The Truth About Amazon Drop Shipping

From the Featured Article Series:
The Best Drop Shipping Companies 2021

By Milo Cruz | Last Updated: September 9, 2018

Table of Contents

Drop shipping on Amazon is an increasingly popular way of making money online. A lot of eCommerce personalities are talking about it, and you’ve probably already seen a few videos claiming that they make thousands of dollars per month doing it.

In this article, we won’t be making those same bold claims. Instead, we’ll provide a guide to walk you through setting up your Amazon store to start drop shipping. We’ll also tackle the steps necessary to reaching success, the hurdles that could potentially get in your way, and if whether or not it’s the right business for you.

So, to kick things off, let’s cover the most basic question.

Can You Drop Ship on Amazon?

The short answer is yes. Amazon allows you to sell products and have orders fulfilled by a third party. However, there are specific guidelines you must adhere to. You can take a look below or go directly to Amazon’s Drop Shipping Policy section.

Amazon drop shipping policy

What does this mean? Basically, if you plan to drop ship products to Amazon, you’ll have to prepare to put in some work.

You should ensure that you’re an accredited reseller or distributor of the products you sell – requiring you to establish a relationship with your suppliers beforehand.

You’ll also have to print your own packing slips and receipts, then provide these to your supplier so they can include them in your orders.

And if that wasn’t enough, you’ll have to handle processing returns as well – meaning you’re responsible for communicating with both the customer and supplier, while potentially incurring additional costs for having to ship an item back and replacing it.

All these responsibilities take time and money. Now you might be wondering why some people even bother to drop ship on Amazon. Perhaps you’ve seen or read articles and YouTube videos demonstrating how easy it is do so and make thousands of dollars in profits.

The reality is that these sellers don’t follow the restrictions that Amazon has set. It’s such a big marketplace that it’s difficult to enforce the rules. These ‘bad eggs’ are often reported, but apparently, it takes a very long time before action is taken against them, if at all.

If you want to start drop shipping on Amazon, it’s best to do it the right way. Not only is this good business practice, it also adds credibility to your brand and ultimately helps make it sustainable for the long-term.

Advantages of Drop Shipping on Amazon

Easy Entry

Building a storefront on Amazon is about as quick and straightforward as it gets. Just set up a seller account, import products, and voila – you’re all set!

Compared to doing it on your independent store, getting started on Amazon requires very little effort to produce a professional-looking storefront. You also don’t have to worry about finding a reliable hosting service.

Vast Reach

Millions of users visit Amazon each day! We’re talking about one of the largest online marketplaces in the world. While it’s unlikely that all that traffic will go to your store, having a presence on Amazon often translates to more sales.

Disadvantages of Drop Shipping on Amazon

Added Fees

Amazon charges you fees for selling on their marketplace. Depending on your seller plan, you’ll have to pay Amazon for each sale you make.

On top of that, Amazon will also charge you a referral fee and if applicable, a closing fee.

Referral fees apply to all sales and will vary across product categories. Closing fees apply to media items (books, DVDs, music, software, computer games, video, and video game consoles) and is priced at $1.80 per item sold.

Less Opportunities to Build Your Brand

Amazon doesn’t leave much room for sellers to differentiate themselves. The service is very consumer-focused, as opposed to shining the light on retailers. You’ll find it challenging to add value to your brand. In effect, you won’t be providing customers with any real reason to stay loyal to your business.

Another side to this is that since you’re not building anything of unique value, you lose out on the chance to sell your store in the future. Successful eCommerce ventures are an asset that sometimes catch the interest of third parties. These third parties are willing to pay top dollar in exchange for ownership of your brand. When you drop ship exclusively on Amazon, you don’t have this opportunity.

Some Suppliers Might Not Want to Work With You

Amazon is like an online flea market where the focus is on the products and the consumers. Some suppliers might not want to associate their brand and products with this model.

Besides, if a supplier really wanted a presence on Amazon, why wouldn’t they just do it themselves? There’s very little incentive for them to include you in the supply chain.

How Do I Start Drop Shipping on Amazon?

