How to Strategically Leverage Drop Shipping for Your Amazon Business

At first glance, drop shipping might seem like a sure way to drive Amazon profits. You find products to sell, create listings, advertise, collect orders, and let your supplier ship them out. Sounds easy, right?

As with any Amazon business, there are no hassle-free, guaranteed routes to success — and that doubly applies to drop shipping. Basing your Amazon business on this fulfillment method will be difficult, if not impossible, to sustain. Its benefits are generally more suited to advanced sellers, while its disadvantages can upend a new seller’s business.

In this post, we explore why you might use drop shipping and how strategically leveraging it can improve your overall Amazon business.

Drop Shipping Defined

Drop shipping is when a manufacturer or supplier directly ships a product to the customer; the Amazon retailer handles everything else —from order processing and returns to Amazon marketing and advertising. Most of the time, the seller passes on the sales order to the product’s supplier, not the manufacturer.

With this fulfillment method, Amazon sellers no longer need to worry about procuring a warehouse, buying or stocking inventory, paying FBA storage fees, or shipping out products. The supplier bears the costs for inventory, storage, and packaging, in addition to facilitating shipments.

The Disadvantages of Drop Shipping

As a fulfillment method, drop shipping comes with some notable disadvantages, especially for new sellers. For established retailers who presumably have deeper catalogs, greater levels of traffic, and more Amazon experience, the following can be easier to navigate:

1. Slim Margins

Since suppliers bear more of the costs, they earn the majority of the profits. As a result, Amazon retailers usually only make slim margins on drop-shipped items. One optimistic estimate puts that number at 20%, even though it does not account for other Amazon costs like advertising or any special handling fees that a supplier might impose.  

2. Excess Competition

Drop shipping is competitive because, in theory, anyone can do it. The barrier to entry is low since you do not need to buy inventory in bulk or at all. While this competition makes earning a profit difficult, it can also cause another issue. Sellers who use the same supplier might deplete inventory to the point where it slows sales velocity or risks a stock outage.

3. Lack of Control

Having no control over shipping or inventory logistics can cause issues for Amazon retailers. Suppliers can run out of stock, ship orders late, or use poor packaging, which can irritate your customers and damage your seller metrics. Consistent issues can result in negative reviews as well as a higher order defect rate, pre-fulfillment cancellation rate, or late shipment rate. A big enough issue that affects multiple orders could very well spell disaster for a budding retail business.

4. Returns

While some suppliers do handle returns, many do not. If your supplier provides low-quality or defective products, customers will be returning them to you. You will either need to store the product, fix it, or possibly ship it back to the supplier. To avoid this issue, you want to find well-run suppliers who source high-quality products and who handle returns.

5. Lack of Brand Building

You might wonder why suppliers do not require retailers to buy in bulk in the first place. Oftentimes, the products that suppliers sell are not from premium brands. The brands are small, unknown, or just not in demand enough to command more favorable terms on the market. For the Amazon seller, this lack of brand power means you will have trouble associating yourself with one strong brand. On a more basic level, you are also selling another company’s brand, not your own.

6. Communication Delays

Amazon retailers will sometimes need to communicate with a supplier to iron out a customer issue. Since there are three parties involved, solving an issue will require going from one party to the other. Naturally, this chain can cause delays. Plus, if a supplier is slow to respond, the process might take even longer.

7. Trademark Infringement

Unscrupulous suppliers might sometimes send out products with branding that infringes on another brand’s design. As a retailer for these products, you can be held complicit unless you have a drop shipping contract in place.   

Why New Sellers Will Have Trouble Achieving Massive Success

New sellers will want to temper their expectations with drop shipping. Yes, you can earn a profit; however, sudden enterprise-level success is unlikely given the thin margins. To actually succeed, you would need to rapidly sell a huge volume of many different products at once without any other issues like bad reviews or returns to halt your business. You would also need to outperform the competition and fully optimize your operation.

As we have often discussed in other Feedvisor posts and guides, the best method for executing on all of these tasks is to use an end-to-end Amazon optimization software. Most FBA sellers scale up to optimization software; a drop shipper seeking overnight success would need it from the very beginning.