Amazon Dropshipping Guide: Is it the Best Option for Your Business?

I get asked this question a lot by ecommerce entrepreneurs eager to launch or expand their online businesses. So let me share my perspective after managing hundreds of seven-figure Amazon brands over the past decade.

In most cases, yes, Amazon dropshipping is still one of the best ways to start an ecommerce business today with minimal upfront investment and risk. However, it requires closely following Amazon‘s guidelines, constantly optimizing your processes, and providing top-notch customer service.

Dropshipping on Amazon is certainly more challenging than a few years ago as competition has increased. But by avoiding common mistakes, thoroughly researching profitable niches, and building strong supplier relationships, the opportunity for success is still huge.

This comprehensive guide will walk you through everything you need to know to excel at Amazon dropshipping in 2023. I‘ll also share tips to help you decide if this model is the right ecommerce choice for your business goals and risk appetite.

Let‘s get started!

How Does Amazon Dropshipping Work?

Before we dive into specifics, let‘s quickly recap how the Amazon dropshipping model works:

• You create Amazon listings for products you want to sell without having any inventory on hand.

• When a customer orders your item, you purchase it from a third-party supplier and have it shipped directly to the customer.

• Your supplier packages and ships the order with your Amazon seller details, so the purchase appears seamless to the buyer.

• You keep the profit margin between the Amazon listing price and wholesale supplier cost.

The main advantage of this retail fulfillment method is low startup costs since you don‘t stock inventory. But it does come with some inherent risks around quality control, shipping snafus and inventory stockouts.

According to JungleScout, over 87% of Amazon sellers use some form of dropshipping to bootstrap their business. The low barrier to entry and lack of need for warehousing makes it an attractive starting point for new entrepreneurs. But it requires work to scale sustainably.

Weighing the Pros and Cons

Before committing fully to Amazon dropshipping, consider these key advantages and disadvantages:

Pros of Amazon Dropshipping

Minimal startup costs: No need for upfront inventory purchases and associated costs. Begin selling with as little as $500-1000 initial investment.

Low risks: Test product viability before investing in bulk inventory orders. Quickly pivot if a product doesn‘t sell.

High scalability: Expand your catalog rapidly without big capital outlays upfront. Go from 10 to 1000 SKUs faster than traditional FBA.

Wider selection: Offer many more products than you could reasonably stock and fulfill yourself.

Easy adaptation: Swiftly jump on trends, seasonality and new releases. Tweak pricing frequently to stay competitive.

Less overhead: Avoid costs of operating your own warehouse space, equipment and staff. Significant cost savings.

Cons of Amazon Dropshipping

Thin profit margins: Wholesale supplier costs eat into your profits, leaving less room for Amazon fees and ads.

Shipping delays: Rely on supplier speed and reliability. Customer impatience can lead to returns and refunds.

Inventory stockouts: Depending on supplier capacity and stock levels. Can lead to poor reviews and damaged listings.

Quality control issues: Harder to inspect products up close before shipment. Wrong or damaged goods lead to costly returns.

Little branding control: Packaging and inserts all designed by supplier. Can‘t customize unboxing experience.

Amazon restrictions: No dropshipping orders from other online retailers, only wholesalers/manufacturers.

In 2022, items Fulfilled by Amazon had a return rate of just 10.7% vs 27.8% for seller-fulfilled items. So lean on FBA wherever possible. Also, focus on Made in USA suppliers to mitigate shipping delays.

The reality is Amazon dropshipping has both advantages to exploit and pitfalls to avoid. Success ultimately depends on your ability to maximize the pros while minimizing the cons.

How to Start Dropshipping on Amazon in 6 Steps

If you decide this retail model fits your risk appetite, capital and capabilities, here is an overview of how to launch your own Amazon dropshipping business:

1. Research Profitable Niches and Products

• Use tools like Jungle Scout, Helium 10, and Viral Launch to analyze Amazon categories and identify high-potential products.
• Assess market size, competition levels, average pricing, monthly sales volume, seasonality, reviews etc.
• Shortlist products with healthy demand and profit margins. Avoid oversaturated niches.

2. Perform Supplier Due Diligence

• Search trade directories like SaleHoo to find reputable wholesalers and manufacturers.
• Ask for past customer reviews, years in business, product range, minimum order quantities.
• Review delivery timelines, packaging quality, communication reliability.
• Order samples to inspect product quality firsthand.

3. Set Up Inventory Management

• Use a manual spreadsheet or software like InventoryLab or Ecomdash.
• Track product IDs, cost prices, lead times and sync stock levels with suppliers.
• Update inventory quantities with each order to avoid overselling.

4. List Items on Amazon and Optimize

• Create titles, bullets, descriptions and backend keywords for search visibility.
• Drive initial sales via promotions, Amazon PPC ads and external marketing.
• Use repricers to stay competitive on pricing. Improve conversion rates.

5. Manage Orders and Fulfillment

• Get notifications for Amazon orders and immediately send POs to suppliers.
• Follow up on shipping status and provide tracking info to customers proactively.
• If issues, communicate delays transparently to buyers to manage expectations.

6. Handle Returns and Refunds Smoothly

• Accept returns per Amazon‘s policies. No need for supplier approval.
• Inspect returned items and flag supplier product quality concerns.
• Issue refunds immediately on receiving returns to maintain metrics and ratings.