To start drop shipping on Amazon, you’ll first need a few things:

Amazon Seller Account

To start selling on Amazon, you need to sign up as a seller and choose between two plans.

You can sign up for the Individual plan which doesn’t have a monthly subscription. It does, however, come with a $0.99 per-sale fee.

The second option is to sign up for the Professional plan, which waives the per-sale fee but costs $39.99 per month.

Here is a price comparison between the Individual and Professional plan, highlighting some of the differences between the two:

Amazon selling plans comparison

Also, some product categories are locked behind Professional accounts. If you’re using the Individual account, you can’t list products that fall under these categories.

These include jewelry, shoes, bags, sunglasses, collectibles, fine art, DVD & Blu-Ray, groceries, and a few others. Go to Amazon’s official website for more information.

To unlock a category with a Professional account, you’ll need to send a request to Amazon. Fill out their Contact Us form to submit your request. Amazon will contact you within 3 business days to let you know you’ve been approved or if they need more information.

So, which Amazon seller plan should you choose?

That depends on a few things.

Obviously, if you plan to drop ship products that fall under the locked categories, then you’ll want a Professional account.

If you sell than more 40 items per month, it will be more cost-effective to sign up for a Professional account to remove the per-sale fee.

A lot of useful features are also locked behind the Professional plan. Some of the most notable ones are:

  • Eligibility to win the Buy Box: Most sales made on Amazon happen in the Buy Box. It’s the section with the Add to Cart button and features only one seller. Getting a Professional account means you get a chance to be featured here.
  • Access to Amazon Marketplace Web Services (MWS): Amazon’s MWS is web service API that lets sellers automate data exchange for product listings, orders, payments, and more. By setting up your own applications, you can increase efficiency, reduce labor requirements, and better serve your customers.
  • Multi-user access with permissions: Larger businesses that require multiple employees to manage day-to-day store operations will benefit from unlocking this feature.

Aside from those mentioned, other features exclusive to Professional accounts include the ability to set your own shipping costs, offer gift wrap services, unlock Amazon compatibility with third-party services, and more.

It’s clear that a lot of functionality is removed from the Individual account. However, it’s still suitable for beginners and those who just want to ‘test the waters.’

If you’re still unsure about which Amazon seller plan to choose, don’t worry. You can switch freely between the plans.

Products to Sell

Remember when we talked about building relationships with suppliers? Well, this is where that comes into play.

To fill your virtual shelves with products, you’ll need to find reputable suppliers to work with. The best places to find them are at trade shows or wholesale directories like SaleHoo. You can check out our SaleHoo review here.

SaleHoo products

Building a relationship with your supplier also means that you could negotiate for better prices or exclusive deals.

You could also try sourcing products from AliExpress, but language barriers and long delivery times could cause problems for your business. Prices there are also very volatile – with products making constant, significant jumps in price every day.

So you’ve found products to sell, now what?

Once you’ve found products to drop ship, you have to upload them to the Amazon marketplace. The process is very easy.

For new products that aren’t listed on Amazon, go to your seller account dashboard to create a new listing. For existing products, you can add a listing by going to the product’s page and clicking on the Sell on Amazon button.

Here’s what those look like:

Amazon add product sell button

Depending on which route you take, you’ll have to provide further information like product images, descriptions, categories, and so on.

You can also add products with inventory files that make it easy to upload multiple items at once. However, this feature is restricted to Professional Seller accounts and will require a basic understanding of how data files work.

Price Tracking Tools

These aren’t exactly necessary, but having them will save you a lot of money and trouble.

Again, you need a Professional Seller’s account to unlock compatibility with third-party apps.

We recommend checking out Sellery for automated real-time repricing so that you never lose money on a sale.

Finally, to start drop shipping on Amazon, make sure that you follow their drop shipping policies which we covered earlier.

Tips for Drop Shipping on Amazon

Now that you know how to put up your Amazon store, let’s move on to more sophisticated tactics that can help take your business to greater heights. We’ve compiled some handy tips to help you grow that bottom line.

