For many years, Amazon has disrupted the retail industry as the world’s largest e-commerce company. As a market leader and a significant player in global e-commerce, Amazon is a significant source for entrepreneurial success.
Dropshipping, an innovative business model with increasing popularity among entrepreneurs, has become an attractive method of selling products online.
Unlike traditional retail, dropshipping requires no physical inventory or warehouse space. Instead, products are shipped directly from the supplier to the customer. This makes it easier for entrepreneurs to set up their e-commerce store with minimal upfront investment and risk.
Amazon’s success has created an environment where customers expect convenience and value when shopping online. Dropshipping on Amazon offers the ultimate comfort by eliminating the hassle of managing inventory and logistics.
But how does it work?
This comprehensive guide will walk you through the basics of Amazon dropshipping and its potential for entrepreneurs in 2023. Also included are guidelines to get started with Amazon dropshipping as well as tips to ensure success as a dropshipping entrepreneur.
Table of Contents
- What is Amazon Dropshipping?
- Does Amazon Allow Dropshipping (And is it Legal?)
- What Are the Benefits of Amazon Dropshipping
- The Drawbacks of Amazon Dropshipping
- Types of Amazon Dropshipping
- How To Start Amazon Dropshipping
- How Much Boes it Cost to Dropship on Amazon
- Amazon Dropshipping Made Easier with Ecom Circles Automation Software
- Amazon Dropshipping FAQs
What is Amazon Dropshipping?
Amazon dropshipping is a retail fulfillment method where a seller sources products from a supplier or manufacturer and lists them for sale on Amazon without physically stocking the inventory.
When a customer places an order, the seller purchases the product from the supplier and has it shipped directly to the customer. This allows the seller to operate an online retail business without needing to manage inventory or handle shipping and fulfillment.
The image below illustrates how Amazon dropshipping works:
Does Amazon Allow Dropshipping? (And Is It Legal?)
Despite the popularity of dropshipping online, Amazon’s terms of service pose some challenges to this particular business model.
According to Amazon’s terms of service, retail dropshipping is prohibited. “Blind” dropshipping, however, is permitted provided you identify yourself as the seller or you do not identify yourself at all.
That said, with “blind” dropshipping, any shipping or packing materials must be unbranded. Furthermore, any invoices should identify your company as the seller (i.e., invoices should have your company name, not your supplier’s.)
Including any third-party retail branding from a product, packaging, or shipping material will result in Amazon suspending your account.
In short, Amazon considers this practice to create a poor customer experience. And since they aim to be “earth’s more customer-centric company,” they take issue with it.
So, what can you do to prevent this?
At Ecom Circles, we use a 2-step dropshipping model to help our dropshippers comply with Amazon’s policies.
Using our software, you can easily connect to one of the multiple warehouses that remove your supplier’s branding from all shipping materials.
Whether it’s helping you comply with Amazon’s policies or automating the fulfillment process, Ecom Circles helps make dropshipping legal and profitable. To learn more about our two-step dropshipping solution, book a call with our team today.
What Are the Benefits of Amazon Dropshipping?
When it comes to dropshipping, selling on Amazon offers several advantages.
Here are some of the benefits:
1. Millions of Buyers
Amazon has established a large, loyal customer base over the years. Therefore, if you sell on Amazon, you’re already tapping into an existing market and can easily reach millions of customers.
In addition, because Amazon is a trusted online platform, you can piggyback on that trust. With millions of buyers already on Amazon, all you need to do is find and list items from reputable suppliers.
2. Low Operational Costs
One of the most significant advantages of Amazon dropshipping is that it has relatively low operational costs. In the dropshipping model, there is no need to buy inventory until after your item(s) are sold. This means you can get started with little to no upfront investment.
The fees associated with selling on Amazon are also relatively low compared to running a traditional online store. This makes it easier for entrepreneurs to get their businesses up and running quickly and profitably.
3. Work from Anywhere in the World
As an Amazon dropshipper, you can work from anywhere worldwide. This means you can efficiently work from home or any other location as long as you have access to the internet. This makes it much easier for entrepreneurs who lack the funds to invest in warehouses or other logistics infrastructure.
For all these reasons and more, dropshipping on Amazon is an excellent option for entrepreneurs looking to make money online. However, before starting, you should understand some drawbacks to dropshipping on Amazon to minimize their impact.
The Drawbacks of Amazon Dropshipping
While Amazon presents a wide range of opportunities for dropshippers, using the platform comes with a few tradeoffs.
Here are some of the most important things to consider:
1. Seller Competition
One of the main drawbacks of dropshipping on Amazon is the competition. There are hundreds of thousands of sellers on Amazon, many of whom will sell the same products as you. This means finding profitable products to sell consistently can be challenging, but it’s possible.
