amazon fba or dropshipping

The Great Fulfilment Debate: Amazon FBA vs Dropshipping for UK Ecommerce Success

Kurt GraverBusiness Start-up Guides

Ecommerce companies require streamlined order fulfilment to scale rapidly without logistical headaches. 

Deciding between convenience and control has never been more crucial when assessing fulfilment strategies. Combining Amazon’s reach with targeted storefronts may help your company rise. 

This comprehensive guide compares Amazon FBA and dropshipping models preferred by UK entrepreneurs seeking hands-off solutions to dominate niches online.

What is Amazon FBA? 

Fulfilment by Amazon (FBA) is an inventory storage and order shipment service offered by Amazon UK. Sellers ship their products in bulk to Amazon’s UK warehouses located nationwide. When an order occurs on Amazon for one of your products, Amazon handles picking, packing and posting the order to the customer.

How Amazon FBA Works

  • Sellers send entire inventory batches to Amazon UK fulfilment centres  
  • Amazon stores items across its vast warehouse network 
  • Amazon fulfilled orders as they came in for your products
  • Fees charged for storage space and per-order processing
  • Access to Prime members and faster shipping promises

Amazon FBA Pros

  • Leverage Amazon’s unparalleled infrastructure and logistics networks
  • Increased chance of winning the Buy Box against competitors
  • Significantly lower operational costs than self-fulfilment  
  • Amazon handles all returns and provides customer service

Amazon FBA Cons

  • Reduced branding control and customisation abilities
  • Substantial fees for storage space, order fulfilment and returns
  • Higher return rates compared to direct sales channels
  • Complex VAT and sales tax registration and reporting

Amazon Peterborough Warehouse Tour 

I toured the enormous Amazon fulfilment centre in Peterborough, UK, to witness first-hand how FBA powers next-level ecommerce efficiency. This robotics-driven warehouse spans the size of 11 football pitches, processing over 1 million items weekly!

Automated systems route inventory tots around the facility, bringing product shelves to pickers. Conveyor belts take packed orders towards final shipping preparation. Meanwhile, incoming pallets are continuously unloaded to replenish inventory. 

While the scale felt overwhelming, our guide explained how sellers access the same infrastructure. You send pallets of products to Amazon, and then their processes handle the rest!

It became apparent how this fulfilment machine enables entrepreneurs to outsource the hardest parts of ecommerce. Eliminating warehousing and shipping logistics from your workload allows focusing on product sourcing, branding and customer acquisition instead.

So, if you aim to build a 7+ figure brand, FBA can scale operations exponentially once the product-market fit is proven. The only limit is working capital to send more inventory as sales increase!

What is Dropshipping?

Dropshipping is a flexible retail model where owners sell products virtually without keeping personal inventory. When an order occurs, the seller purchases the item on-demand from a third-party supplier, who then handles shipping directly from their warehouse to the customer.  

How Dropshipping Works

  • Customers place orders with your online storefront.  
  • Order information is sent automatically to your supplier
  • You purchase items from the supplier to fulfil the order
  • Supplier picks, packs and posts items to your customer
  • Your storefront acts as an intermediary middleman

Dropshipping Pros

  • Extremely low startup costs to test ideas 
  • Easy to initiate and scale with minimal risks
  • No investment in warehousing or shipping costs
  • Offer wider product selection without inventory concerns 

Dropshipping Cons

  • Lower profit margins per sale due to supply chain markups
  • Limited control over product quality and shipping times
  • Reliant on suppliers fulfilling orders reliably and efficiently
  • Difficult to provide white-glove customer service 

Comparing Central Benefits and Drawbacks

We’ll analyse five key factors to compare Amazon FBA and dropshipping models. Evaluating divergent priorities related to control, flexibility and investment commitment when assessing suitability.

Startup Costs

Amazon FBA requires significantly higher upfront investments as enough inventory must be purchased to send to Amazon’s UK warehouses to justify opening an account. Realistically, £1,500-£5,000 needs allocation for initial products before sales. Ongoing working capital funds inventory replenishment, too.

Conversely, dropshipping has extremely low startup costs. A basic online storefront on Shopify costs around £29 monthly. Early advertising and web hosting can be funded for under £100. So, validating product demand involves minimal risk before committing resources.

