How Dropshipping Works
With dropshipping, you list products for sale without holding any inventory. When a customer buys, you purchase the item from a supplier who ships it directly to the customer. You never touch the product. Your profit is the difference between what the customer pays you and what you pay the supplier. It requires minimal upfront investment but comes with significant limitations.
How FBA Works
With FBA, you purchase inventory upfront, send it to Amazon's warehouses, and Amazon handles fulfilment when customers buy. You invest capital in stock before making sales, but you control product quality, benefit from Prime delivery, and typically achieve better margins and faster delivery than dropshipping.
Investment and Risk
Dropshipping requires almost no upfront investment — you do not buy stock until someone orders. This sounds appealing but means your margins are thin (you pay retail or near-retail from your supplier) and you have no control over stock availability or shipping speed. FBA requires significant upfront investment in inventory but delivers better margins and customer experience.
Margins Compared
Dropshipping margins are typically 10 to 30 percent of the selling price. FBA margins can be 30 to 60 percent or higher with wholesale or private label sourcing. The capital investment required for FBA generates meaningfully better returns per sale than the low-investment dropshipping model.
Customer Experience
FBA products arrive in one to two days with Prime delivery. Dropshipped products often take one to three weeks, particularly if sourced from overseas suppliers. In a marketplace where customers expect fast delivery, dropshipping is at a significant disadvantage. Poor delivery experiences generate negative reviews and customer complaints.
Which Makes More Sense?
FBA builds a more valuable, sustainable business with better margins and customer experience. Dropshipping can be useful for testing products before committing to inventory investment, or for supplementing your FBA range with items you want to validate demand for. As a primary business model, FBA is superior for long-term profitability and business value.