Please check our latest article on dropshipping.
Antonia Klatt
Last Updated on 27 December 2023Do you want to sell products online, but don’t have enough seed capital, time, or the right know-how to set up your own online shop? Then dropshipping on Amazon may be the right solution for you. But what exactly is that, how does dropshipping on Amazon work, and is it even worth it? We reveal that and more in our article.
Contents:
- What is Dropshipping?
- Dropshipping on Amazon: is it possible?
- How does dropshipping on Amazon work?
- What are the advantages and disadvantages of Amazon dropshipping?
- How much does dropshipping with Amazon cost?
- Building a successful Amazon dropshipping online shop – 10 tips
- Amazon dropshipping or your own online shop?
- Conclusion: Is dropshipping on Amazon worth it?
What is Dropshipping?
If you’ve read this article, you might already know what dropshipping is. Nevertheless, we would like to explain briefly what this is all about before we go into exactly how dropshipping with Amazon works.
Generally, dropshipping describes the sale of products without owning these products yourself. The dropshipping service provider takes care of storage and shipping. With the concept of dropshipping, the retailer only acquires the corresponding goods once they have sold them to their end customers via their online shop. The products remain with the supplier until they are sold. The subsequent shipping is either neutral or even in such a way that the customer gets the impression that the shipping is being handled directly by the retailer.
This makes dropshipping a good way to offer your own products without having to bear the risk of high investment costs yourself. Sellers can not only avoid the risk of bad or unsellable products but also minimize costs for storage, packaging, and shipping of the goods. Because the individual deliveries are not packed and shipped by the dealer himself, but by the dropshipping supplier.
The seller thus has more time to concentrate on his business. Sales, marketing, and the overall strategy of his online shop remain the responsibility of the seller, even with dropshipping.
Even if dropshipping is not yet widespread in Germany, many retailers already see it as the retail concept of the future. With dropshipping, anyone who starts their business with an online shop today has the opportunity to be one of the most successful sellers in their industry within a few months – and that without a lot of equity, storage, and shipping.
Other companies are aware of this too, so it’s no wonder that as online commerce spreads, there are more and more dropshipping providers. If you would also like to set up your own online shop, you do not necessarily have to limit yourself to your own shop. You can also market your products where millions of customers are already waiting for you: with the online giant Amazon.
Dropshipping on Amazon: is it possible?
Dropshipping is allowed under German law. Amazon also allows the model on its own marketplace – albeit with certain restrictions. The US giant puts a few obstacles in the way of sellers who want to use the dropshipping concept. If you pay attention to certain points, dropshipping is also a way to offer and sell your products on Amazon without great risk.
If you want to use dropshipping on Amazon, you should be aware of the following points:
- You must be registered as a seller for the products offered.
- You must be identified as the seller by your name in connection with the goods on packing slips, invoices, and other documents.
- Supplier information on invoices, packaging, and packing slips must be removed prior to shipment to the end customer.
- You must be the person responsible for accepting and processing returns.
- You must follow the direct delivery guidelines and the general Amazon guidelines.
The last point, in particular, is important for the use of dropshipping on Amazon: Amazon prohibits sellers from “buying products from another online retailer and then having them delivered directly to customers”. For you as a seller, this means that you have to purchase your offered goods from a wholesaler or manufacturer. The resale of retail goods, on the other hand, clearly contradicts Amazon’s rules.
You should also check your dropshipping supplier’s policies before you begin. In fact, there are some suppliers that do not allow dropshipping on Amazon.
How does dropshipping on Amazon work?
In the following step-by-step instructions, we explain exactly how dropshipping with Amazon works.
Step 1: Set up a seller account on Amazon
In order to sell on Amazon, you need an Amazon seller account. You can get this by registering at sellercentral.amazon.de.
You can choose between two account models: basic and professional. These differ in terms of the items sold (more or less than 40 items), the monthly subscription fee (zero or EUR 39.00 plus VAT), and the sales fees (per item or percentage).
If you want to hand over the entire goods handling and fulfillment to Amazon, you can use Amazon’s FBA program. In this case, it can make sense to set up a professional seller account from the start.
Step 2: Choose the right product
Maybe you already know which items you want to sell. If not, now is the right time to decide on a suitable product. Your best bet is to either find a product with high demand or with little competition.
Household goods, products for the home and garden, and sports and outdoor equipment can all be suitable to start with. Offer not just one, but several items in your Amazon shop right from the start.
Step 3: Find your supplier
Find a supplier who offers your products. Many sellers use East Asian suppliers and manufacturers for dropshipping. The items offered are cheap, but there are also certain disadvantages such as long delivery times or goods that arrive damaged on delivery.
