Last updated on December 7th, 2022
There’s no denying that Amazon is the largest ecommerce platform out there. Its net sales in 2021 amounted to $470 billion and it was responsible for 50% of e-commerce sales.
Because of this, a lot of online businesses want to sell on Amazon but how can you do this without any products?
When I first discovered that it’s possible to sell on Amazon making your own products, I was shocked and a little confused – and I love sharing this with others to see their surprise too!
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So, let me clear up any confusion by explaining how you can sell on Amazon without any products.
The Benefits Of Selling On Amazon
Using Amazon to sell products can help businesses reach 98.07 million users every month so it’s easy to see why nearly 2 million small and medium businesses around the world sell their products through Amazon.
A 2021 report from Amazon itself showed that the average US seller made $200,000 in sales, a 14.5% increase from the previous year.
This is why so many businesses (both online and offline) want to use Amazon to sell their products – but many believe that they first need to make their own products to sell.
However, I have discovered that there are ways of selling on Amazon without making and storing your own inventory, and this method brings its own benefits for businesses.
For example, not having an inventory means that you are not paying for warehouse space while you are waiting for your products to sell.
Warehouses on average cost $1.50 per square foot to rent, which means businesses without products can save a lot of cash.
Another benefit is that you spend less on research and development.
Around $2.2 trillion was spent by businesses on research and development alone in 2020 so going product-less can save not only on research and development, but on the logistics of making and selling a product too.
So – how does selling on Amazon without any products work?
Method One: Dropshipping
Dropshipping is the process of selling products you do not make or own – but you still get a cut of the revenue.
Basically, a third party owns and produces the actual products but you act as a middleman when it comes to selling and promoting.
Here is a simple step-by-step guide to the process of dropshipping:
- You advertise a supplier’s product on your website (or, for this article, your Amazon page).
- A customer makes the order through you.
- You pass the order onto the supplier.
- The supplier makes and prepares the customer’s order.
- The supplier ships the product directly to the customer.
So, you can sell products on Amazon that you did not design, produce, store, or own. It’s easy to see the benefits on offer with this model, and many other businesses do too.
27% of online retailers use the dropshipping model as their primary method and as a result, the numbers of dropshipping sales are increasing.
In 2017, 23% of online sales were done through dropshipping. In 2022, Amazon reported that 58% of its sales were sold through third party sellers. But it’s worth noting that to dropship on Amazon, you need to meet a bunch of rules first.
However, the dropshipping model is not perfect nor is it the ‘get rich quick’ scheme I’ve seen a lot of other businesses describe them as.
Here are some of the benefits I have found with dropshipping, and some of the negatives that I have seen others experience.
The Benefits Of Dropshipping
One of the main benefits of dropshipping is how low it costs.
Businesses who use drop shipping do not have to pay for the production or distribution of these products – that all still lies with the supplier.
Inventory costs between 17% and 25% of a small business’s budget, so that’s a huge amount businesses can save by shifting the responsibility to suppliers – and that’s without adding costs of shipping and production, research and development on top!
Dropshipping is still profitable for suppliers, however. Suppliers actually make 18.33% more profit through dropshipping than they do through their own stores, so it’s a win-win situation for everyone involved.
There are still costs involved with dropshipping. For example, you will still need to spend on marketing and buy samples of the products you hope to drop ship (these can cost around $100).
However, estimates reveal that starting a dropshipping business only takes a few hundred dollars – around $290 to be exact. That’s way more affordable than trying to make and sell your own products!
The low costs make it very easy to start dropshipping, even on other platforms like Amazon instead of your own website.
Other benefits I have heard others praise about dropshipping is how it can expand the selection of products you offer, you can sell all over the world, and you can easily upscale as your business grows.
But, nothing’s perfect – so I’m going to now cover some of the drawbacks of dropshipping you may want to keep in mind!
The Disadvantages Of Dropshipping
There’s two main issues I find with dropshipping – the low profit margins (see also, ‘How to Calculate Gross Profit Margins for E-Commerce‘), and the effects of supplier issues.