2. Lack of Control
As a dropshipper, you do not control the manufacturing or shipping process. Any potential issues with product quality and shipping times are out of your control. Fortunately, Amazon lets you set ship times up to 30 days, which allows you to plan for potential problems.
Therefore, when dropshipping on Amazon, we always recommend that you give yourself enough lead time. As a result, your suppliers have time to ship your items with a buffer in case of delays.
3. Slim Margins
Between Amazon’s charges, referral fees, and other suppliers’ similar products, Amazon dropshipping can have narrow margins.
However, since you are selling products before you buy them, inventory can usually be financed with a credit card.
If you “float” your inventory on a credit card, you can typically pay it off once Amazon sends your disbursement.
Essentially, your ROI would be infinite since you’re using other people’s money to finance your products at 0% interest.
4. Account Suspension
Finally, the most common problem with dropshipping on Amazon is that your account could become suspended.
You may experience this if you use retailers as your suppliers and ship directly to customers. You can also be suspended if your seller performance metrics exceed Amazon’s limits.
In this case, the best offense is a good defense. By choosing reliable suppliers, monitoring your orders closely, handling customer support adequately, and abiding by Amazon’s TOS, you’ll be fine.
Should you be suspended, we have compiled a list of trusted partners that can help you appeal.
Types of Amazon Dropshipping
Amazon dropshipping can be incredibly exciting and lucrative. By choosing the best dropshipping model, you can ensure that your business runs smoothly and is profitable.
Here is a list of the most common types of dropshipping on Amazon and the advantages each of them offers:
Retail Arbitrage Dropshipping
Retail arbitrage dropshipping involves finding and listing products from online retailers to Amazon’s marketplace and shipping them directly to customers.
To do this successfully, you’ll need to research products to list and sell. It’s easiest to sell items that are already listed on Amazon. In this case, all you need to do is find the same product on a supplier’s website. Once you find the product, you can purchase it, pay any shipping fees, cover Amazon’s fees, and still make a profit. And, of course, the higher the Best Seller Rank, the better.
In the Retail Arbitrage model, the most common suppliers include Walmart, Home Depot, Bed Bath & Beyond, and other large retailers.
Upon receiving an order, you must fulfill the orders with your supplier. The supplier will then ship the products to the customer, and you will keep a percentage of the sale.
At face value, retail arbitrage dropshipping is an excellent way for businesses to start selling online without carrying any inventory. It’s also a low-risk way to test new products and see their success before investing in large quantities.
However, it comes with a lot of problems because recently, Amazon’s policy does not allow sellers to ship an item from the Amazon marketplace with the packaging of another online retail marketplace. This does not bode well for the Amazon brand and the customer experience.
One way sellers get around this situation is through the use of fake tracking numbers and invoices. This can lead to problems if you are caught.
Wholesale dropshipping is a model where you purchase products from distributors who buy directly from the manufacturer or brand owner, hopefully at less-than-retail prices.
The biggest advantage of wholesale dropshipping is that it is nearly always “blind,” which is terms-of-service compliant with Amazon.
Ecom Circles makes wholesale dropshipping even easier. Our software has pre-built connections to some of the largest wholesale dropship companies, such as Doba, Sunrise Wholesale, and TopDawg. As a result, you can easily dropship a wide variety of items.
Moreover, our software automatically fetches supplier prices and stocks so that you don’t oversell or sell at a loss. Our system also has its own built-in, automated repricer so that you can effortlessly keep up with your competitors.
If you work with a supplier that we don’t currently support through direct integration, you can easily add that supplier. And, of course, if you want us to build a direct connection, contact our support team, and we will add your supplier to our list.
Unlike retail dropshipping, wholesale dropshipping, as we’ve described, is compliant with Amazon’s dropshipping policies and is, therefore, a great model. However, here are a few things to be aware of if you choose this model.
Firstly, Wholesale DS is competitive. While using large wholesale dropship companies is convenient, they can be saturated. Therefore, long term, it’s best if you research lesser-known, harder-to-find wholesale suppliers to use.
Secondly, not all “wholesale” is wholesale. In some cases, companies really don’t have wholesale prices. In fact, they often mark the items up so high that there isn’t any margin left. In addition, wholesalers often buy items from distributors who have already marked them up. If you can’t make money on items from a wholesale supplier, just move on to the next one.
Lastly, wholesale dropshipping product research can be time-consuming. In some instances, wholesale suppliers will provide a product catalog that often contains hundreds or even thousands of items. Going through these, one by one, to see which one of them is profitable can be a painstaking task.
