Many eCommerce sellers don’t realize this, but the fulfillment method you choose can make or break your business.
Fulfillment by Amazon (Amazon FBA) and dropshipping are two solid fulfillment strategies to choose from. However, understanding their differences is vital for any seller.
Over 82% of Amazon sellers rely on FBA’s massive logistics network to boost sales and secure Prime placement. On the other hand, more than 30% of eCommerce stores use dropshipping for order fulfillment.
In this guide, we’ll help you understand Amazon FBA and dropshipping, their strengths and drawbacks, and which method is best suited to your eCommerce business.
Understanding Amazon FBA
Amazon FBA has become one of the most popular ways to sell products online, especially for eCommerce entrepreneurs looking to scale quickly.
Most sellers achieve an Amazon FBA success rate of 27%, making about $1,000 to $5,000 in annual sales. Additionally, around 66% of consumers start their online searches for products on Amazon, making this an excellent platform to sell on.
With Amazon handling storage, shipping, and customer service, FBA removes much of the logistical work of running an online store.
Let’s unpack how Amazon FBA works, what it offers, and its pros and cons so you can understand this fulfillment method:
What is FBA?
Amazon FBA is a third-party logistics (3PL) service provided by Amazon, which means sellers don’t have to worry about the operational aspects of order fulfillment.
Instead of packing and shipping products yourself or hiring a warehouse team, you send your inventory to Amazon’s network of fulfillment centers. Then, when customers place an order, Amazon picks, packs, and ships the product for you.
FBA also includes Amazon’s customer service and returns processing, and gives you access to Amazon Prime’s two-day delivery program. With over 220 million Prime subscribers, this gives you a massive audience to sell to.
This infrastructure allows sellers and small businesses to compete with major brands on Amazon’s marketplace.
How does FBA work?
While Amazon FBA might sound simple, there’s a complex system with many moving parts that makes it work. Below is a detailed look at each step:
1. You purchase inventory
Most FBA sellers source products from manufacturers, wholesalers, or suppliers, often from places like Alibaba, IndiaMart, or local manufacturers.
These products are typically ordered in bulk to reduce per-unit cost and maximize profit margins.
2. Preparing your products for shipment to Amazon
Amazon has strict packaging and labeling requirements, including barcodes, poly bagging for certain items, and warning labels for risks like suffocation.
If your shipment doesn’t meet these standards, Amazon may reject it or charge you extra preparation fees.
3. Shipping products to an Amazon fulfillment center
Amazon will direct you to send your inventory to one or more of its warehouses across the country (or globally if you sell internationally).
Shipping costs can be standardized through Amazon’s Partnered Carrier program, which offers discounted rates with UPS and other carriers.
4. Amazon stores your inventory
Once received, your products are scanned into Amazon’s system and stored until they’re sold. Products that move quickly are often placed in prime warehouse locations to speed up delivery times.
5. A customer places an order on Amazon
When someone purchases your product, Amazon handles the order in real-time. They pick the item from their warehouse, pack it securely, and ship it to your customer. This usually includes tracking and delivery notifications for customers.
6. Amazon manages customer support and returns
This includes answering buyer questions, resolving complaints, issuing refunds, and processing returns.
7. You get paid
Amazon deducts its fulfillment, storage, and referral fees and deposits your net earnings into your bank account on a rolling 14-day cycle.
What are the advantages of using FBA?
Amazon FBA is a popular option for a reason. It offers some advantages that can help you scale your business, improve the customer experience, and increase your sales volume. Let’s unpack these benefits:
👍 Access to Amazon Prime customers
When you use Amazon FBA, you’re automatically eligible for Amazon Prime, which gives you access to Amazon’s most loyal and high-converting customers.
In fact, Prime members convert at a rate of 78%, compared to just 13% for non-subscribers. Additionally, Prime members spend about $1,000 to $1,500 per year on Amazon.
👍 Buy Box advantage
Winning the Amazon Buy Box, which is the default “Add to Cart” seller on a product page, is key to driving sales.
Amazon FBA sellers often have a better chance of winning the Buy Box thanks to faster shipping, better customer metrics, and Amazon’s trust in its own fulfillment process.
