Amazon FBA vs. Dropshipping: The 2025 Seller's Guide
Are you trying to decide on an Ecommerce business for 2025? You might be weighing the potential of Amazon FBA vs. dropshipping for your first online storefront.
I went through the same dilemma before I started. These days, high ticket dropshipping is where I spend most of my time.
But I’m still active with both models, and in this article, I’ll give you a behind-the-scenes look at how they really work so that you can choose the right path for yourself.
Amazon FBA – better known as Fulfillment by Amazon – began around 2015. With FBA, you store your products in Amazon’s warehouses. Amazon then handles packing, shipping, and customer service (including returns).
With dropshipping, you sell products that are shipped directly from a supplier to your customer. Customers buy products on your website, but you don’t need to purchase and hold your own inventory.
Let’s take a side-by-side look at these two Ecommerce models.
How Does Amazon FBA Work?
Amazon FBA is a service where Amazon stores, packs, and ships products for sellers on its platform.
Where do you get the products to send to Amazon’s warehouses? There are three possibilities:
- Your brand: Create your own branded products.
- Arbitrage: Find clearance items at places like Walmart, Target, or T.J. Maxx and sell them at a higher price through Amazon.
- List another seller’s products: This differs from affiliate marketing, which we’ve covered in a previous post. As a third-party retailer, you can list an existing brand’s products. Beware of people trying to pitch courses about this strategy. They teach you to reach out to brand owners and convince them that Amazon can shut them down at any time. So they need you as a backup storefront (for a small fee, of course). As a brand owner on FBA, I get these in my inbox all the time, and it’s hogwash!
You start by setting up a Seller Central Account, creating product listing pages, and shipping your products to Amazon.
From there, Amazon takes over the transactions. They handle the customers and process payments, then package and ship the products on your behalf when you make a sale.
Amazon handles everything, which can seem very appealing! But they charge you a hefty fee for access to their customers and the convenience of selling through FBA.
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What Is the Difference Between Amazon FBA and Dropshipping?
Understanding the key differences between Amazon FBA vs. dropshipping is crucial. It’ll help you make the right choice for your business. Here are the main things to consider:
Inventory and Products
When dropshipping on Amazon through FBA, you own the inventory. Amazon stores and manages your products until they’re sold.
With FBA, you need to invest in inventory, introducing additional cost, effort, and risk.
In my experience, the best use of Amazon FBA is to sell your own brand – and that takes significant time and money.
Plan to spend several months:
- Identifying your product
- Working with a manufacturer
- Getting packaging designed
- Having everything ready to ship to Amazon
Most products will be manufactured in China, with a minimum order size anywhere from $2,000 to $10,000.
In dropshipping, you don’t hold any inventory – none. This means you have far less financial investment and risk.
With both models, you’ll find plenty of sellers promoting cheap, low-quality products, or going after the latest trendy niche. It’s extremely difficult to build a profitable, long-term business with those strategies.
High ticket dropshipping products, on the other hand, have proven quality, and people are already searching for them online. You can focus on capturing demand instead of generating desire for your products – and you’ll make more money per sale than low-ticket items.
Traffic and Customers
FBA benefits from Amazon’s built-in customer base. With the right product, you might have a quick take-off in sales. But most sellers need to work at optimizing listings, spending money on Amazon ads, or getting bloggers to promote them.
The unavoidable fact I want to point out is that your store is not your own on Amazon FBA! And your customers aren’t yours. You can’t speak to them, market to them, know who they are, know their email, etc.!
In dropshipping, you need to drive traffic to your website to make sales – but you’ll have much more control over customer acquisition. Effective marketing strategies for high ticket dropshipping include paid ads to capture demand, and SEO to build organic traffic.
Access to customer data is another weight on the scale for high ticket dropshipping. With Amazon FBA, Amazon collects and keeps ALL customer data. In dropshipping, you have access to this data, so you can use it for follow-up marketing and building your brand.
Customer Service
Amazon FBA handles customer service, including inquiries and product issues. But people complain a lot on Amazon, which can harm your listings.
