Quite honestly if you are looking to start a business in 2019/20 and it doesn’t fall under E-commerce you are probably losing out big time.
Dropshipping and Amazon FBA has been an extremely profitable business for many years and they are only continuing to grow.
But which one is going to be the best online e-commerce business to start in 2020?
In this post, I’m going to run through the various factors one would consider when making a decision about which E-commerce business model is for them. This will include pros and cons for each, costs associated and much more.
Let’s help you answer which E-commerce business model you should start in 2020…
Amazon FBA Lowdown
Amazon FBA (Fulfilment by Amazon) is a service Amazon provides which essentially provides storage, packaging, and shipping for products submitted by sellers.
For a fee, Amazon will take the burden off of you. This means that once you have found your product and shipped them into Amazon, they will take care of the rest.
Quite honestly Amazon is a great option for many prospective E-commerce starters and is a fantastic opportunity because of it’s immense scalability.
Read more about starting a successful Amazon FBA Business in 2020 here.
Dropshipping is an online business model which allows you (as a seller) to create an E-commerce website/landing page, market products to prospective clients, have a Dropship manufacturer send the products directly to the customer and in return earn ‘middle man’ profits.
In 2020, many people have questioned whether Dropshipping is a lucrative business model anymore because it seems everyone and their uncle has attempted to start a dropshipping store.
Don’t let the idea of ‘saturation’ stop you from doing anything. In today’s society, everyone has tried one business model at one point or another. The truth is, no one has done it like you. That’s what makes your business unique.
Those people who are successful are usually the ones that take the leap.
It’s really not, you just need to adjust your focus. I talk more about Building a successful Dropshipping Business in detail here.
Factor #1 – Startup costs
You can get started with Dropshipping for an extremely low price, as it doesn’t require huge upfront investment. This can be a huge inconvenience when you’re just starting out.
Typical costs upfront include:
Shopify / Website $29 (monthly)
Domain $10 (yearly)
Advertising $150-$300 (Google or Facebook ads)
Samples to Influencers $100
With Amazon FBA, once you find a winning product, you need to make an upfront investment (generally around $1,500 – $2,000) to get your product ordered, shipped and advertised. Typical costs upfront include:
Product with shipping $1,000 – $1,500
Amazon Seller Account $39 (monthly)
Custom Logo/Branding $40
Samples to Influencers $100
Winner: In terms of the business model with the least startup costs, Dropshipping would win this one.
Factor #2 – More earning potential
With Dropshipping, if you are able to secure a winning product that consistently does well over a number of weeks, the earning potential is huge but this does require scaling your business. This means:
Hiring virtual assistants to take care of small tasks like customer service and marketing
Branding the product and offering a better fulfilment service
Pouring profits into advertising
It is easier with Dropshipping to upsell to your customers because you are in control of them. Once you have a customer base, it is easier to reach out to them and keep them as customers forever.
With Amazon, the earning potential is also massive, because once you have found a product that does really well, you are able to brand a whole business around it.
A business that people trust and want to continually buy from.
The possibility to scale here, however, is not as great because Amazon are in control of your customers.
You don’t have a choice which products are recommended to your customers and once they purchase from you, following up via email becomes difficult (not impossible though).
Winner: Dropshipping in terms of earning potential and scalability wins here.
Factor #3 – Most passive
Let’s start this topic by saying neither of these business models are completely passive. They both require upfront work especially and then follow up work to make sure the business is running well.
Dropshipping requires a lot of work upfront to:
Create a store with amazing product descriptions
Run constant Facebook/Google ads
Submit orders to suppliers
Follow up with tracking numbers, shipping etc
Facebook/Instagram customer interaction
Although this sounds like a lot, you have to remember that this is all front facing. Once your business is scaling, like I mentioned with the previous factor, you can outsource a lot of this list out to VA’s/employees. With this in mind, in time Dropshipping can become virtually passive.
With Amazon FBA, again the bulk of the work is done upfront. You find and amazing product, get it shipped, set up customer service emails and before you know it your on your way to passive income. You will eventually get a virtual assistant to follow up on customer queries and restocking.
Winner: Amazon handle your marketing, stock and fulfilment. For that reason with Amazon FBA you have the most potential to earn passive income.
Factor #4 – Less risk
Dropshipping unfortunately does come with a small amount of risk, as does any business model. The risk involved here is the testing of potentially multiple products in order to see if you find the winning product.
The testing will involve spending money on whichever advertising platform you choose. When you find the right product however, you are totally winning!
Taking the right steps to find a winning product that you know sells, is what makes Amazon a bit less risky. Like I talk about in my Amazon FBA post, the key here is use the right tools like Junglescout and Helium10 to grab a product which requires improvement and you can add your brand to.
Because Amazon has already proved that this product sells and sells well enough, you are pretty much guaranteed to make money this way.
As long as you follow the correct guidelines, you are likely to succeed with Amazon in 2019/20.
Winner: Amazon FBA
Factor #5 – Shipping & Delivery
Amazon probably offer the best service in terms of shipping and delivery, with options such as next day and even same day. This is extremely convenient for customers and you are more likely to get sales because of this.
With Dropshipping, you don’t get an option to deliver the product to the customer any faster. The supplier sets the processing and shipping times.
Aliexpress suppliers often offer ePacket shipping which is tracked and usually faster than most, but even this sometimes means the customer could be waiting up to 25 days.
The best option here would be to find local suppliers through services such as Salehoo or CJ Dropshipping that offer shorter shipping times.
Winner: It’s hard to beat next or same day delivery and for this reason Amazon FBA gets it.
Factor #6 – Customer base & service
Developing a customer base is one of the most difficult tasks that any start up business has to face. However, with Amazon’s FBA , you automatically benefit from their massive customer base and reach, for little cost or effort.
In addition to this, Amazon also take care of any returns you have and send tracking information to the customer.
With these amazing positives comes a few negatives. No matter how much money you spend on expanding your business, Amazon will always have your customers information.
Dropshipping isn’t a platform that will bring customers to you. You need to run traffic to your site and often Facebook ads are the way to do this. This can be very costly.
Once you have the clients however, they are yours. You can then expand your reach to people of similar interests and gain even more customers.
Factor #7 – Competition
Both of these business models are very competitive especially in 2019.
Dropshipping is because of how easy it is to get started. All you need is a website and a few hours to set up your station and you’re good to go.
It is likely that if you are selling a product that’s doing well, you get others that will come along and sell the same thing as you.
This is because you virtually have no branding or anything that makes the product special to you or your customers.
The way around this is to find a product that does well consistently for 1 week or 2 and find a way to improve shipping times, cost and offer something different to your competition.
With Amazon, you will likely find competition in the form of those selling similar products in your niche. When customers search for products, you will show up on the same page as your competitors. It isn’t very easy to stand out amongst thousands of other sellers, especially if your products is not unique.
If you have a good brand, great reviews, are offering something unique, you will, however, generally not have to fight off to many other sellers.
Winner: Amazon FBA
Time to wrap up..
Both Amazon FBA and Dropshipping in my opinion are viable profitable business models, both having their pros and cons.
I hope I have helped you to make a decision about the business model right for you. Whichever one you choose to start, choose one!
Trying to do both at the same time is not a great idea, it will split your time and focus, and most likely you’ll end up with lack lustre results.
As always, good luck!