Amazon FBA Vs Shopify Drop Shipping: Which To Start For Beginners?
Setting up shop online and selling actual, physical products feels like the epitome of the online entrepreneur. Blogging is one thing, starting a YouTube Channel another, but something about selling a real product has a certain tangibility to it, right?
I’m sure I’ll write several of these types of posts over time but this gets to be my first one on this topic in which I feel confident that I can give a real life perspective but bring it from the angle of the true beginner in order to weigh out the differences and develop a strategy for both.
In this article I’m going to ask which is the best way to start for someone just getting into the online business world? Amazon FBA, or Shopify Drop Shipping?
Let’s start by giving a general overview of each and then we’ll do some comparisons and then we’ll weigh the differences. Buckle in thought as this could get a little long, but I want to give you as much information here as I can without writing a whole book!
Amazon FBA Basics and General Strategy
Well let’s just jump right in here. Amazon FBA stands for Fulfilled By Amazon. In this e-commerce method, you’re sourcing a niche product from a supplier and then leveraging Amazon, the worlds largest online marketplace, to do a lot of the work.
One large benefit to selling products this way is the logistics of the sale. When you’ve sourced your products from your supplier, you’re shipping it straight to an Amazon warehouse and they take care of fulfillment, customer service, returns, and inventory management.
That’s a lot that you just took off your plate. So what are we responsible for? Well first we are responsible for picking the product. Like any online business, you want to niche down to find a gap in the market place with enough demand that you’ll be able to rank your listing, compete with any competitors, be different enough to stand out and actually sell some units.
Picking a Product and a supplier
Let’s start with sourcing the products. There are a number of platforms you can use to find suppliers for your products but the vast majority use Alibaba to source. They have a huge marketplace of both manufacturers, but also suppliers that can facilitate the manufacturing of the product in which you’re selling.
Now you’ll find that communicating with these suppliers has it’s own set of challenges. You’ll be running on two completely opposite times if you’re in the US and a large portion of the suppliers are on the other side of the world.
This means getting responses to your questions sometime around 9 p.m. – 12 a.m. and there is a definite language barrier. Be patient as they are doing their best to provide the information you’re asking for, and don’t be afraid to ask for clarification.
Also, be sure when you’re filtering out the available suppliers that you filter to get Trade assurance and Gold Supplier, as these suppliers have been vetted by Alibaba. You can also filter for on-site check where Alibaba has sent a representative and can vouch for the validity of the supplier.
Once you’ve found your product and your supplier, you then can start discussing price and MOQ or Minimum Order Quantity. This is crucial as it’s your first opportunity to figure out what your initial investment will be, as well as get an idea of how many unit’s you would need to order in order to add a Private Label.
Typically, the larger MOQ, the lower you can get the CPU or Cost Per Unit. The real goal is to find a product that warrants at least a $20 selling price, with a cost including shipping that you can keep below $7. This allows you to stay within the 1/3 rule.
The 1/3 rule is this: if out of your selling price you can keep 1/3 of it, Amazon gets 1/3 of it and your supplier gets 1/3 of it, then you’re doing well. If you can profit higher than 1/3 of the retail price, then you’re doing great.
So if you sell it for $20.99 and your cost is $7 for the product and shipping, Amazon gets $7 for it’s commission, shipping, fulfillment etc, and you get to keep 6.99 in total profit, then it’s worth it.
The internet is littered with stories of people who think it’s a scam just because they didn’t take the time to do the business math before hand.
Creating Your Listing
Once you’ve picked your product and you’re ready for the initial investment to do a test run on this new product, it’s time to create your listing. This is not something to be rushed or done without research.
Creating your listing requires some extensive keyword research that you should be doing prior to making the order, but you want to start ranking for a couple different short tail and long tail keywords. There are some great tools out there to help you with this process.
Once you have the keywords you want to target, you need some compelling professional pictures and great copy in order for your listing to a) show up in search at all, and b) create conversions.
Additionally, once you feel your listing is ready, it’s best if you can get some purchases that can drive reviews. Reviews are critical as well to help increase your sales over time. Verified purchases are needed now in order for this to truly help.