Fortunately, Ecom Circles provides an Amazon Wholesale Catalog Scanner tool that allows you to upload your entire catalog to quickly look up the price on Amazon. Furthermore, you can calculate over 15 data points that are helpful in deciding if the item is right for you.
One of the most difficult things about wholesale dropshipping is accurately calculating the estimated shipping for your items. Our Scanner tool calculates these estimates for you in no time.
Print-on-demand dropshipping, or PoD, allows you to work with a white-label supplier to sell items under your own brand. There are dozens of items to choose from; from clothing items such as t-shirts and ball caps to coffee mugs and coasters.
Please note that this model differs significantly from the other models listed. Since you will be selling these items under your own brand, you must create your own Amazon listings.
So how does print-on-demand dropshipping work?
Print-on-demand eliminates the need to carry inventory or buy in bulk since you only pay after the product sells.
Once your product is purchased, the supplier prints it and ships it directly to your customer. This is ideal for entrepreneurs that want to avoid investing in large amounts of inventory or worry about fulfillment.
However, you’ll need to provide a creative design and choose a supplier carefully. Choosing the wrong supplier can result in poor-quality prints and long production times, so research is vital.
Again, Ecom Circles has you covered here! We have integrated with print-on-demand vendors offering various items at great prices to help you get started. Book a call with us to get set up.
Once you are all set up, list your items to Amazon, and all sales will be effortlessly processed through the Ecom Circles platform. It’s really that easy!
The best way to test the quality of your product is to be your customer. This allows you to inspect the quality of your design, assess the process, and determine if the supplier is a good fit.
While the benefits of PoD dropshipping are clear, keep in mind that Amazon prohibits sellers from using third-party packaging. Therefore, you will be responsible for implementing a process that complies with Amazon’s expectations.
Created to maintain compliance with Amazon’s TOS using the retail arbitrage model, two-step dropshipping, as it indicates, involves two steps.
Like retail arbitrage dropshipping, the first step is to source profitable items from retail stores and list them on your storefront. The second step, however, is where two-step dropshipping differs from traditional retail arbitrage.
Once your supplier receives the order, they ship the products to a warehouse where they are unboxed and repacked with new packaging slips and invoices. The warehouse then ships the products to the customer.
But what does the second step cost?
The costs involved in two-step dropshipping are certainly more than retail dropshipping. In the second step, the items need to be repacked and shipped, plus the cost of shipping the second leg.
Furthermore, two-step dropshipping typically requires longer shipping times. Since the product must be sent to a warehouse and then to the customer, orders usually take longer. Shipping times vary from supplier to supplier, but if you pay attention to delivery dates, this model should work.
Despite these changes, two-step dropshipping is the only solution for staying within Amazon’s strict regulations while still using retail suppliers. As a result, entrepreneurs can avoid suspensions and make more money by relying on a third-party warehouse.
How To Start Amazon Dropshipping
The following steps provide an overview of how to start your amazon dropshipping business. Note that how you apply these steps may differ depending on the type of Amazon dropshipping you are involved in. Either way, the following steps are binding to all Amazon dropshipping routes.
1. Set Up An Amazon Seller Account
The first step on your Amazon dropshipping journey is to set up an account on the Amazon Seller Central page. On this page, you will be asked to sign up to begin your registration process.
Amazon offers two types of seller accounts; Individual and Professional. The Individual Amazon seller account is recommended for sellers who plan to sell fewer than 40 items per month, while the Professional account is for sellers who plan to sell more than 40 items.
This is because the individual plan costs $0.99 per item you sell (plus other selling fees of course) and if you will be selling less than 40 products, your total cost in base selling fee will be cheaper than the professional account which costs $39.99.
In addition to the subscription fees, you will also be charged additional seller fees, especially if you are an FBA seller. See our comprehensive piece on Amazon FBA fees to get an intricate-level breakdown of these Amazon FBA fees an how they affect you as a seller.
Once you have decided on the account type you want to use, you will need to fill in your business information, which includes your business name, address, and phone number.
You will also need to set up a payment method to receive payments from Amazon, set up your shipping options (i.e. shipping rates, delivery options, and regions where you will ship your products), and verify your identity.
2. Find A Product
Once you have your Amazon account set up, the next thing is to run product research to find lucrative products to sell. This is an important point for sellers just starting out.
Ideally, you want to look for products with high demand, low competition, and high profit margins. The combination of these three factors will give you a best-selling Amazon product that will rapidly boost the productivity of your selling efforts.
There are tools that can help you with your Amazon product research. One such tool is the Ecom Circles Extension. This software provides vital information about products, such as the price history and keepa information, right from the category pages on Amazon. This feature will help you make an informed decision on the best products to list that will be profitable for your business.
Check out our article on how to find products to sell on Amazon to get more in-depth information on the best tools and best practices to get Amazon winning products.