Once you have found a suitable dropshipping supplier, you should compare their prices with those of the competition. This is how you can find out if your profit margin is sufficient.
Step 4: Add the product to Amazon
To add your products to Amazon Seller Central, you can go to Inventory from your seller account and create a new product from there. Select the appropriate product category and fill in the necessary information for the offer (e.g. product name, brand, manufacturer barcode). You can then publish your offer and start selling.
Step 5: Sell your product
Once a customer on Amazon buys the product and the order is complete, you contact your supplier and pay the price for the item. Then you forward all order data including the buyer’s address to him.
Step 6: Supplier ships the product
After the purchase, the dropshipping supplier sends the product to your end customer. If you use Amazon’s FBA program, Amazon takes care of packaging and shipping itself.
What are the advantages and disadvantages of Amazon dropshipping?
Selling products via dropshipping via a platform like Amazon can have significant advantages over your own online shop. You can now find out what these are and whether there is a downside to the coin.
Pros – Amazon Dropshipping
Amazon dropshipping offers you a promising and almost risk-free way to get started in e-commerce. Here are five advantages of dropshipping through Amazon:
Get started with little seed capital
The advantage of classic dropshipping, of selling goods without having your own inventory, also applies to dropshipping with Amazon. You can start your online shop without raising a large amount of start-up capital first.
You only sell your products if they have previously been ordered through your shop. You then use part of the sales price to pay your dropshipping supplier, who then takes care of the packaging and shipping of the goods. Alternatively, Amazon offers you its FBA program to take care of the packaging and shipping of your products.
Since you do not need your own warehouse or employees for shipping, your main expenses are limited to purchasing the goods, advertising, and your shop.
Start selling quickly and easily
If you use dropshipping on Amazon, you don’t have to set up your own online shop. This saves you time and money, especially if you are not yet very familiar with building websites. Setting up an online shop on Amazon is comparatively quick and easy – we will explain exactly how it works later in the article.
You don’t have to wait for the products you order to be manufactured and delivered to you before you can resell them. All it takes to get started is a sale on Amazon.
Testing of products and sales is possible
Another big advantage of dropshipping on Amazon is that you can test the sale of your desired products in advance without any risk. Since you don’t have to keep your own warehouse with your own inventory, you can simply place ads on Amazon for different products. So you can quickly see which goods can be sold and which could tend to be slow-moving.
You can remove items that don’t sell particularly well from your online shop with just a few clicks – without incurring any financial risk. You only pay for advertising.
Low Marketing Spend
If you decide to dropship with Amazon, you benefit from a potential target audience of millions. The online marketplace has been world-renowned for years and was able to secure the place as the second most valuable brand in the world in the Brand Finance Global 500 Report 2022. For you as a seller, this means that you can generate significant organic traffic on Amazon as a seller.
If you try to optimize your shop in advance, you increase your chance of organic traffic and thus have less expenditure on paid advertising. You can also control exactly how much you want to spend on your marketing on Amazon. There are no minimum requirements for paid ads.
Immediate findability of your shop
Amazon now has over 35 product categories to choose from. If you decide to dropship with Amazon, you can choose from any number of niche categories and list your products in as many product categories as you want and think makes sense.
With the right product at the right price, you can address more than 300 million potential customers on Amazon and win new customers with your online shop.
Cons – Amazon Dropshipping
Where there is light, there is also shadow: Although Amazon can offer decisive advantages as a huge online sales platform, there are also some disadvantages compared to classic dropshipping. Here are 4 of them:
You must disclose your sales number
If you decide to use Amazon dropshipping, you should be aware that Amazon can see all of your sales data – both your top selling items and your total sales.
In the past, there were accusations that Amazon would use this data for its own purposes in order to strengthen its position as a seller. By analyzing sales opportunities based on data from competing retailers, it would strengthen its own product lines in the relevant category – and thus push smaller retailers out of the niche.
No long-term customer loyalty
In contrast to your own online shop, you will not achieve long-term customer loyalty with an Amazon shop. Amazon supports you in selling your products and also takes care of packaging and shipping for you as part of the FBA program.
However, the company limits your ability to market your own shop, uniquely present products, and communicate with your customers. Everything related to branding, marketing, user interface, and customer service is under Amazon’s control. A real and long-term relationship with your customers is therefore rather unlikely.
Expect high competition
Dropshipping sounds tempting to you? There are legitimate reasons for this – and other sellers know about them too. If you use dropshipping through Amazon, you should be aware that you may face a lot of competition. Nobody prevents other sellers from selling identical products at a lower price.