When Amazon sent out the wrong product to my customers (which I detail later in this post), it led to a ton of bad reviews, which didn’t help with sales. It gets worse when you have to blow off customers because you’re waiting months for new inventory to arrive.
For Amazon FBA, Amazon is the brand, not you. So their customer service is excellent, but it’s at your expense.
In dropshipping, you’re responsible for customer service. Again, at your expense, but if you do it right, it’s an advantage.
High ticket dropshipping is a marketing and customer service business. You may think outsourcing is great, but when you can’t connect with your customers, you can’t make sure they’re satisfied. I prefer having control over the customer experience in high ticket dropshipping.
And when issues pop up, having a process in place will help mitigate the effects. Handling problems promptly and positively can help build customer trust and loyalty in your brand.
Returns
For Amazon FBA products, Amazon accepts returns for any reason, and you pay for it!
Did Amazon ship it late? Your fault.
Did Amazon damage the product? Your fault.
In short, expect a high refund rate! (And they simply take the money out of your account. No questions asked!)
In dropshipping, you’ll need to coordinate returns between the customer and your supplier, and this process can vary in complexity. But…while returns can be costly, there are ways to take advantage of them.
For example, you can use them for product photos on your site for more original and unique images. You can also use them for free giveaways, as long as nothing’s wrong with the returned product, to help bring in new customers and create trust.
Is Amazon FBA or Dropshipping More Profitable?
How much money can you make with Amazon FBA and dropshipping, and which is more profitable? The answer is, “It depends.”
People love to talk about the revenue they are making, posing beside a rented Lamborghini, but net profit is the only number that matters. One of my past businesses sold $1,000,000 in revenue, and we had $0 left after all the fees and expenses.
As a rule of thumb, a healthy business in the United States will make between 10% and 20% profit. When you get real, that’s what most dropshipping and Amazon FBA businesses are doing.
But there are differences between FBA and high ticket dropshipping that will affect your cash flow and profitability. Here’s what you need to know.
Amazon FBA Profitability
- Amazon fees: FBA fees can be substantial, impacting your profit margins. Use Amazon’s calculators to figure out potential revenue for different products.
- Paying for inventory: Assuming you want to create your own branded products to sell on FBA, you’ll need to place large orders with your manufacturer. And that means money out of your pocket. With supply chain delays, there are typically long lead times for product orders. You can run into issues managing and maintaining inventory.It took me about two years to get over the cash-flow hump with my first branded products. I had to pay for restocking every few months so I could keep selling. It was profitable on paper (and you have to pay taxes on that paper profit), but all of your money is going into your next inventory order for a while.
- High starting costs: One of the most significant differences between dropshipping and Amazon FBA is startup costs. Expect to pay around $2,000-$10,000 to design and manufacture your own product and send it to Amazon to sell. And, of course, there’s the risk that if sales don’t go quite as planned, you’ll have to sell at a discount or not at all.
- Lower exit multiple: Because you don’t own your customer data and only have one sales channel with FBA, you’ll get a smaller multiple if you want to sell your business. You’ll typically get 2.5x your business earnings as your sale price when exiting a dropshipping business – and less for FBA.
High Ticket Dropshipping Profitability
- Revenue potential and profit: We’ve demonstrated in our own businesses that it’s possible to make revenue in six figures or more. But what’s actually left in your pocket? A lot of people make the mistake of going to revenue first. Don’t do that! Look at your net profit – that’s going to be in the 15% range for most American businesses.
If you opt for high ticket dropshipping vs. low ticket dropshipping, you make more money per sale. You’ll need fewer customers and sales to make a solid income.
- Managing returns: Returns are a part of business. However, Amazon’s customer-friendly return policy compounds this risk. Dropshipping suppliers might not refund the cost of the product once it’s shipped, leaving you to absorb these costs.
This is another cost you can minimize with high ticket dropshipping. Partnering with reputable, established, domestic suppliers means fewer quality issues.