3. Find A Supplier
Finding a reliable supplier is essential to ensure that you have access to high-quality products to sell. Your customers expect to receive high-quality products that meet their expectations. A reliable supplier can provide you with quality products that will help you build a positive reputation and generate repeat business.
You also need to find suppliers that can offer you competitive prices so that you will be able to price your products competitively and attract more customers.
Alibaba and Aliexpress are popular platforms to find suppliers as a wholesale Amazon dropshipper. If you want to sell via arbitrage, then a great place to get suppliers is the Ecom Circles Automated Dropshipping software. This software has a directory of over 30 suppliers that you can source items from and sell on Amazon.
4. List Your Products
Once you have products to sell and a supplier to supply them, the next thing to do is to list those items on the Amazon marketplace. Create an appealing product listing with detailed descriptions, creative titles/captions, and competitive pricing. Also, make sure to include high-quality product images in your product listing.
There are Amazon listing and keyword optimization tools to help you with this endeavor. Check out our article on the best Amazon seller tools every seller should have to succeed.
5. Fulfill Your Orders And Manage Customer Service
As orders start to come in, you will need to manage them efficiently. Make sure to communicate with your customers, process orders promptly, and handle returns and refunds promptly. The Ecom Circles
How Much Does it Cost to Dropship on Amazon?
Now that you know how dropshipping on Amazon works, let’s explore how much it costs and how to get started.
While the cost of dropshipping will vary depending on supplier and product, becoming an Amazon Seller is relatively low-cost.
To set up an Amazon account, you’ll need to register with the company and pay a $39.99 monthly fee for the professional selling account or $0.99 per item sold for the individual selling account.
Amazon does take a percentage of any item you sell on their platform. This is referred to as referral fees. Make sure you include these fees when calculating your profits.
Amazon referral fees range from 3% to 45% depending on the product category, with most categories being at or around 15%. Prior approval may be required to offer products in specific categories.
Amazon Dropshipping Made Easier with Ecom Circles Automation Software
Driven by modern technology, Ecom Circles is a dropshipping software that makes dropshipping as easy as possible through automation.
Our software gives you the tools your dropshipping business needs in one spot. By having EcomCircles in your arsenal, you can avoid the headaches of stringing together multiple software programs.
Simply sign up for our free 14-day trial, and connect your Amazon account! Once connected, our software will pull in all of your existing listings, or you can begin listing items manually.
As soon as you start getting sales, our software automatically pulls orders from your Amazon account. In some cases, orders can be automatically routed to your suppliers so that the entire order process is automated. In other cases, you will need to fill in your order details.
If you are utilizing 2-step dropshipping, our integrated warehouses will await delivery of your order. During its journey to our warehouse, you can track your item and receive alerts if it is lost or canceled.
Upon receiving your item, we remove the branded packaging and any attached invoices. We then repack the item in an unmarked box and ship it to the customer.
Whatever dropshipping method you use, we will fetch the tracking number from your vendor or warehouse. We then automatically submit it to Amazon and display all the costs on one easy-to-read order details page.
So if you’re looking for a powerful, all-in-one solution to navigate the ever-changing world of e-commerce, look no further than EcomCircles.
We’d be happy to provide you with everything you need to be successful.
Book a call or join our Facebook group today for more information about our features and services. We’d be happy to answer any questions you may have!
Amazon Dropshipping FAQs
Below are some popular Amazon dropshipping questions:
Is Amazon Dropshipping Profitable?
Amazon dropshipping can be a profitable business model for sellers who can effectively source high-quality products and market them on Amazon. It also requires careful management and attention to detail to ensure that orders are fulfilled promptly and customers are satisfied with their purchases.
Is Amazon Dropshipping Legal?
Yes, Amazon dropshipping is legal. However, Amazon has certain policies and guidelines that sellers must follow to ensure that they are conducting their business ethically and within the confines of the law.
How do I not get suspended for dropshipping on Amazon?
To avoid getting suspended for dropshipping on Amazon, it’s important to follow these guidelines:
- Use reliable suppliers: Work with reputable suppliers who have a track record of delivering high-quality products on time.
- Maintain inventory levels: Make sure that the products you’re selling are in stock and available for immediate shipment. Avoid listing products that you don’t have in your possession.
- Monitor your account health: Keep an eye on your account health metrics, such as your order defect rate, late shipment rate, and cancellation rate. If any of these metrics fall below Amazon’s standards, you could risk suspension.
- Provide excellent customer service: Respond promptly to customer inquiries and resolve any issues or complaints in a timely and satisfactory manner.
- Comply with Amazon’s policies: Read and understand Amazon’s policies and guidelines for dropshipping, and make sure that you are in compliance with all of them.