Selling on amazon without inventory is also known as dropshipping on amazon. The most significant advantage of dropshipping on Amazon is that you don't hold the stock and thus you have a very low investment. Its like to open online store without inventory.
The other way of selling on amazon without inventory is to sell digital products on amazon, like KDP, or Amazon Merch. If you are looking to sell digital products then you can visit my guide on selling digital products on amazon.
When I started selling on amazon, I started without inventory since I was low on funds to invest in Amazon Wholesale or Private Labelling. If you are feeling confused by now, how does it works? Then, sweat not, I have put up a detailed guide on the same below.
What are the different ways to sell on Amazon?
The 4 major business models for selling on Amazon:
Retail arbitrage or Online Arbitrage (FBA)
Retail arbitrage (RA) is a method wherein you go to a local wholesale store like Walmart or Target, buy from them and then sell it on amazon.
Online Arbitrage (OA) is where you buy from Walmart online or Target or another online retailer and then you sell it on amazon. (This is against Amazon's Terms of Service) Amazon is against Online Arbitrage since they don't want other stores branding on the boxes which reach amazon's customers.
Dropshipping (Third Party Fulfillment) ie Selling on Amazon without holding inventory
Dropshipping is third-party fulfillment, wherein you can sell on amazon without having or holding any inventory, and it's approved by amazon provided certain terms and conditions are followed as mentioned below. Dropshipping is a well-known e-commerce model which can also be used through Shopify to sell items online without inventory on your own website.
Wholesaling on Amazon (FBA or FBM)
In wholesaling, you directly buy from a wholesaler or distributor, or manufacturer in huge quantities and in turn get a discount. And then sell them on amazon for a good commission. There are multiple sellers who have grown to millions of dollars of monthly sales by following just amazon's wholesale business model.
Private Labelling (FBA or FBM or 3PL)
In this method, you purchase products from manufacturers or buy from Alibaba and sell them on amazon. Though 42% of sellers on amazon use private labeling as their primary source of business. The majority of FBA sellers use this business model.
What is the meaning of dropshipping and how is it different from Amazon FBA?
As explained in the first graphics, in Dropshipping you do not touch the inventory at any point in time. The stock is directly sent by the wholesaler to your buyer after you pay him. You pay your wholesaler or distributor only when you have an order in hand and not before that so you also end up saving on working capital.
Amazon FBA vs Dropshipping
Whereas Amazon FBA also called Fulfillment By Amazon, you need to buy the stock which can be either from your whole sales or distributor, and then you send it to Amazon warehouses. So when you do Amazon FBA products are available to sell on your amazon store only when they reach the amazon fulfillment center. Once the product arrives at amazon fba, the products are available to be sold online.
So when a buyer places an order for the product, amazon packs the product and sends it to the buyer and you get paid when the product is delivered to the buyer. The fulfillment is entirely done by amazon. And amazon stores your inventory in its storage facilities.
1. In Amazon FBA you need to invest upfront to store all the inventory.
2. In Dropshipping model you don't need to invest upfront. And pay your supplier only when the order is placed by the buyer.
1. In FBA order fulfillment is done by Amazon
2. In dropshipping you do the order fulfillment with the help of either third-party logistics
1. Since in FBA you send wholesale inventory to Amazon, you also enjoy better profitability since you generally buy in bulk
2. In dropshipping the profitability is lower, but the upfront investment is bare minimum
1. FBA is highly scalable
2. Dropshipping has limited scalability
Basically, Amazon's FBA business model is a great one if you would like to grow your business into a multi-million dollar business over time. Though at the beginning you may find it difficult to start if you don't have any capital or have close to zero money. But once you start doing good on amazon, Amazon itself offers capital also known as amazon lending after 6 months of selling history.
Dropshipping or selling on amazon without inventory is a great business model if you are starting up and have zero capital.
How to sell stuff on amazon without inventory? Where to start?
Things you need to sell on amazon without inventory:
- Amazon Selling Account: In order to start selling on amazon, you would need an amazon professional account set up with all your details. You would need to submit basic information and documents to identify you as a seller: https://sell.amazon.com/
- Product Research: in order to sell on amazon, you need to do in-depth research on which products you wish to sell which involves using tools like Helium 10, and then identify if they are profitable.
- Inventory From Supplier: Once you make a list of all the products you identify to sell on amazon based on research, then contact those suppliers and ask if they can drop ship for you.
- Sign Agreement: Once you are approved to sell by the supplier, you need to sign a contract or an agreement to deal with your supplier. And then, you can list those products on amazon by selecting fulfillment by the merchant as an option while listing those products.
- Bank Account To Get Money 🙂 : You would need to provide bank ac details to Amazon while setting up your amazon central seller account so that amazon can send payouts to you every 14 days for the sales your make.
Dropshipping is the model with the lowest need of investment to sell on amazon without inventory.
Pro And Cons of Selling On Amazon without inventory:
There are multiple pros and cons of selling on amazon , here we look at the pros and cons of dropshipping on Amazon.
What are Pros of Dropshipping on Amazon:
- Sell Products on Amazon without inventory
- You Don't Have to Worry about Inventory management
- Very low investment
- Low Risk, since you place an order with the distributor only when you have an order in hand from an Amazon buyer.
- No need for Warehouse space, which can be expensive.
- Some products don't sell well or have very low sales and don't make sense to have them in inventory, such products are perfect candidates.
Cons of dropshipping on Amazon:
- No Control on Inventory: Since you do not hold any inventory, thus inventory can get out of stock and you may not be aware of it
- Limited scalability: It's difficult to scale your business to 6 figures or 7 figures a month without inventory, since your fulfilling partner may not be the fastest to deliver.
- High competition: since it's a very low-investment business, you will have competition to be higher than business amazon's business models.
- Accepting returns can be complicated if your drop shipper doesn't accept order returns.
Do you need to set up a separate LLC or C Corp to Sell on Amazon?
No, It's not necessary to have a business registered when you start. But as you grow you can set up an LLC or C Corp or an S Corp.
For more details refer: Licenses or LLC to sell on Amazon
Does Amazon allow dropshipping on its platform?
Yes, Amazon allows dropshipping on its platform as long as the buyer can identify you as a seller of record. This means only your or amazon logo is visible on the box packing.
Over here Seller of record means you, the one who is selling on amazon.
Amazon Drop Shipping Policy, What is not allowed?
If you purchase from an online retailer and you sell those products directly to customers and if someone else's name appears on invoices or packing then it is against amazon policies.
Amazon expects you to remove all stickers of third-party fulfillment or drop shipper before the products are shipped and also wants you to have an agreement with the distributor or brand you planning to sell.
Any product shipped to the customer cannot have a name other than yours on the packing label or invoice as a seller.
Selling on amazon is a very exciting business, but it also needs proper research so that it's profitable from day one. Selling without adequate research is very risky and can prolong your goal of good business. But once you get a grasp of it, there is never looking back. Happy Selling!
Samrudha Salvi ‧ Author
With more than 5 years on selling on amazon, and helping 100s to get started on Amazon.