While price still plays a role, Amazon FBA gives you an edge over sellers using merchant fulfillment or slower shipping options. Only 34% of Amazon sellers use Fulfilled by Merchant (FBA) to manage their fulfillment.
Below is an example of a product that has won the coveted Buy Box on Amazon:
👍 Scalability without infrastructure
Amazon FBA removes the need for warehousing, packaging teams, shipping software, or customer support staff.
Whether you’re fulfilling 50 or 5,000 orders a month, Amazon handles the same workload as an in-house team would, with no increase in operational complexity.
Additionally, for Amazon sellers with seasonal spikes, such as Black Friday or the festive season, FBA can absorb huge surges in volume while still delivering on time.
👍 Reliable, fast shipping
Amazon’s logistics network is designed around customer satisfaction. Customer orders are shipped quickly, tracking is reliable, and packing is professional. This improves customer satisfaction and reduces support problems.
This is important because 42% of shoppers expect a two-day shipping option to be available to them.
👍 Customer service and returns
As mentioned earlier, Amazon handles customer questions, delivery issues, and returns 24/7. This is a massive time-saver for sellers without dedicated support staff.
Amazon’s reputation for hassle-free returns can also boost buyer trust and encourage more conversions.
What are the disadvantages of using FBA?
Although there are benefits to using Amazon FBA, there are some disadvantages you should be aware of:
👎 Complex fee structure
Amazon FBA fees fall into several categories:
- Fulfillment fees: Charged per unit, based on weight and size.
- Storage fees: Charged monthly based on cubic feet of space used.
- Long-term storage fees: Applied to items stored for more than a year.
- Labeling, preparation, and disposal fees: Additional charges for products that don’t meet FBA guidelines.
These fees can quickly impact your profit margins, especially for large, heavy, or slow-selling items. Additionally, research shows that Amazon’s fees now impact about 50% of revenue for sellers.
👎 Storage limits and Inventory Performance Index (IPI) restrictions
Amazon assigns each seller an Inventory Performance Index (IPI) score. If your IPI drops below a certain threshold due to overstocking or poor sell-through rates, Amazon may limit the amount of inventory you can send to them.
During high-demand periods, even experienced sellers face restock restrictions, which can cause stockouts and lost revenue.
👎 Lack of control over branding and packaging
All Amazon FBA shipments arrive in Amazon-branded boxes, making it difficult to create a unique unboxing experience or reinforce your brand identity.
You also can’t include promotional inserts, thank you notes, or custom packaging unless you use Amazon’s limited brand packaging program, which isn’t available to all sellers.
👎 Loose return policies and inventory risk
Amazon’s flexible return policies benefit customers, but can be costly for you as a seller.
Some customers return products that are used or damaged, and while Amazon may refund the customer, you don’t always get reimbursed.
Returned products may also be deemed unsellable and added to your unfillable inventory, which results in disposal or return fees if you want the item shipped back to you.
👎 Account suspensions and policy compliance
FBA sellers must comply with Amazon’s strict performance and policy guidelines. A spike in return rates, mislabeled shipments, or even a customer complaint can trigger account suspension.
Additionally, because Amazon controls the fulfillment and customer service process, issues are sometimes out of your control, yet you’re still responsible for the outcomes.
Understanding Dropshipping
Dropshipping is one of the most accessible and low-risk ways to start an eCommerce business. Research has found that interest in dropshipping as a business model peaked at the beginning of 2025.
The dropshipping business model enables entrepreneurs to sell products online without holding inventory, which is ideal for minimizing their upfront investment while testing different markets and niches.
Let’s break down how the dropshipping model works and the potential advantages and pitfalls of this business type:
What is dropshipping?
Dropshipping is a model where an online business sells products without physically stocking inventory.
Instead of purchasing inventory upfront or managing a warehouse, you partner with a dropshipping supplier who ships products directly to customers on your behalf.
When a customer places an order on your dropshipping store, the supplier fulfills the order and handles the logistics. Your role as the seller is to manage everything else, including product selection, pricing, marketing, customer service, and overall brand experience.