I mentioned earlier that suppliers who use dropshipping to market their products still make a profit, and that’s most likely because they take most of the profits from the sale.
This leaves only a small amount left for the dropshippers themselves.
However, it’s worth mentioning that small retailers who use dropshipping see a 30% rise in conversion rates through smartphones, so there are other ways to ‘profit’ from dropshipping than through direct fees.
The affordability of dropshipping also means that you have a lot of competition to sell those products.
A lot of other businesses will be selling the same or similar dropshipping products to you, which means that you have to put more effort into your marketing to ensure customers are buying the products through your business instead of your competitors.
This also drives down profits but also, you need to keep prices low in the first place to stay competitive.
Another drawback of dropshipping is issues related to the supplier.
If there’s one thing COVID19 showed us is that supply chains can stop or stall at any time.
A study from McKinsey found that 75% of suppliers in business supply chains encountered problems due to the pandemic, with causes ranging from delayed planning due to remote working (48%) and insufficient digital technology and resources (85%).
This meant that customers across the world did not get their orders on time – and if you’re a dropshipper, you’re the one who has to deal with the customer service.
Customer service is massively important for all kinds of businesses (see also, ‘What Kind of Business Startup Can I Start with 20k?‘).
A report from Salesforce found that 89% of customers are more likely to purchase again after a positive customer service experience, while 78% would return even after a mistake if the customer service was excellent.
Meanwhile, another study found that 61% of customers would switch to a new brand after just one bad experience.
Because customers make their orders through the dropshipper, they are the ones the customers go to with complaints and issues.
This includes late deliveries, missing items, or damaged goods. Any issues on the supplier’s end will reflect badly on your brand – even though you are not responsible for the issues themselves!
So, finding the right supplier is vital for dropshipping as opting for one with poor services will negatively impact your business and not them.
Method Two: Fulfillment By Amazon (FBA)
Although dropshipping is allowed on Amazon, businesses need to meet a list of criteria first otherwise they will face penalties from Amazon. However, there is an alternative method you can use – Fulfillment By Amazon (FBA).
Fulfillment By Amazon is on the surface very similar to dropshipping except that Amazon itself is handling the inventory storage, the deliveries, the customer service, and the returns.
However, you do need to source your own products but there are manufacturing marketplaces available where you can easily find a range of products.
Amazon will then pick them up, you sell them through your Amazon business page, and Amazon will process the other, deliver it, and deal with the customer service for you.
89% of sellers on Amazon use the FBA program and it’s easy to see why.
Here are some of the benefits of using FBA:
- Amazon taking over the customer service puts the pressure off your business, plus they are generally seen as more reliable.
- 37% of FBA sellers have profit margins over 20% compared to 32% of FBM (Fulfillment By Merchant) sellers. So, businesses who use FBA have larger profit margins.
- 16% of FBA sellers spend more than 40 hours a week on the Amazon side of their business, compared to 20% of FBMs. So, opting for FBA will likely give you more time to focus on other areas of your business.
There is one thing you need to know about Fulfillment By Amazon – you have to pay a fee to cover your fulfillment and storage costs.
At first glance, this may seem like a drawback but actually, the fee Amazon charges is usually a lot more affordable than trying to handle the storage, shipment, and delivery yourself.
This is because Amazon will only charge you for the space you use but this does mean that these prices can fluctuate all the time.
If you are thinking about using FBA to sell on Amazon, then you will also need to source your own products.
Some popular product marketplaces FBA sellers use to find products rather than create and manufacture their own include GlobalResources, Alibaba, JungleScout, and DHGate
So, it is possible to sell on Amazon even if you don’t have any products of your own.
By using dropshipping or programs like Fulfillment By Amazon, businesses can still benefit from ecommerce (see also, ‘What is PDP in Ecommerce?‘) without having to deal with the costs of manufacturing. However, there are still drawbacks to these as I have talked about above.
Take a look and see if either of these methods appeal to you. It may be something that will work great for your business, or maybe not. In my opinion, it’s worth a try!