Product Launch and Marketing your product
Congrats, your product has launched and is in stock at the warehouse! Now what? You’re not done, that’s for sure. It’s time to start marketing and selling your product.
If you’re just starting then you probably don’t have an email list or anything else, but you can start leveraging other ways to market your product. Within Amazon you can do PPC or Pay Per Click advertising, or also place your product on sale with a coupon code that could be shared by Amazon affiliates.
Another method you can try is influencer marketing within your niche as well. Targeting YouTubers or Instagram accounts with large followings that you can give out some product for giveaways or reviews can help spread the word of your product.
This is where most of your time will go once you’ve launched so you want to make sure that you’ve done this research and have a prepared marketing plan ready to go for when the launch happens.
Shopify Drop Shipping Basics and General Strategy
Now that we’ve covered product launches on Amazon, lets start discussing drop shipping through Shopify. While selling a product you launched on Amazon may sound similar to selling products on your own website may sound similar, there are actually quite a few differences you need to be aware of.
With Shopify, you are building and launching your own e-commerce website, creating the content and curating a series of products to sell. With drop shipping, you aren’t carrying any of the inventory, you’re just acting as a middle man to market and sell for the supplier.
The basic principle is this: You start the website and decide upon a niche, you use a drop shipping company and decide upon which of their products within your niche you’d like to sell, then it’s all about driving traffic and conversions. Once a purchase is made, you then place an order with the supplier, having it shipped to the customer. Sounds simple enough, right?
Well maybe but there’s going to be a lot more to it than just that. Now I know that I can build a website, I mean I have this page and it’s going pretty well for a new site. But there is definitely a difference in how I would market an e-commerce site than I would this blog. So lets discuss
Deciding on a Niche and Building the Page
Now instead of selling on Amazon, you’re going to have to start a new page from the ground up. Upside is you can make it whatever you want it to be. Downside is that no one knows that it exists. Again, I don’t have an email list built up at this point for a product launch and most people starting won’t either.
We’ll talk about that more when we get to marketing but first we want to make sure we decide on something that has some staying power, ability to scale, has enough demand and interest, and even possibly a type of product that you need to come and get again in the future.
Doing some keyword research once again and following up with Google Trends can help you start to narrow down your search. Another way to start is to sign up for Oberlo, which is Shopify’s preferred drop shipping partner that has thousands of products to choose from.
In the catalog you can peruse through the products but remember, at the end of the day you’re looking to be able to sell these things so ensure that it’s a product you’d also be willing to buy. There are a ton of novelty items on there and you don’t want to fill your new store with a bunch of junk just to say you build an e-commerce store.
Since you’re drop shipping, you can set the prices on the products to be what ever you want, but you need to keep a good profit margin, as well compete within your niche.
Now if you haven’t built a website yet, there are a ton of tutorials out there on YouTube that can show you how to build a Shopify page step by step so I won’t dive into deep there.
Fill your page with Content
Now, once it’s up and running you can expect to pay at minimum $30/mo for your Shopify page so yes you do want to start selling right away. However, it’s also really important for the long term process to add to the blog portion of your page by building up your content. Now if you haven’t read it, check out my article when I break down the best ways to write out the content for your blog.
Now here’s the reason. You don’t want to rely on paid ads for the entirety of your store, and if you don’t have any searchable content, then SEO is never going to bring you any traffic. So you need to be able to write up at least 45-60 articles about your products answering specific questions that your customers might need answered.
Over time these articles while attract web searches to your store when you can do reviews, product breakdowns, and answer the questions they are asking. Then you want to market to them by offering them a coupon if they enter their email address.
This will start to build up your marketing efforts by building the most coveted of marketing needs…your customers email address. This is how you build a long lasting and continuous customer base.
Marketing your Page
Alright, it’s up and running and now you need some customers. Similar principles apply as above, but you’re going to have to do it on an even bigger scale in my opinion.
Since you started your own web page, nobody is going to know about it. Everyone knows about Amazon, and they are now your competitor. So that means we need to fight for customer acquisition.
You can do some PPC advertising on Google that can start bringing in some traffic but you need to set your prices right on your site. This will take some market research as well, but once you’ve done so, you can then determine your budget.