This model is commonly used on platforms like Shopify, WooCommerce, or BigCommerce, often with integrations that connect with popular dropshipping suppliers such as AliExpress, Sprocket, or CJDropshipping.
More than 40% of consumers in the U.S. prefer shopping online to physical stores, giving you a massive opportunity to make good sales.
How does dropshipping work?
While dropshipping may seem straightforward, your business's success depends on the right product sourcing, supplier relationships, and inventory management.
Below, we discuss how a dropshipping business typically operates:
1. You choose your niche and products
Most dropshippers start by researching trending or evergreen niches with high demand and low competition. Tools like Google Trends, TikTok, and niche product research tools can help you identify potential winning products.
2. You set up your dropshipping store or start a marketplace account
Using an eCommerce platform like Shopify or WooCommerce, you can build a branded online store. This includes product pages, pricing, customer policies, and payment integrations.
Alternatively, you can sign up to sell on a marketplace like eBay or Walmart, which requires you to set up an account and list your products.
3. A customer places an order
When a customer places an order, you receive the payment, and the order details are sent to your dropshipping supplier, either manually or automatically via software integrations.
4. Your supplier fulfills the order
Your supplier picks, packs, and ships the product directly to your customer using its warehouse and shipping infrastructure. Most suppliers provide tracking information, which can then be passed on to your customers.
5. You handle customer service
Although you’re not handling the product directly, you are the face of your eCommerce business. You’ll need to manage customer inquiries, shipping issues, returns, and complaints, even if the root cause is your supplier.
6. You keep the profit
Your profit margin is the difference between what the customer pays and what you pay your supplier, including shipping fees. Margins can vary widely, anywhere from 15% to 20%, depending on your products and suppliers.
What are the advantages of dropshipping?
Here’s how sellers can benefit from the dropshipping model:
👍 Minimal upfront investment
Unlike other business models or Amazon FBA, dropshipping doesn’t require you to purchase inventory in advance.
You don’t need to rent a warehouse, hire fulfillment staff, or worry about purchasing packaging materials, significantly reducing your initial investment.
👍 No inventory management
With drop shipping, you never handle inventory. Your suppliers are responsible for storing and managing stock levels, which means you avoid the logistical challenges of warehousing, picking, packing, and tracking stock movement.
This also reduces financial risk because if a product doesn’t sell, you’re not stuck with unsold inventory. Additionally, dropshipping stores generate 50% more profit than those relying solely on online inventory.
👍 Wide product variety
Since you don’t need to pre-purchase inventory, you can list hundreds or even thousands of products in your dropshipping store. This enables rapid product testing, and you can pivot quickly depending on customer demand.
For example, if a product doesn’t perform well, you can remove it from your catalog without losing money. On the other hand, if something sells well, you can double down or transition it to a private label.
👍 Easy to scale
Thanks to automation tools like Spark Shipping, you can process endless orders a day with minimal manual input. Our tool automates tasks like syncing inventory, forwarding orders, and updating tracking numbers.
What are the disadvantages of dropshipping?
Although dropshipping may sound ideal, there are some drawbacks. Let’s unpack these:
👎 Slim profit margins
As dropshipping requires little upfront investment, it attracts a lot of competition. Many sellers lower their prices, resulting in thin margins for you. Only 1.5% of dropshipping stores achieve more than $50,000 in monthly revenue.
After accounting for product cost, transaction fees, shipping, advertising, and returns, your profit may be minimal unless you sell high-ticket items or have a highly optimized conversion funnel.
👎 Less control over fulfillment and product quality
You rely entirely on your suppliers to ship products correctly, quickly, and in good condition. Unfortunately, not all suppliers are reliable.
Common issues include long shipping times, out-of-stock items not updated in real-time, and damaged or poor-quality products
👎 Limited branding opportunities
Most dropshippers have limited control over product packaging, inserts, or presentation. Unless you work with a supplier who offers white-label services, your dropshipped products can feel generic. This can make it hard to build a strong brand or generate repeat customers.
