Dropshipping can be a powerful tool for ecommerce companies — if it’s utilized well. Amazon dropshipping, especially at an enterprise-level, can protect against supply chain volatility, mitigate warehouse storage fees and inventory limits, and aid in a variety of other operational hardships that come with traditional FBA fulfillment. This was demonstrated most recently when Amazon released FBA Amazon restrictions right before Prime Day 2021.
“Dropshipping” can conjure a few different images, so what exactly do we mean by “enterprise-level dropshipping?” It’s largely a matter of the scale and scope of the operation.
Three Scales of Amazon Dropshipping
RETAIL ARBITRAGE
Think of your next-door neighbor’s side hustle. They buy product for cheap at Costco, list it for sale online at a higher price, and wait for orders to come in, flipping the product to make a profit. Retail arbitrage is all about the buy-low-sell-high model, and is typically done on a smaller scale by individuals rather than large companies (there are, of course, exceptions).
Retail arbitrage does not require interaction between brands and sellers, which can make it into dangerous for brands by creating a threat to their reputation. The brand has no say in the marketing, customer service, etc. of their product, because the seller is completely separate from the brand itself. That lack of say can be alarming, and rightly so.
NICHE DROPSHIPPING
Niche dropshipping focuses on exactly what it sounds like: a niche. This type of dropshipping hones in on a single product category, looking at overall supply and availability for that particular area. The niche dropshipper can range in size, from a one-man side hustle to a small or medium business with multiple employees.
These sellers are often the manufacturer or have a formal relationship with the manufacturer. They use dropship to fulfill orders because they sell across many sales channels, sales volume may not justify the costs of using FBA or a third-party logistics provider, and/or their sales come primarily through word-of-mouth marketing at events.
This approach typically requires more customer interaction than retail arbitrage, as the dropshipper is attending events, promoting their brands through social media, directing customers to a website, etc.
DROPSHIPPING FOR ENTERPRISES
Dropshipping for enterprises is what we do here at Kaspien. We set up dropship capabilities for brands when products do not have high enough sales volume currently, are ineligible for FBA, sell products that are subject to significant fluctuations in sales velocity, or do not have enough inventory space allotted at FBA.
This tactic allows us to offer our partners’ full product catalogs on Amazon while minimizing risk of stagnant inventory fees, as well as protect against stock-outs when Amazon restricts FBA inventory.
Dropshipping at this scale is an integral part to creating a stable foundation from which your brand can grow on Amazon. By diversifying fulfillment strategies with a combination of FBA and dropship, brands gain the agility needed to pivot quickly in a still turbulent marketplace.
Benefits of Working with Kaspien as a Brand-Extension Dropshipper
MITIGATE RISK & LABOR EXPENSE
As one of the largest third-party sellers on Amazon, Kaspien already operates in economies of scale. We have a 13+ year old seller account with a long history of fulfilling via FBA and dropship for thousands of brands.
Because of this, our team and technology are well equipped to handle any late shipments, order defects, reduce tracking issues, review product compliance, collect and remit sales tax, and provide customer service easier than a seller would be able to do on their own, resulting in a more efficient business and altogether better experience for customers.
Additionally, if your brand were to experience any issues ODR, VTR, or LSR while dropshipping on your own seller account, you could face immediate ramifications. Because Kaspien dropships for many brands on our seller account, any issues you experience will have a diluted impact on our seller performance metrics. That means that we have time to correct the issues before you face any penalties from Amazon.
Working with Kaspien’s dropship team allows you to be paid directly through invoices, rather than waiting on Amazon. Additionally, when selling through Amazon, you run the risk of Amazon shutting down or freezing your account if issues arise, creating some major cash flow troubles. Dropshipping through Kaspien and being paid through invoices helps avoid this risk.
DROPSHIP FOR AMAZON BUSINESS
Using dropship in addition to your other fulfillment tactics can be extremely beneficial for both you and your customers, especially when selling B2B on Amazon Business.
Dropship is a naturally scalable model; as units increase, you are able to sell each unit for less, offering customers a better price. The B2B marketplace provides a natural venue for quantity discounts, as businesses typically purchase in higher volumes.
Given the slew of FBA inventory restrictions since the start of the COVID-19 pandemic, storing adequate inventory at FBA for bulk B2B orders can be… problematic. Dropshipping allows brands to make those sales, without being limited by FBA.
Amazon incentivizes B2B customers by offering longer payment terms, which means that we, as sellers, get paid slower. This is another area where dropshipping through Kaspien and being paid through invoice benefits your brand.
MARKETING SERVICES FOR DROPSHIP LISTINGS
As you look for companies to partner with for your dropshipping strategy, they should add much more value to your brand than merely dropshipping. A brand-centric partner can add marketing support to your listings, which is an absolute must in the saturated and competitive Amazon world.
A good partner will optimize your listing to increase your product’s discoverability. This can be done through keyword optimization, CPC advertisements, display ads, your brand store, social media marketing, social media advertising, and influencer marketing (just to name a few). All these marketing tactics drive traffic to your listing and increase consumer exposure to your brand.
A good partner will also boost your product’s buyability. Once consumers enter your listing, they need to be met with a persuasive page. To do this, a good partner will create rich listing content through quality copy and photo assets, create A+ Content, optimize content reviews, and optimize the organization of your listing. By highlighting your product’s differentiating features and benefits, you enhance consumer knowledge and trust of your product, supporting conversions.
Amazon Dropshipping FAQ’s
DO “DROPSHIP” AND “FBM” MEAN THE SAME THING?
