Amazon Dropshipping: How It Works And The Secret To Success

What Is Dropshipping?

Dropshipping is a fulfillment method in which a merchant sells products to customers without holding any physical inventory.

Instead of holding physical inventory, a seller purchases the products from a third-party supplier once a customer places an order, and the supplier fulfills the order on behalf of the seller.

If you’ve ever been interested in selling on Amazon, or you’re already a seller on the marketplace, you might have heard about Amazon dropshipping. This concept has been around for some time and has attracted many sellers looking to sell products on Amazon without necessarily having much money to invest upfront.

By dropshipping, you can get started selling products on Amazon with little to no financial outlay.

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In this Amazon dropshipping guide, we’ll break down the whole concept of Amazon drop shipping to help you understand how the business model works, the benefits of Amazon drop shipping, and its drawbacks.

We’ll also discuss how to start a dropshipping business on Amazon, strategies for succeeding with Amazon dropshipping, and a few frequently asked questions about dropshipping on Amazon.

By the end of this Amazon dropshipping guide, you’ll have learnt everything you need to know about dropshipping on Amazon.

Let’s get into it.

What Is Amazon Dropshipping?

This is a fulfillment method whereby an Amazon seller sells products on the marketplace without holding any physical inventory. In other words, it’s an inventory-less business model that doesn’t require the seller to own inventory or deal with shipping.

Sellers who dropship simply set up a dropshipping store on Amazon and list products in their catalog. When a customer buys a product from their store, the seller forwards the order to a supplier or manufacturer who fulfills the order on behalf of the seller. And that’s it.

The dropshipper basically serves as a middleman on Amazon. They do not hold any physical inventory, and they don’t deal with shipping. The manufacturer/supplier handles all that on behalf of the dropshipper.

The dropshipper repositions the sold products as their own, so the customer doesn’t know that the products were sourced directly from the manufacturer.   

The main responsibility of the seller is to build their brand, market their products to bring in more customers, and provide ongoing customer service. 

As a dropshipper on Amazon, you make a profit by finding suppliers or manufacturers offering lower prices and then listing the products at a slightly higher price on your Amazon dropshipping store.

As you can see, dropshipping on Amazon is a great way to sell products on Amazon without a big upfront investment. We’ll look at the advantages of this fulfillment method in detail in another section.

What Is a Dropshipping Store?

This is a type of store that sells products and forwards the sales order to a third-party supplier, who then fulfills the order on behalf of the seller. A dropshipping store doesn’t hold physical inventory.

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Who Can Dropship On Amazon?

Anyone can start a dropshipping business on Amazon provided you have an Amazon seller account, and comply with Amazon’s dropshipping policy, and other terms and conditions laid out by Amazon.     

Since you don’t have to hold physical inventory, getting started with Amazon drop shipping is easy. You need a computer, good internet, a reliable supplier, and customers for your products. 

Sounds easy, right? Not so fast. Amazon dropshipping can be tricky in many ways. You have to be on top of your game to succeed as a dropshipper on Amazon.

If you look at the numbers, you’ll realize that a majority of dropshippers on Amazon fail, and there are many reasons why that happens. We’ll look at this in detail in another section. 

Dropshipping vs Dropsurfing

These two concepts tend to be confusing to most people, especially those new to Amazon, so it’s worth explaining their differences.

Dropsurfing is a different way of doing dropshipping on Amazon. When you drop surf, you simply look for the best deals for a dropshipping order to maximize your profit.   

This is how it works:

  • You List The Product You Want To Sell On Your Amazon Dropshipping Store
  • A Customer Buys A Product On Your Dropshipping Store
  • You Compare Multiple Suppliers To Find One With The Best Price And Place The Order With That Supplier
  • The Supplier Fulfills The Order On Your Behalf
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This is one way of doing drop surfing on Amazon. The other approach involves selecting what to sell based on what’s trending right now. Unlike the ‘best price’ strategy whereby a seller sells the same products on their catalog, this strategy entails rotating inventory as the seller rides on trends.

When you drop surf, you’re basically doing dropshipping but in a different way.   

Advantages of Dropshipping

Requires Less Capital

This is perhaps the biggest advantage of dropshipping on Amazon. You can start a dropshipping business on Amazon without a big upfront investment because you don’t need to hold any physical inventory. This makes dropshipping a far better alternative compared to the traditional distribution model, whereby you need to hold physical inventory.