If you want to assert yourself against competitors with your Amazon shop, you can often only stand out on the price – unless you sell a really unique product.
How much does dropshipping with Amazon cost?
All the advantages of dropshipping with Amazon do not come for free, as you may have guessed. Different costs can arise, which can be roughly divided into 3 categories:
- seed capital
- Shop/FBA Fees
- Other costs
Seed capital
The capital you need to start with Amazon dropshipping depends on your approach and can therefore not be precisely quantified.
However, 1,000 to 3,000 euros are sufficient to be on the safe side for a start. You need this capital so that you are not immediately sold out of products with a particularly high purchase demand and can reorder items in good time.
Amazon Shop Fees
The average dropshipping margin is between 10% and 30%. When you decide to dropship on Amazon, you have to pay a certain percentage of your sales to the platform. These only apply if you actually sell the product.
Expect an additional 8-15% (depending on category) of each sale to Amazon. So if your margin was 30% with conventional dropshipping, you only have a 15% margin with dropshipping via Amazon. In order to make a profit, you should calculate the prices exactly when selling your products and, if necessary, set them a little higher.
Other costs
This item summarizes typical costs that are incurred when starting a business – such as registration fees for your business, taxes, etc. It is not always easy to keep track of taxes, especially when it comes to VAT. Complex issues such as VAT compliance, delivery thresholds, and correct VAT returns can cause headaches for sellers.
We at hellotax save you a lot of work here – with our software all transactions are recorded fully automatically. Sales are automatically noted at home and abroad, shipments are documented and exports are made available for accounting. And at a lower cost than average costs of tax advisors.
Book a free consultation
Our VAT experts are happy to help you. Book a free consultation today!
Starting an successful Amazon dropshipping online shop – 10 tips
Would you like to use Amazon’s dropshipping model? Here are 10 tips to help you get off to a good start with your online shop.
- Promote your products e.g. through Amazon Pay-Per-Click (PPC) and external marketing strategies such as social media, blogging etc.
- Focus on your customers and ensure exclusive customer service.
- Focus on your brand by appearing as an expert on your products.
- Test your products by ordering test copies and samples and checking their quality and delivery times.
- Don’t just focus on one product, offer multiple items right from the start.
- Calculate your prices correctly with the aim of offering good products at low prices (goal: 20% profit per item).
- Dominate the Buy Box with good customer reviews, fast shipping, low costs, and fast response times to customer inquiries.
- Aim for a 95% seller rating to increase customer trust and organic search results.
- Research keywords so more customers see, click, and buy your products.
- Offer your customers added value for your products, e.g. through additional items or tips on correct use.
Amazon dropshipping or your own online shop?
The alternative to dropshipping via Amazon is to set up your own dropshipping online shop. What you ultimately decide is of course up to you, your requirements, and goals. To help you make your decision, we have briefly compared the advantages and disadvantages of your own dropshipping shop to those of an Amazon shop.
Advantages of having your own dropshipping online shop:
- Higher control and sales experience through customization options (own product pages, layout)
- Individual design
- No additional fees to Amazon
- Larger selection of suppliers
- Less start-up capital required
Disadvantages of own dropshipping online shop:
- Less free traffic
- More spend on marketing (social media, paid advertising, SEO)
- Increased time required to set up and advertise your own shop
If you want to use dropshipping independently of Amazon, you can use your own software and integrate the offers of various partners via specific interfaces to wholesalers, manufacturers, and importers.
hellotax offers you a complete package for your taxes: With our VAT software, you automate all your VAT tasks and always have full control over your sales, goods movements, and registrations. With us you can easily take care of your VAT registrations and VAT returns in a variety of marketplaces.
Annual or monthly – you decide how you want to book the hellotax service. And we make your VAT tasks easier for you.
Conclusion: Is dropshipping on Amazon worth it?
Dropshipping on Amazon can definitely pay off for you as a seller. One of the most decisive advantages compared to your own online shop is the enormous number of potential buyers: According to a consumption and media analysis, 41% of all customers on Amazon order something from the US giant at least once a month.
Generating this immense traffic on your own online shop is more than difficult. In addition to free traffic, you can benefit from the countless positive user experiences that other buyers have had with the products, payment processing, and shipping on Amazon.
However, dropshipping with Amazon comes with its own set of challenges. Before you decide to do this, you should think carefully about your pricing. Make sure your margins are high enough to cover applicable Amazon fees and make a reasonable profit on your sales. Focus on excellent customer service and engage in different marketing strategies to brand your brand. This is how you will be able to generate sales in e-commerce and set yourself apart from the competition.