Yes and no. FBM, or Fulfilled by Merchant, is any fulfillment model where a non-Amazon party manages order fulfillment for a sale that occurred on Amazon. Dropship is one of these methods, and perhaps the most common.
FBM can also include cases where inventory is stored at a third-party warehouse, so brands still pay warehousing and storage fees like they would at FBA. Some of these third-party warehouses are able to provide Seller Fulfilled Prime (SFP), which is when they are certified as being able to provide a Prime-equivalent shipping experience (including speed, quality, returns, and customer service) through a FBM model.
DOES FBM SELL WORSE THAN FBA?
Typically, products fulfilled via FBA sell better than FBM. This is due to the fact that consumers often prefer the fast and free shipments offered through Prime. Prime also impacts SERP placement. If a product is offered through Prime, the Amazon algorithm is more likely to place this listing above an FBM listing on the results page.
Notably, this changed when COVID-19 first strained FBA infrastructure in the spring of 2020, and Kaspien observed FBM listings being prioritized over FBA listings.
Even though FBA does tend to sell better, you can’t capture sales with an FBA listing if you stock out of FBA inventory. With continued inventory restrictions, this is a very real risk. Likewise, products with a low sales velocity can rack up storage fees at FBA, reducing their profitability. For these and other aforementioned reasons, dropship remains a valuable tool for your Amazon toolbox.
DOES FBM COST MORE FOR BRANDS THAN FBA?
This depends on a multitude of factors, and the answer will vary for each product and each brand. For some warehouses and logistics, FBA is cheaper and for others, FBM is cheaper. These numbers are dependent on the size, weight, etc. of your product. If you are curious about where your product would lie cost-wise, our team would be happy to go over this with you!
DOES FBM PUT YOU AT HIGHER RISK OF A SELLER ACCOUNT SHUT DOWN THAN FBA?
When comparing the two options, FBM is riskier. Order Defect Rate and Late Ship Rate are two important factors for rating seller account health. In FBA, Amazon owns these. In FBM, the seller is responsible for keeping them at healthy rates. As such, we pay close attention to these metrics for each of our dropship partner accounts.
WHAT ARE SOME INDICATORS THAT A DROPSHIP PRODUCT SHOULD TRANSITION TO FBA?
Determining if your product should transition to an FBA fulfillment method should be based upon your data and margins. The most important indicators are:
- Will you have enough margin left after storage and fulfillment fees?
- Does your product sell at high enough velocity that you won’t face long-term storage fees?
- Do you have enough inventory space allotted at FBA so you won’t stock out?
Fortunately, Amazon provides ample information about FBA costs, so if you have the data, you can run the numbers. In most cases, we encourage brands to keep dropship enabled as a safety precaution any time they transition a product from dropship to FBA.
IS THERE A WAY TO AUTOMATICALLY SWITCH FROM FBA TO FBM (AND VICE VERSA)?
Because a brand has to ship products into FBA and manually set up logistics in Seller Central, there is no way two automatically switch between the two fulfillment methods.
DO STORAGE LIMITATIONS SHIFT WHEN YOU SWITCH FROM FBA TO FBM?
FBA storage limits will not change based if you add FBM capabilities. If you find yourself in a situation where you are not able to stock enough inventory through FBA, FBM would be beneficial to you. This is especially true when you expect your velocity to exceed the inventory you have on hand.
DOES KASPIEN OFFER 3PL SERVICES AS A PART OF THE DROPSHIP PROGRAM?
While we do not offer full 3PL services, we are able to purchase and store inventory. This is our traditional retail partnership. 3PLs are generally more expensive than FBA, so if margins are already tight on Amazon, it may be difficult to move forward with a strategy that would induce even tighter margins.
WHAT IS SOME ADVICE THAT SELLERS SHOULD KNOW IF THEY ARE LOOKING TO SWITCH TO FBM?
If you are looking to dropship for yourself, you should really have a grasp on Amazon’s requirements and fee structure prior to starting. You should also be extremely cognizant of your product dimensions and weights. If you do not measure correctly, you can run up to a $1,000 shipping charge due to abnormal shipping sizes.
Are You Ready to Start Dropshipping on Amazon?
When deciding whether or not your product is ready for dropship, consider:
- Is your warehouse or other facilities in your supply chain capable of shipping directly to consumers?
- If the answer is no, dropship may not be your best fulfillment option.
- Do you know how many days of handling time you need?
- Do you have a single-threaded leader who can be your primary contact for orders, inventory, etc.?
These questions will allow you to better understand your product’s dropship viability, protect your brand’s Amazon listing, allow you to keep your 100% uptime.
How to Set Up Dropship for Amazon with Kaspien
If you are already selling with Kaspien, talk to your Account Manager today! If you don’t yet work with Kaspien, start the conversation with us today.
You’ll need to complete a brief questionnaire, allowing our dropship team to understand the potential risks of dropshipping your product. Before you begin the questionnaire, be ready with a full catalogue of products available for dropship, and their dimensions, weights, and UPCs.
From the information you provided and the knowledge they have for success, they will decide whether or not your product would be a good candidate. That being said, our team is willing to be immensely creative in protecting your brand and doing what we can to best serve you.
As your product gets passed for dropship, we will conduct a manual dropship test, working out any kinks that may take place. Following this test period, you can choose to go live or remain dormant as a backup just in case any volatility in the marketplace occurs. From here you can also move forward with automated DS integration.
Sell on Amazon with Kaspien
If you’d like to explore Amazon dropshipping or FBA with Kaspien, reach out. For more Amazon news and strategy, subscribe to our weekly blog newsletter!