With the dropshipping fulfillment method, you don’t have to tie huge amounts of capital to buying inventory. You only purchase a product from your supplier once the customer has paid for the product they’re buying. So it’s possible to make sales on Amazon with just a laptop, a good internet connection, and of course, the customer. Though, you may need little capital for things like marketing your products and building your brand.

Because you don’t invest huge amounts upfront on inventory, there’s less risk involved in dropshipping on Amazon.

Low Overhead

Amazon drop shipping eliminates the cost of holding inventory altogether, allowing you to sell products to your customers without any worry of incurring inventory management costs. You can run your Amazon dropshipping store as a home-based business that only requires a laptop, an internet connection, and a few recurring expenses.

Even though your overhead expenses may increase as you grow your dropshipping business, they will still be low compared to running a traditional brick-and-mortar business.

Flexibility

Amazon dropshipping offers incredible flexibility as you can run and manage your business from anywhere. You can run your drop shipping business from the comfort of your home, while on vacation, or from just about anywhere in the world. As long as you have a working laptop, a good internet connection, reliable suppliers, and customers, you’re good to go.

Moreover, you get to be your own boss, so you can work at times that are convenient for you.

With Amazon drop shipping, you can achieve a greater work-life balance, set your own pace, and make your own decisions.

This flexibility makes drop shipping on Amazon a feasible business for people like college students and those who want to start an online business while working full-time.

Easy to Get Started

In addition to requiring little to no financial outlay to start, drop shipping on Amazon is much easier to start because you don’t have to hold any physical inventory, deal with shipping, or hire extra employees to manage inventory or shipping.

Besides, you don’t have to worry about handling returns and inbound shipments or managing stock levels.

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You only need to select the right products to sell on your drop shipping store, find reliable suppliers, and market your products to attract customers. With no physical inventory or logistics to look after, you’ll have more time to focus on marketing, finding profitable products to sell, and crafting your product listing to increase sales.

Generally, all you need is to identify profitable products and implement the best marketing strategies.

Wide Range Of Products To Sell

Amazon offers more than 35 product categories, allowing dropshippers to experiment with diverse product niches. You have so many products to choose from. However, with a wide selection of products to sell, you’ll need to be more careful when selecting what to sell. The type of products you choose can mean the difference between making good profits and failing in drop shipping on Amazon.

It’s best to perform comprehensive product research to find the most profitable products with high demand and low competition. A good place to start your product research is Amazon’s Best Sellers lists.

There are reliable Amazon product research tools you can utilize to find the most profitable categories on Amazon.

Another advantage of the diverse product selection on Amazon is that it allows you to test different products to see the ones that convert best.

If certain products in your catalog are not converting, you can remove them from your dropshipping store. Since you don’t hold physical inventory, you can test a wide range of products until you find profitable products.

Access to A Massive Customer Base

Amazon has hundreds of millions of active users in the U.S. alone. Therefore, it’s a trusted eCommerce retail giant with a large customer base. So you can expect to make sales regardless of the niche you choose provided you offer good quality products, and you market your products the right way.

Time Saving

Amazon drop shipping doesn’t require you to manage physical inventory, pack products, or deal with shipping. This makes it a time-saving fulfillment method compared to running a traditional brick-and-mortar store which requires a lot of time and dedication. By dropshipping, you’ll have plenty of time to focus on growing your business in other areas.  

Therefore,

Drop shipping on Amazon is an ideal business model for anyone looking to make money on Amazon without having to spend much time on inventory management and shipping. This aspect makes Amazon drop shipping an ideal side hustle for people working full-time jobs.

Easy to Grow

Although you might have to go the extra mile to make the first sales due to the stiff competition on the marketplace, it becomes easier to grow your Amazon dropshipping business once you gain traction. All you have to do is implement effective marketing strategies, choose dependable suppliers with the best deals, and continuously build your brand.

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Besides, your dropshipping costs may not increase significantly even when your business grows.

In general, we can go on and on about the advantages of dropshipping on Amazon because they are so many. If you’re thinking about starting a dropshipping business on Amazon, you’re on the right track. Many dropshippers make huge profits on Amazon, and you too can make serious money if you learn the ins and outs of Amazon drop shipping business.

