In order to have a successful ecommerce store, you need to be able to solve the following three problems:
- What products you are going to sell?
- How you are going to sell that product?
- How you are going to get it to the customer?
Once you have decided what you are going to sell, it is entirely possible to start a successful ecommerce business without setting up your own website and stocking up on inventory.
Here are the two main methods to make this possible:
Run your ecommerce business on Amazon FBA
Let’s start with the most popular online selling website in the world. Amazon FBA stands for ‘Fulfilment By Amazon’ and it works like this:
- You purchase your stock online and send it to Amazon’s storage warehouse;
- You create an Amazon Seller Account and list your products for sale on the Amazon marketplace;
- A customer finds your product and purchases it;
- Amazon then handles all shipping and delivery requirements on your behalf.
It’s as simple as that. Going back to the bullet points above, this method clearly solves how to sell the product (Amazon FBA) and how to get it to the customer (Amazon does it themselves).
The Amazon FBA route is immensely popular because they take care of everything. Once you have shipped your stock the warehouse, there is nothing left for you to do except attracting the customers to your store and them buying the products.
Plus, by being on Amazon, you have access to the millions and millions of customers that use the marketplace. It is so big that it’s likely you will make sales far quicker here than anywhere else.
However, even though these advantages are great, it’s important to discuss the disadvantages of this method as well.
Firstly, Amazon take a big slice out of all your sales. It’s a flat 15% fee on your revenue plus then an extra fee for fulfilling the order for you. This means that you must have fairly large margins in order to make this method profitable.
Also, you must buy the products up front before any sales are made. If you don’t sell the products, you will lose money.
To prevent this from happening, you must optimise the product listing in Amazon in order to make as many sales as you can. Sales boost rankings in Amazon, and the higher you rank, the more likely you will make even more sales, and the cycle goes on and on.
Dropshipping ecommerce business model explained
This method lets you take orders for products on your website or store but, like Amazon FBA, the distributor is responsible for delivery.
However, where this method differs is as follows:
- You find a product from a third-party marketplace;
- You advertise that product on your store for a higher price;
- A customer finds you stores and buys a product;
- From the proceeds, you buy that same product from the third-party store and set the delivery details as the customer’s.
Dropshipping businesses are run via websites like Shopify where you create an ecommerce store on their platform. Once set up, you just need to add products to your store and you’re ready to go.
By dropshipping, you never have to ship any inventory yourself. This means you do not have to put any money upfront. All it takes is time to find products you want to sell. Whatever money is left from the proceeds less the cost of sale, you keep for yourself. There is no other risk involved.
Again, with the obvious advantages, it’s important to discuss some of the disadvantages that comes with dropshipping.
Because your website is going to be brand new, it’s going to take a lot of advertising to get it noticed. If you haven’t got a large marketing budget, it can take a while to get the business off the ground. Plus, the website may not be fully optimised for conversions. If done well, conversion rate optimisation tools have an average ROI of 223%.
Also, since you do not have any control over fulfilling orders, you will be in charge of all customer service. This includes all correspondence and complaints customers may have.
Dropshipping is an excellent way to start an online business with little to no costs involved. It will just take more time to attract the customers compared to Amazon.
How to choose between FBA and dropshipping
Both Amazon FBA and dropshipping are excellent methods to creating a successful eCommerce business without creating your own website or buying inventory.
If you want to access the largest customer marketplace online, you should consider Amazon FBA. If keeping larger profit margins is important to your business, consider dropshipping.