  • Improve your Amazon SEO: Get your product titles right. Make sure spelling is correct and be very descriptive. Generally speaking, you want product titles to provide details like color, dimensions, material, brand, quantity, and so on. Don’t worry about it being very long – customers won’t really mind. Also, make sure to add relevant keywords to your product descriptions.
  • Win the Buy Box: A lot of factors come into play when determining which seller makes it to the Buy Box. Having the lowest price, the highest seller’s rating, and quickest shipping times all help you make it to that coveted spot. Other things such as your cancellation rate, credit card chargebacks, refunds, and customer response rate are also important. While there’s no surefire way to winning the Buy Box, finding reputable suppliers to work with will definitely help your cause.
  • Prioritize Reviews: Product reviews are very important to most customers. A high rating makes an item more attractive and a seller more trustworthy. They’ll also allow your product to rank higher in search. You can help ensure highly-rated reviews by delivering excellent customer service and politely requesting for feedback on your product. If the review is negative, take the time to address it publicly, apologize if you have to, and offer a solution.

Drop Shipping and Amazon Prime

Sourcing Products with Your Amazon Prime Account

If you intend to purchase products with your Amazon Prime account and then drop ship them to your customers, be warned.

This is against Amazon’s terms and conditions. It’s explicitly stated on their website.

Amazon Prime and drop shipping

You may have heard of sellers who do this to pass on the benefits of Amazon Prime to their customers, but we don’t recommend this as it can lead to your account getting suspended.

Drop Shipping to Amazon Prime Customers

On the other hand, drop shipping to Amazon Prime customers is perfectly acceptable. However, deliveries that arrive via drop shipping will likely take longer than what Prime members are accustomed to. It shouldn’t be too much of a problem, though, as long as you’re transparent with shipping times.

Drop Shipping from Amazon to eBay

You might be wondering if you can source products from Amazon and drop ship them on eBay.

It depends. We’ve already discussed that you’re not allowed to use Amazon Prime to drop ship products to other customers. If you use Prime shipping to fulfill orders, you run the risk of getting your account suspended.

However, if you opt for regular shipping, you should be okay. Customers will have to wait a bit longer for their orders to arrive, but you won’t be going against Amazon’s policies.

eBay also has a more lenient stance on drop shipping. As long as you can ensure that products are delivered to the customer within 30 days, it doesn’t matter to them where your products come from.

Take note, however, that there are still some risks involved. These include:

  • The item could suddenly increase in price. When a customer places an order, the price listed on Amazon could go up before you’re able to purchase it – making it cost more than you were selling it for. In this case, you’ll have to either take the loss or cancel the order and face a potentially angry customer.
  • The item could run out of stock. Similarly to how sudden price increases can prevent you from fulfilling an order, an item going out of stock after a customer has already paid for it will get you in trouble.
  • The customer might feel cheated. The customer would’ve bought the item from eBay, but packaging and receipts will indicate that it came from Amazon. They could check the price of the item and see that they could’ve gotten it for a lower price from Amazon. Some customers might feel ripped off and demand a refund or leave a negative review.
  • Amazon might ban your account. While sending the occasional gift is fine, sending hundreds of items to different addresses with your Prime account will look suspicious. Amazon will quickly figure out what you’re doing and might terminate your account.

But if those risks don’t deter you, you can effectively drop ship an item by marking it as a gift and having it sent to your customer’s address. This can be made even easier with Dropbeez – a service designed specifically for drop shipping products from Amazon to eBay. It will also address the first two risks we highlighted above. If you want to learn more, take a look at our Dropbeez review for more information.

Dropbeez support

Summary of Amazon Drop Shipping

Now that we’ve covered all the essentials, you should have all the information you need to start drop shipping on Amazon. However, you might still be wondering if it’s the right choice for you.

So, is it worth it?

Overall, it really depends on your goals. Are you trying to build a lasting brand that can produce sustainable profits? Are you simply trying to make some extra cash to supplement your income?

Drop Shipping on Amazon is a good idea if:

  • You have an established brand with a captive audience and a solid supplier base. Setting up a presence on Amazon could mean a sharp increase in sales volume for your business. You can use drop shipping to test out new products or to supplement your existing lines.
    – OR –
  • You want to make some extra income. You won’t be building an actual business and your work will primarily be finding and listing profitable products, but you can make some money for your efforts. Make sure to follow their policies or run the risk of getting your account suspended.