Drawbacks of Amazon Dropshipping

Lower Profit Margin

Although the fulfillment method requires less initial capital to start, the returns are quite lower because the competition is high, and the fees associated with the delivery and returns can eat into your profits.

High Competition

There are many dropshippers on Amazon selling the same products you’re trying to sell. The stiff competition can make it difficult to generate good profits if you don’t stand out in the marketplace.

Quality Control

With dropshipping, quality control can be a problem, especially if you go the drop surfing way. Changing suppliers based on the one who offers the best price will inevitably leave room for quality control issues. Whether it’s late shipping, low-quality items, or missing items, it will be the seller’s responsibility to make things right. If these issues persist, they can ruin your brand’s reputation and eventually bring down your business.

How to Start a Dropshipping Business On Amazon

If you’re ready to start a successful dropshipping business on Amazon, then follow the steps highlighted below.

Step 1: Choose A Profitable Product Niche

The first requirement of Amazon dropshipping is selecting a specific product niche to sell in. The niche shouldn’t be too broad because you’ll have challenges with marketing your products.

When selecting a product niche, keep your eyes on the profits you’re likely to make, shipping costs, and availability of suppliers.

It’s advisable to select a niche with higher-priced products, low shipping costs, and high demand.

Step 2: Select The Right Products

The next step is finding profitable products to sell on your dropshipping store. Be sure to choose high-demand and low-competition products to maximize your chances of making sales.

With the nature of competition on Amazon, it’s easy to get stuck with a product that is not converting.   

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Start your product research on Amazon itself and identify some of the best-selling items in the category you’ve chosen. You can also use product research tools like Helium 10, Jungle Scout, and IO Scout, and many more to identify products that will sell best.

This is a very important step because if you get it wrong, it will be difficult to build a successful Amazon dropshipping business.

Step 3: Perform Competition Research

There are millions of dropshippers on Amazon, and that means competition is stiff in most product categories. So it’s important to determine the nature of competition in your product category because you don’t want to choose a category with cut-throat competition.

However, that does mean you should go for products with little to no competition. Low competition in a product category could be a sign of low demand for products in that particular category. It could also be an indication of poor profit margins, high shipping costs, and many more.

It’s best to find products with high demand and low competition to increases your chances of making good profits.

Step 4:  Find A Reliable Supplier

Once you’ve selected profitable products to sell and you’ve surveyed the nature of competition in your niche, it’s time to find a trustworthy supplier to fulfill orders on your behalf.

Choosing the wrong supplier can ruin your Amazon dropshipping business, so you must take your time to find a reliable supplier.

You can find dropshipping suppliers by performing a simple Google search, attending trade shows, and checking in supplier directories like Alibaba. Every year, manufacturers and suppliers conduct trade shows across the world whereby they showcase their products to potential dropshippers. By attending trade shows, you’ll get the opportunity to interact with trustworthy manufacturers and suppliers and establish good connections with them.

When choosing a dropshipping supplier, it’s never a good idea to go for the first one that you come across. You can easily find yourself in the hands of a shady supplier who’ll give you a raw deal at the end of the road. The best thing to do is to make a list of around 15 suppliers that you may want to consider.

Go ahead and contact each and every one of them to get their prices and terms and conditions. After that, you can narrow down your list to the manufacturer/supplier with the best deal based on what you’re looking for.

Again, working with the right manufacturer or supplier can make your dropshipping business on Amazon smooth and hassle-free. Be sure not to rush this process.

Step 5: Create an Amazon Seller Account

You’ll need to set up your Amazon seller account in order to create a dropshipping store. Setting up your account is simple and straightforward. Simply go to sellercentral.amazon.com and follow the registration process to create your account. You’ll have two options to choose from—the individual plan and the professional plan.

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The individual plan will cost you $0.99 for each sale you make regardless of the volume while the professional plan will cost you $39.99 each month.

If you’re likely to sell more than 40 units every month, it’s advisable to go for the professional plan.

Step 6: List Your Products On Your Drop Shipping Store

Now that you’ve found profitable products to sell on your dropshipping store and you’ve picked a reliable supplier, it’s time to create your product listing.

To create your Amazon product listing, go to the inventory tab, then scroll down to Add Product and click on Create A New Product Listing. Choose your product category and sub-category and fill out the information fields for your listing. After that click publish and that’s it.

