paid plans. As a seller, you are Shopify’s primary customer, so it’s no wonder they provide excellent customer support. For sellers who want to try troubleshooting issues on their own, Shopify offers support pages in 21 different languages and you can browse through Shopify’s community forum to see other sellers’ experiences. 

Amazon is a Customer-Centric, Not Seller-Centric Company

FBA sellers can access support through Amazon Seller Central. However, Amazon sellers like Tatiana James often comment on disappointing service from Amazon Seller Support. In fact, Amazon Seller Support doesn’t even have a direct email or phone to contact them by. You wait for them to contact you after filling out a support ticket.

According to AMZ Advisors, Amazon Seller Support just doesn’t have the resources to effectively handle seller inquiries. Amazon’s literal mission statement is “To be Earth’s most customer-centric company”, so naturally the bulk of their resources and policies are geared towards customers, not sellers. While Amazon does provide sellers high-quality online resources like help pages and videos in Seller Central, there’s no replacing prompt help from SMEs to resolve issues quickly. 

Conclusion

As with any business, there are pros and cons to dropshipping on Shopify, and pros and cons to Amazon FBA. Dropshipping is probably better for you if you’re just getting into online business and have a low budget. Amazon FBA might be a better option if you have more capital to risk, so you can work with a manufacturer to create an improved version of a product. If you like the idea of being able to customize your own products and branded store on Shopify but outsource fulfillment like Amazon FBA, you can also check out the Shopify Fulfillment Network.

There are so many opportunities to make money online in 2022. Even if neither of these is the best option for you long-term, trying either will teach you valuable lessons about business and should make you some money along the way.

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Ippei Kanehara
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