Inventory and Shipping Control

With Amazon FBA, Amazon stores your inventory across their vast UK warehouse network once pallets arrive from you. Amazon handles all picking, packing, shipping, and return processing without seller involvement. You monitor remote inventory reports.

For dropshipping, suppliers handle storing units, packing orders from customers and posting from their facilities on demand. So, as the storefront owner, you don’t manage inventory or oversee daily shipping operations. This allows focusing on sourcing, marketing and branding exclusively. 

However, poor supplier performance can severely impact order defect rates. So drop shippers must vet logistic capabilities thoroughly per provider, limiting selection. Fulfilled by Amazon, services boast exceptional shipping consistency.

Scalability

FBA and dropshipping models are highly scalable, avoiding typical inventory expansion bottlenecks. For FBA, additional working capital funds further inventory purchases so sellers can continuously replenish Amazon UK’s warehouses to meet demand. 20,000+ units can be stored easily.

Equally for dropshipping, your online catalogue can expand infinitely without worrying about physical storage overhead. As sales increase, simply onboard additional suppliers or improve procurement processes. Automations help manage thousands of SKUs through one storefront.

The core difference is cash flow demands. Dropshipping’s near zero-inventory approach allows nominally incremental scaling, which is attractive for capital-constrained founders. But FBA provides unrestricted access to Amazon’s delivery machine for runaway virality.

Profit Margins

Sellers typically earn substantially higher net profit percentages per sale with the Amazon FBA model, commonly between 20-30% margin once all fees are deducted. Enormous order volumes counterbalance deductions.

Meanwhile, base dropshipping margins per item are lower, around 5-15%, depending on product type and supplier discounts. The tradeoff enables testing product viability without risking major capital outlay until positive ROI is achieved. 

FBA rewards economies of scale, compelling once bestsellers are identified. Meanwhile, dropshipping suits iteration, validating concepts cheaply. Market dynamics determine suitable margins, so evaluate pricing power.

Seller Involvement 

Amazon FBA represents a highly hands-off approach for sellers once pallets of inventory arrive at UK warehouses, beyond monitoring remote inventory dashboards. Amazon handles all fulfilment operations through to customer service.

Dropshipping reintroduces several operational requirements compared to FBA, such as identifying and onboarding suppliers, integrating ordering systems, mitigating shipping delays and quality concerns, and managing customer expectations.

So, while dropshipping provides useful flexibility, the adage “you get what you pay for” applies regarding convenience. Lacking oversight and influence can hinder the reputation, so factor in appropriate workloads.

Product Type Suitability

Delving deeper into appropriate applications for each model based on goods being sold also aids decision-making. Niche limitations apply when evaluating FBA or dropshipping fit.

FBA Pros

  • Branded products where packaging control matters
  • High price point luxury goods attracting returns
  • Products requiring excellent shipping speeds
  • Any retail arbitrage goods sourced cheaper 

Dropshipping Pros

  • Products with very high storage or transport costs
  • Cheap price point mass market goods 
  • Products requiring customisation per order
  • Any items restricted by Amazon UK  

Cannibalisation Risks

An often overlooked risk when combining FBA and traditional ecommerce channels is sales cannibalisation across owned assets. Offering identical branded products simultaneously via both outlets for perceived flexibility can undermine profitability. 

Consider marketplace positioning carefully, as lower prices or faster Prime shipping on Amazon may divert existing direct customers. Likewise, FBA may commoditise premium products, eroding margins.

Mitigate cannibalisation by delineating clear channel target segments and tailoring product variants, pricing and promotions distinctively—for example, digital downloads or subscription services on your storefront counter Amazon’s physical product dominance.

Which Model Is Best for Your Business?

Third-party fulfilment models leverage infrastructure like FBA, enhancing volumes or enabling flexibility like dropshipping, aiding iteration. Weighing up suitable tradeoffs depends on business maturity, capabilities and founder priorities.

Established brands selling proprietary products benefit enormously from Amazon FBA to expand distribution offloading logistics. Meanwhile, early-stage online retailers use drop shipping to validate untested product demand or incubate new brands cost-effectively until achieving scale.