👎 Customer service challenges
Resolving an issue can be challenging if a customer receives the wrong item, a defective product, or a shipment delay. You’re responsible for resolving disputes, even if the fulfillment error isn’t your fault.
👎 High dependence on supplier relationships
Your entire dropshipping business depends on your supplier’s reliability. Over 84% of eCommerce retailers struggle to find good suppliers.
A single bad supplier can result in bad reviews, increased refund rates, and lead to payment processor disputes.
When Is FBA More Suitable?
Below is a breakdown of who should consider using Amazon FBA:
📦 If you want to build a premium brand or private label product
Currently, over 50% of Amazon sellers develop their own branded products. If your goal is to create a branded product line, like supplements or beauty products, Amazon FBA offers a direct way to do this.
📦 You want Prime shipping and higher conversion rates
Amazon’s two-day Prime shipping can have a significant impact on your conversions. Products fulfilled by FBA are automatically eligible, making them more appealing to customers. For sellers in competitive categories, this can help you become highly successful.
📦 You don’t want to handle customer service and returns
Amazon FBA takes the hassle out of order fulfillment, customer support, and returns processing. They handle all of this for you, which saves time and ensures consistency.
If you’re looking to run a lean operation without hiring a support team, FBA is a great choice.
📦 You’re focused on long-term growth and operational efficiency
FBA is ideal for entrepreneurs who want to build a real, long-term eCommerce business with reliable logistics, analytics, and repeatable systems.
When Is Dropshipping More Suitable?
Here are some of the cases where the dropshipping model is more suitable:
📦 You have limited startup capital
One of the most attractive aspects of starting a dropshipping business is that you don’t need to buy inventory upfront. You only pay your suppliers when a customer purchases from your store. This means you can start a dropshipping business with as little as $50 to $100.
📦 You want to test multiple niches quickly
Because you don’t carry inventory, you can list hundreds of products in your store and test which ones get traction. This makes dropshipping an excellent tool for market validation and product research.
You can also rapidly change product lines based on seasonal trends, something that’s much harder to do with FBA.
📦 You have digital marketing or paid advertising skills
Success in dropshipping is often dependent on performance marketing. Since you’re typically not competing on brand, you need to drive traffic via Facebook Ads, Google Shopping, or influencer marketing.
If you’re confident in creating high-converting product pages, running ad campaigns, and building sales funnels, dropshipping gives you more freedom and speed to scale.
📦 You want to validate products before investing in inventory
Many savvy sellers use dropshipping as proof of concept. Once they find a product with good margins and proven demand, they may transition it to FBA or private label manufacturing, or improve shipping times and customer experience. This hybrid approach allows you to start fast and scale sustainably.
FBA vs. Dropshipping: Can You Do Both?
You can use both Amazon FBA and dropshipping at the same time. In fact, many eCommerce sellers do this to maximize flexibility and growth.
One common approach is to use FBA for your core, high-performing products, especially if they’re private label or require fast Prime shipping. Then, use the dropshipping model to test new products or expand your catalog without holding inventory.
Another strategy is to use FBA on Amazon and run a dropshipping store on Shopify or WooCommerce. This enables you to reach both Amazon’s vast audience and build your brand on other platforms.
However, if you plan to dropship directly on Amazon, you must be cautious, as the platform has strict rules. You must be the seller of record, and you can’t use third-party invoices or branding.
Automating Your eCommerce Store Has Never Been This Easy
Choosing between Amazon FBA and dropshipping depends on your goals, resources, and how hands-on you want to be with inventory management and fulfillment.
Amazon FBA offers speed, trust, and scalability, which is ideal for building a strong brand presence on the platform. On the other hand, drop shipping provides flexibility and a low barrier to entry, making it suitable for testing products and running a lean operation.
However, whichever model you choose, or if you combine both, your success depends heavily on efficient systems and streamlined operations.
Spark Shipping automates inventory syncing, order routing, and product updates across all your suppliers and channels. This eliminates manual errors, saves time, and enables you to scale faster.
Get a Spark Shipping demo to experience a platform designed specifically for eCommerce businesses that want to manage their operations easily.