89% of Amazon shoppers check reviews before making a purchase decision. So provide responsive customer service and quickly address any problems that arise.

The above covers the core steps to get up and running. Next let‘s go over some pro tips and best practices to scale your Amazon dropshipping business sustainably.

Expert Tips to Boost Amazon Dropshipping Success

Here are some advanced tips from my experience building multi-million dollar brands to maximize sales and profits:

Leverage multi-channel marketing: Don‘t rely solely on Amazon traffic. Use influencers, paid ads, email marketing, SEO etc. to drive external traffic to your listings.

Specialize in a niche: Become a category expert rather than selling disparate products. Helps build brand identity.

source from multiple suppliers: Mitigate risk of stockouts by sourcing each product from at least 2 different suppliers.

Inspect packaging: Ensure no supplier branding appears on the package. Add custom inserts/thank you notes.

Ship samples to yourself: Test delivery timelines, packaging and unboxing experience.

Automate pricing: Use automated repricers to adjust pricing based on competitors. Manual checking is too slow.

Buy in bulk: Negotiate with suppliers for bulk order discounts to improve margins. But start small.

Provide stellar customer service: Obsess over perfect ratings by resolving issues instantly and delighting customers.

The top 1000 Amazon sellers averaged $1.4M in sales during Q3 2022, up nearly 50% YoY. The opportunity to scale is tremendous if you can stand out from the increasing competition.

Mistakes to Avoid as a New Amazon Dropshipper

While getting started as an Amazon dropshipper is relatively straightforward, new sellers often make these common mistakes:

Poor supplier vetting – Not verifying production capacities, quality controls and order fulfillment timelines.

No branding -Listing generic products with no custom packaging or inserts to build loyalty.

Low margins – Not negotiating bulk order discounts with suppliers before listing products.

Overreliance on Amazon traffic – Need external marketing from Day 1 to expand reach.

Ignoring negative reviews – Delaying responses or making excuses rather than fixing issues.

Manual pricing – Repricing only once a day vs automated dynamic pricing.

Lack of oversight – Assuming suppliers will package, label and ship correctly without checks.

Slow refunds – Waiting for supplier confirmation before issuing returns refunds to buyers.

Thin content – Just enough product images and details to list vs. optimized listings.

According to Jungle Scout, 42% of new Amazon sellers exit within their first year, unable to keep up with the rising competition. Avoiding the above mistakes will help ensure you don‘t become part of this statistic.

Is Amazon Dropshipping Still Profitable in 2023?

This is the million dollar question for aspiring ecommerce entrepreneurs in 2023. The short answer is – yes, Amazon dropshipping remains highly profitable if you avoid saturation and operate smartly.

Focus on evergreen, non-seasonal products with recurring demand like consumer staples. Target niche hobbies and passion categories where you can deep dive on product research and branding.

Maintain healthy margins by ordering inventory in bulk once product-market fit is proven. And provide exceptional customer service – the hallmark of all thriving dropshipping businesses.

The golden age days of dropshipping generic widgets for huge profits are certainly over. But dedicated sellers who keep fine-tuning their model can still build durable self-sustaining businesses.

In fact, the market size continues expanding rapidly. U.S. ecommerce sales are projected to grow over 50% from 2021 to 2025 to reach $1.8 trillion! So the opportunity for new entrants remains massive.

Legalities Around Dropshipping on Amazon

When dropshipping on Amazon, be aware of the following legal requirements to stay compliant:

• Only buy from wholesale suppliers/manufacturers, not other online retailers.

• Your branding must be on all packaging, labels, invoices. No supplier info visible to buyers.

• Products must exactly match your listing descriptions. No bait-and-switch allowed.

• Comply will all other Amazon selling policies as if you hold the inventory.

Getting permissions from brands you‘re dropshipping is also advisable to avoid intellectual property violations. Thoroughly vet suppliers, document agreements, communicate expected volumes and inspect shipments.

Alternatives to Amazon Dropshipping

While Amazon is the first choice for most ecommerce newcomers, here are some alternatives to consider:

• Your own D2C website – Complete control over branding and customizing buyer experience. But requires big upfront time and cost investment to drive traffic.

• eBay – Also allows dropshipping and lower competition than Amazon for many niches. But site experience not as polished.

• Walmart Marketplace – Growing but still significantly lower reach than Amazon at this point.

• Social commerce – Instagram, TikTok, Facebook shops work well for targeted product niches but difficult to scale.

Evaluate whether your product category and target audience are a better fit for any of the above channels before defaulting to Amazon.

Ready to Kickstart Your Amazon Dropshipping Journey?

I hope this detailed dropshipping guide provided you clarity on:

• Is Amazon dropshipping right for your business goals and risk tolerance?

• How does the dropshipping process work on Amazon?

• What are the step-by-step instructions to get started?

• What mistakes should you avoid as a beginner?

• Is Amazon dropshipping still viable in 2023 and beyond?

The opportunity is certainly there if you pick the right niche, effectively manage suppliers, and WOW customers.

Remember, no business model is completely hands-off. To create a profitable long-term Amazon dropshipping business, be ready to put in the work especially in the beginning.

But the effort is well worth it. Build your brand carefully but aggressively. Stay hungry, stay humble!

I wish you the very best. Let me know if you have any other questions as you embark on your Amazon FBA journey!