Sometimes, a hybrid approach maintains both scalability and customisation as sectors evolve:

  • FBA fuels rapid scaling during peak trading events like Black Friday and Christmas 
  • Branded storefronts nurture higher-value, loyal repeat customers year-round
  • Customised bundles or subscriptions increase order values beyond commodities
  • Automations synchronise inventory across sales channels  

Ultimately, the optimal fulfilment strategy aligns with your risk appetite, need for control and broader business objectives. Priority expectations around managing capital investments versus helping exceptional customer experiences determine suitable models, too. 

Companies should be bold and experiment with multiple approaches in parallel when uncertainties exist. The easiest way to identify product-channel fit is to test traction systematically. Just ensure branding differences avoid customer confusion.

Practical Steps for Getting Started

FBA and dropshipping remove immense administration headaches from ecommerce owners by shifting fulfilment operations. Here are some practical tips when adopting either model:

Amazon FBA Tips:

  • Start selling a few core products to evaluate demand before overcommitting finances and inventory
  • Use Amazon UK’s revenue calculator and storage fee estimator tools to plan costs
  • Carefully prep and label inventory, then ship via recommended carriers to avoid problems
  • Closely monitor inventory reports and remove slow-selling stock ASAP to minimise fees

Amazon Seller Central is invaluable for understanding the latest UK programmes, fees and best practices to maximise sales.

Dropshipping Tips:  

  • Validate clear customer demand for a product before investing in full online store branding. 
  • Research suppliers thoroughly, then order samples to quality check offerings.
  • Set customer delivery expectations to account for supply chain variability 
  • Have multiple backup suppliers lined up in case of stockouts or shipping delays

Reviewing supplier terms around price breaks, minimum order sizes, locations, and capabilities aids negotiations. Good providers enable scaling ecommerce ventures.  

Scaling Mature FBA Brands with Dropshipping 

Once running a successful FBA business, expanding into additional ecommerce channels makes strategic sense, capturing more value while mitigating marketplace dependencies. This diversification playbook leverages dropshipping to launch new products, territories and bundles beyond Amazon restrictions.

Consider dropshipping complementary products unavailable on Amazon UK, like oversized items, customisable configurations or limited edition collections. Promote these on social channels and niche marketplaces catering to high-intent customers beyond commodities. 

Likewise, dropshipping suits rapid testing into new countries to validate regional demand before localising warehousing and translations. Appoint specialised agents to manage overseas complexities, though.

Subscription packages bundling physical products with digital bonuses also command premium pricing, transcending Amazon’s a la carte commerce—Automate fulfilment across platforms by connecting Shopify with FBA inventory. 

Merchants can strategically benefit from both distribution scale and focus. Ensure branding nuances, product pricing and margins are optimised per channel, avoiding duplicated development costs or confused positioning. 

Which fulfilment methodology a brand adopts depends on its strengths and constraints at a point in time. But the most successful companies combine options fluidly, leveraging data insights to pivot dynamically.

In Summary: Key Takeaways

Deciding between Amazon FBA convenience and dropshipping flexibility involves several tradeoffs across control, setup costs and speed. Rarely does one approach optimally suit every business need, so combining strengths is recommended once limitations become apparent. 

Hopefully, the extensive analysis identifies suitable conditions and milestones indicating when to consider integrating certain models into your fulfilment strategy. Just ensure decisions support overarching commercial objectives without introducing unnecessary risks through conflicts.

To recap, the five main considerations when comparing Amazon FBA with drop shipping include:

Control – FBA outsources entirely to Amazon, but dropshipping reintroduces operational ownership

Investment – Significant inventory costs upfront with FBA versus minimal with dropshipping 

Speed – FBA leverages Prime delivery, but suppliers impact dropshipping times.

Scalability – Both models readily support high growth without inventory bottlenecks

Margins – FBA earns 20-30%+ margins, but dropshipping is lower at 5-15%

While deciding between the infrastructure leverage of Amazon and the flexibility of dropshipping certainly has challenges, the rewards can be immense once the right alignments are made to your strengths. Continually assess options against your existing and planned business goals.

I hope this extensive guide has clarified the major opportunities and limitations when making critical ecommerce fulfilment decisions as a UK seller.