Since you are paying that monthly subscription, you need to at least break even on that. Now you don’t have to sell a ton to make back that $30, but it is cost that you want to mitigate, or if you need to upgrade your account that cost could rise.
At that point you can also market and put up ads on Facebook, Instagram and elsewhere as well as do some marketing within your niche.
But this is where we go back to the content we discussed earlier. SEO will bring more traffic than any social media marketing most likely ever will so ensure that your content marketing game is up to the task as that is really the effort that will bring in the most sales.
Lastly, as you start to build up your email list, start a campaign to bring your existing customers back to your store for more and more and more. At least that’s what we would like to believe right? Well let’s take a moment and do some comparisons between the two now.
Estimated Start Up Costs
Shopify boasts that you can start up a page with them for as low as $30/mo and that part is true. However if you have no marketing budget, it’s going to be very tough to get customers to your page.
I would recommend you come in with a minimum of $400 marked for advertising once you feel confident in the presentation of your page. Then I would recommend you have at least $400 for additional expenses that could arise from any customer service issues or anything else that may come up.
When looking at Amazon FBA, you have a HUGE range that could really inflate the cost of startup here. First it depends on the cost of the product itself and what kind of product it is. Larger products cost a lot more to ship.
But to give an example, my wife and I are currently sourcing a new product to launch on Amazon, and we have decided to do a 200 piece trial launch to test the viability of the product, and that is going to cost us roughly $840 to launch, plus we have spend around $100 in getting samples shipped over from China to test.
Here’s the real trick to this though. IF the product launch goes really well, you need to be prepared to reorder quickly so you don’t go out of stock in Amazon’s warehouse.
This means you may want to earmark an extra couple thousand to have ready if you just happen to nail the launch.
If you’re looking to get started on a fairly tight budget, you may want to lean towards launching on Shopify first, and as you find success you can then launch you own product.
Biggest Challenges to Success
OK, we have all seen these crazy success stories out there for both of these methods. There are a ton of guru’s flashing fancy sports cars and big houses telling you that the dream is real right…
Expect for the fact that most people fail at both of these. Why? Because it’s hard to see it through to the end. Most people will get through the product research or will pay to build their page, but the moment they aren’t rich in a month, they wonder if it’s a scam or decide that it’s just impossible.
Well I don’t think any of that is true but I do think that there are some big challenges that you’ll have to overcome in order for either of these things to be really successful.
When it comes to Shopify, your biggest challenge is going to first be web traffic. When you’re a new entity on the internet, it can really be a struggle to get yourself out there. Once you have your page and content built, you’re going to put in a ton of time into marketing your page.
Over time though the SEO should start to work if you wrote out great blog posts. It takes ~35 weeks in order for an article to rank at 90% of it’s total potential on google. That’s roughly 9 months before the internet starts bringing to traffic from the first post you put. Keep that in mind.
With Amazon FBA the real challenge is getting your product to rank high for your keywords, and ensuring there are enough searches for those keywords to begin with.
This means MOST of your time needs to go into building your listing and ensuring that you have 100% optimized it to be found by your customers. Then your next challenge is ensuring that you have customers leaving positive reviews that will make Amazon want to show your product more often.
It may also be a challenge if your product really takes off faster than you expect. Having the liquid funds to replenish quickly may be a challenge for someone starting this from their bootstraps.
Well, there’s my complete beginners thoughts to FBA and Shopify. It’s alot of information and we haven’t even really scratched the surface. But what I want to leave you all with is this. I’ve been in the brick and mortar world for my entire life. Foot traffic in retail stores are dying.
I see this as an absolute truth that the majority of our retail buying experience in the U.S. is going to be going online and these right now are the two most viable options. It’s really the new small business model. Instead of finding a shop downtown and investing a ton of money, you can instead pay $30 and set up shop on the web. What an exciting time.
Now here at O.P.I. we will be doing both of these models over time and sharing our results with all of you so please stay tuned and if you have any questions that we can help you with, please leave a comment for us below and I will be happy to help out any way I can.
Good luck and Happy Selling!
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