Drop Shipping on Amazon is NOT a good idea if:

  • You want to build a unique brand from the ground up. Selling on Amazon doesn’t provide many opportunities for injecting value into your brand. You’ll also be forced to play by Amazon’s rules, limiting your freedom in how you want to direct your business.

Alternatives to Drop Shipping on Amazon

In this section, we’ll go over some other routes you may take for your business. As drop shipping on Amazon isn’t applicable for everyone, we’ve provided some alternatives that might be more suitable for your needs.

Fulfillment By Amazon Program (FBA)

The FBA program is a service that lets you pass on the task of warehousing and order fulfillment to Amazon. It’s similar to drop shipping in the sense that you don’t have to worry about storing inventory or managing deliveries.

However, the FBA program isn’t the typical drop shipping model you might be familiar with. There’s one key difference:

You’ll have to purchase inventory upfront. Once you have the products, you’ll have to pack them according to Amazon’s packaging requirements and send it to them for safekeeping.

When a customer places an order, Amazon will handle picking, packing, shipping, and returns for you. They’ll even handle customer service for those orders.

Fulfillment by Amazon benefit

The Good

  • Amazon will handle order fulfillment for you, so you can focus on building your brand.
  • FBA helps you win the Buy Box and earn you plenty of sales.
  • Your products are eligible for free two-day shipping, translating to happier customers.

The Bad

  • FBA will cut from your margins. Not only will you have to purchase inventory upfront, FBA charges you fulfillment and storage fees on top of your other Amazon seller fees.
  • You must adhere to strict packaging requirements. Amazon has very specific guidelines for FBA products, and you’ll have to do it yourself before shipping the products to their fulfillment centers.

Seeing as how the FBA program can be very expensive to set up, we don’t recommend it for first-timers. It requires a significant amount of capital and industry know-how to get off the ground. If you’re an already-established brand however, you might want to consider this option.

For beginners, we recommend the following alternative.

Drop Shipping to Your eCommerce Store

Drop shipping to your independent store is a great way to get started. If you’ve ever wanted to build your own retail brand, this is your chance to do it!

There’s plenty of services on the market to choose from. Shopify, WooCommerce, and Magento are some excellent choices you can check out.

Essentially, the process of setting up on these platforms is very similar to what we’ve tackled before. You sign up for their service, find products, import them, and start selling.

The great thing is that you’re not bound by Amazon’s policies and you can source your products from anywhere.

You can still use wholesale directories like we mentioned before, but we suggest pairing that up with a drop shipping service that features automated selling tools.

If you plan on using Shopify, we recommend checking out our Oberlo Drop Shipping Guide. It will teach you how to drop ship to your Shopify store using Oberlo’s tools.

Shopify drop shipping

The Good

  • Define your own rules. No need to worry about violating terms of service. There’s no strict drop shipping policy to follow and you can use plenty of third-party services to make your job easier.
  • Keep most of your margins since you don’t have to pay all those fees associated with selling on Amazon.
  • You can build a real business. You’ll have plenty of opportunity to set yourself apart from competitors and add value to your brand. eCommerce platforms can be designed to provide unique content that conveys your story and identity.

The Bad

  • Less Customer Traffic. Without the ability to piggy-back on Amazon’s huge success, you won’t be seeing as many visitors to your store. This also means that you’ll have to find more creative ways to market your brand and drive traffic to your store.

Final Thoughts

There you have it. You’ve managed to make it to the end. Hopefully, we’ve provided you with enough insight into Amazon drop shipping that you can now start doing it on your own. That’s if you decide to, of course.

As drop shipping isn’t a one-size-fits-all model, you have to customize it to your needs to make it successful. There’s a bit of work involved, and it isn’t as easy as some people show it to be.

If you choose to continue, make sure to check out our list of the best drop shipping companies to work with to make your job easier.

Also, feel free to bookmark this guide and share it with your friends!