Your product listing is the face of your product on your drop shipping store. A majority of Amazon customers make their purchasing decision based on the quality of a product listing and of course, customer reviews. So your product listing needs to be compelling and present your product’s unique value proposition.

Most importantly, be sure to optimize your product title, bullet points, and product description. Also, ensure you use high-quality images so that users can take advantage of the zoom feature.

Step 7: Launch Your Product

Finally, launch your product and formulate effective strategies for advertising on and off Amazon. Leverage Amazon Sponsored Product Ads, Sponsored Display Ads, and social media promotion to drive traffic to your product page.

There you have it. These are the seven steps you’ll need to follow to start a dropshipping business on Amazon.

Strategies for Succeeding with Dropshipping on Amazon

Understand Your Customer

To provide a positive customer experience, it’s important to know what your customers are looking for. By knowing your customers, you’ll be able to fine-tune messaging and promotion to attract more customers.

Provide Exceptional Customer Experience

Negative customer experience succeeds in chasing away customers from your dropshipping store to your competitors. Exceptional customer experience starts with providing high-quality products for your customers. In addition to a powerful customer experience, you should offer your customers discounts and address their concerns.

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Leverage Marketing Strategies

Marketing is at the centre of a dropshipping business, so you want to make the most out of it to attract more customers. Before you implement a marketing strategy for your Amazon drop shipping business, ensure you understand your potential buyers so that you can target your ads more effectively.

Encourage Customers to Leave Reviews

Product reviews are an integral part of an Amazon drop shipping store. They help build trust in your brand and convince customers to buy your products.

Some of the ways to encourage customers to leave reviews on your dropshipping store are providing a great consumer experience and sending follow-up emails after they’ve made a purchase asking them for feedback. In your follow-up email, ensure you include the URL of your product listing page to make it easier for customers to leave reviews. If a customer leaves a negative review, reach out to them and try to make things right.   

Optimize Your Product Listings

You’ll need to optimize your product listing to increase the visibility of your product, improve your ranking and conversion rate. An optimized product listing can drive valuable leads to your dropshipping store, but a listing that’s not properly optimized is unlikely to convert.

Ensure you use relevant keywords in the product title, bullet points, and product description. To make your product description even more enticing, you can take advantage of Amazon A+ content and drive traffic to your product page.

Go for The Amazon Buy Box

Winning the Amazon Buy Box can boost your Amazon dropshipping business considerably. Typically, Amazon sellers who win the Buy Box make more sales because customers trust sellers who win the Buy Box to provide exceptional and top-notch products.

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You can win the Amazon Buy Box by offering competitive pricing, keep strong inventory levels, and maintain positive seller feedback.

Is It Profitable To Dropship on Amazon?

You can make a good amount of money by starting an Amazon dropshipping business. There are many dropshippers on Amazon who’ve made huge amounts of money, but at the same time, there are many more who struggle to make sales on the market. In fact, those who fail in Amazon dropshipping are the majority.

It’s all about your whole strategy, the kinds of products you choose, the supplier you work with, and how well you market your products.

Whether you’re planning to start Amazon drop shipping as a side hustle or as a full-time eCommerce business, you have good chances of making good profits.

Download the Ultimate Amazon Success Guide by Sunken Stone

If you’re interested in learning expert tips and recommendations that will help you take your Amazon dropshipping business to the next level, download the Ultimate Amazon Playbook.


Frequently Asked Questions

How Does Amazon Dropshipping Work?

Amazon dropshipping works in a simple and straightforward way. You start with opening a drop shipping store on Amazon and list the products you want to sell on your store. Next, you market your products to attract customers. When a customer buys from your store, you send the order to your supplier who fulfills the order on your behalf. Your responsibility as a dropshipper on Amazon is to research products, market them and provide customer support.

Is Dropshipping On Amazon Worth It?

Yes, Amazon dropshipping is definitely worth it. This fulfillment method is a great way to sell products on Amazon without holding physical inventory. You can make good profits if you do it correctly.

Is Drop Shipping Illegal On Amazon

No, it’s not. Amazon dropshipping is perfectly legal on Amazon, though you may run into legal issues if you violate Amazon’s terms and conditions.

How Do I Start Amazon Dropshipping?

Starting Amazon dropshipping is simple. Start with setting up an Amazon seller central account and choose profitable items to sell. The next step is finding a reliable supplier and then listing your products on your dropshipping store. After that, launch your products and start selling.

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