- No inventory costs: Savings on inventory costs are significant since you don’t purchase products upfront. Zero inventory investment, plus you can choose suppliers with established products and tap into existing demand (less risk).
- Better cash flow: Since you have no overhead, you can take the profits you make each month and pay yourself! If you’re trying to replace your job with this business, early cash flow will be crucial.
If you have a longer timeline, you can reinvest profits in marketing to grow your business. You don’t have to constantly roll into more freight like you do with Amazon FBA.
- Starting costs: Starting costs are significantly lower, compared to Amazon FBA. Dropshipping startup costs can be as little as $500.
- Flexibility and ownership: Owning a high-ticket dropshipping business gives you more control over pricing, shipping costs, branding, and customer relationships.
You own your storefront and all your customer data. That means flexibility to create a strong brand that people will return to repeatedly.
- Exiting: Exit multiples can be significantly higher with high ticket dropshipping. We’ve gotten exit multiples of 2.8 to 5 on different dropshipping businesses we’ve sold.
Difficulties Dropshipping With Amazon FBA
Setting up an Ecommerce business using the FBA system can be challenging, especially for beginners. As we’ve mentioned above, you may need to manufacture your own product, which can be a complicated process.
Another limitation is the lack of customization for your products. On Amazon, you can’t add product inserts or personalize your packaging. This restricts your ability to brand and market your business. Everything arrives in an Amazon box!
And sometimes Amazon ships a different product than yours if there’s a mix-up. For example, my manufacturer accidentally sent the wrong items to Amazon, instead of the dog supplements I typically sell. Amazon blamed me for incorrect labeling, but still slapped a label on them and put them in inventory even though it was clearly not our product. They then shipped those “clearly not our products” off to customers, leading to A LOT of returns and refunds. We then had to remove all the stock at Amazon’s many warehouses (which takes a while), and then and only then could we send in the correct product and start over with less stars, less sales, and a deflated customer base.
Not a fun time!
You also need to strictly adhere to Amazon’s rules. Non-compliance can lead to suspension or removal from the platform, which can be devastating if Amazon is the only platform you’re selling on.
It’s also difficult to learn marketing and SEO when doing Amazon FBA, because you’re primarily selling to Amazon’s built-in traffic base. That means you won’t learn marketing, advertising, and SEO skills you can carry over to a different business.
More Flexibility, Less Risk in High Ticket Dropshipping
If you go with dropshipping, you can avoid some of the risks and problems that can occur with Amazon. A complete halt in sales, if you’re removed from the platform or face inventory issues, can sink your business.
With high ticket dropshipping, you also have a lot of different ways to acquire customers. Instead of being confined to one platform, you can use a variety of marketing strategies.
The key difference: you’ll know who your ideal customer is. You can build your business around attracting that customer, solving their problems, and providing great customer service.
With high ticket products, you can make your first sales quickly with a simple paid ad strategy, while you build free organic traffic with SEO and content.
Want to start your own high ticket dropshipping business?
Watch this FREE, on-demand training session that will uncover the exact steps you need to take to launch your first high ticket dropshipping business in the next 30 days.
Amazon FBA vs. Dropshipping: We’re Biased, But High Ticket Dropshipping Wins
There are a number of pros and cons of dropshipping when compared to FBA. But high ticket dropshipping is the model that’s winning for us today.
While FBA provides convenience, it comes with higher starting costs, significant fees, and stricter rules.
On the other hand, high ticket dropshipping is a flexible and cost-effective contender in this race, offering low startup costs, better cash flow, direct customer relationships, and higher exit multiples.
If you’re ready to launch your Ecommerce journey with more control and earning potential, high ticket dropshipping is the way to go. Ready to get started? Sign up for our free training to learn how you can launch and grow your successful dropshipping business today.
Article by Ben Knegendorf
Ben Knegendorf realized at 29 he needed to find another career path. Since then, he’s:
- Successfully exited a high-ticket drop shipping business that he helped take from $1 to $11M annual revenue in just 2.5 years
- Eliminated $40,000+ of personal debt
- Joined Dropship Breakthru as co-owner in 2021
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