Amazon FBA Vs. Dropshipping: What is the best option for Canadian Side Hustlers?
By Arthur Dubois | 10 Aug 2023 |
In today’s digital era, more and more Canadians are exploring the world of e-commerce as one of the best side hustles in Canada. Two popular business models that have gained significant traction are Amazon FBA (Fulfillment by Amazon) and dropshipping. In this article, we will delve into the basics of e-commerce, examine the pros and cons of each model, compare them, and explore the legal and tax considerations for Canadian side hustlers. So, whether you’re a budding entrepreneur or an experienced business owner, let’s dive in!
Understanding the Basics of E-commerce
In order to make an informed decision about which business model suits you best, it’s essential to understand the basics of e-commerce. E-commerce refers to the buying and selling of goods and services over the internet. With the rise of online marketplaces and the increasing demand for convenience, e-commerce has become a booming industry in Canada.
When it comes to e-commerce, there are various business models to consider. Two popular models are Amazon FBA and dropshipping.
What is Amazon FBA?
Amazon FBA, or Fulfillment by Amazon, is a program that allows sellers to leverage Amazon’s vast fulfillment network. Essentially, sellers store their products in Amazon’s warehouses, and when a customer places an order, Amazon takes care of packaging, shipping, and customer service. This program has revolutionized the e-commerce industry by offering a hands-off approach for sellers, allowing them to focus on other aspects of their business.
With Amazon FBA, sellers benefit from Amazon’s reputation and customer base. They can take advantage of Amazon’s Prime membership program, which offers customers free and fast shipping on eligible products. This can significantly boost sales and customer satisfaction.
Furthermore, Amazon FBA provides sellers with access to Amazon’s global marketplaces, allowing them to reach customers around the world. This opens up new opportunities for growth and expansion.
What is Dropshipping?
Dropshipping, on the other hand, is a business model where the seller doesn’t hold inventory or ship products. Instead, when an order is placed, the seller purchases the item from a third-party supplier who then ships it directly to the customer. Dropshipping eliminates the need for inventory management and upfront capital investment.
One of the main advantages of dropshipping is that it allows entrepreneurs to start an e-commerce business with minimal risk. Since there is no need to invest in inventory upfront, sellers can test different products and markets without significant financial commitments. Nonetheless, sellers still need to create an online store such as Shopify to present their products online.
Dropshipping also offers flexibility in terms of product selection. Sellers can easily add or remove products from their online store without worrying about managing physical inventory. This allows for quick adaptation to changing market trends and customer preferences.
However, it’s important to note that dropshipping comes with its own set of challenges. Since sellers rely on third-party suppliers for order fulfillment, they have less control over the shipping process and product quality. Communication and coordination with suppliers become crucial to ensure a positive customer experience.
The Pros and Cons of Amazon FBA
Now that we have a clear understanding of Amazon FBA, let’s explore its advantages and disadvantages.
Advantages of Amazon FBA
One of the major advantages of Amazon FBA is the access to Amazon’s enormous customer base. With 175 million users visiting Amazon every month, sellers can tap into a ready-made market and benefit from increased visibility. This means that your products have the potential to reach a wider audience, increasing your chances of making sales.
Additionally, Amazon takes care of the logistical aspect, such as storage, packaging, and shipping, which saves sellers time and effort. This is especially beneficial for small businesses or individuals who may not have the resources or infrastructure to handle these tasks on their own. By utilizing Amazon’s fulfillment services, sellers can focus on other aspects of their business, such as product development and marketing.
Another advantage is the trust factor associated with Amazon. As one of the largest and most well-known online marketplaces, Amazon has built a reputation for reliability and customer satisfaction. When customers see that a product is fulfilled by Amazon, it reassures them that their order will be handled efficiently and professionally. This trust factor helps build credibility for sellers and can lead to increased sales, which is why so many Canadians are using Amazon to sell their products online.
In 2021, Amazon had more than 80,000 active Canadian sellers. A survey conducted by Ecom Cre revealed that among these sellers, 39% earned up to $50,000 per year on Amazon, while 54% made over $50,000 per year. This data highlights the significant opportunity for Canadians engaged in side businesses to sell products on Amazon.
Furthermore, a substantial 95% of Canadian Amazon sellers reported using Amazon’s FBA services. As for time commitment, the majority of Canadian sellers, at 48%, dedicated less than 20 hours per week to managing their online stores on the Amazon platform, making this an ideal method for Canadians to start side hustling.
Disadvantages of Amazon FBA
Despite the numerous advantages, Amazon FBA does have some drawbacks that sellers should be aware of.
Firstly, the fees associated with the program can cut into profit margins. Sellers must pay for storage, fulfillment, and other additional services. While Amazon FBA offers convenience and efficiency, it comes at a cost. This cost structure should be carefully considered when setting prices and determining profitability. It is important for sellers to analyze their profit margins and ensure that the fees associated with Amazon FBA do not outweigh the benefits. We’ll take an in-depth look at the cost of Amazon FBA later in this article.
Furthermore, the level of control over your business is somewhat limited with Amazon FBA. As a seller, you must adhere to Amazon’s policies and guidelines. While this ensures a consistent and standardized experience for customers, it may restrict your ability to customize certain aspects of your business. It is important to familiarize yourself with Amazon’s policies and guidelines to avoid any potential conflicts or issues.
Additionally, shipping delays or mistakes on Amazon’s part can impact customer satisfaction, even if they are not within your control. While Amazon strives for efficient and accurate fulfillment, there may be instances where delays or errors occur. It is important to communicate with customers and address any concerns promptly to maintain a positive reputation.
Despite these disadvantages, many sellers find that the benefits of Amazon FBA outweigh the drawbacks. By leveraging Amazon’s customer base, logistical support, and trust factor, sellers can expand their reach and grow their business. It is important for sellers to carefully evaluate their unique circumstances and goals before deciding if Amazon FBA is the right choice for them.
The Pros and Cons of Dropshipping
Now, let’s turn our attention to dropshipping and examine its advantages and disadvantages.
Advantages of Dropshipping
One of the main advantages of dropshipping is the low barrier to entry. Compared to traditional retail models, dropshipping requires minimal upfront investment. Sellers do not need to purchase inventory or manage a warehouse, reducing their financial risk.
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In addition to the low barrier to entry, dropshipping offers greater flexibility in terms of product variety. Sellers can quickly test different products without committing to a large inventory. This allows for experimentation and the ability to adapt to changing market trends.
Furthermore, dropshipping provides an opportunity for entrepreneurs to start their own business with ease. It eliminates the need for manufacturing or sourcing products, as sellers can simply partner with suppliers who handle the production and shipping process.
Moreover, dropshipping allows sellers to operate their business from anywhere in the world. As long as they have an internet connection, they can manage their online store, communicate with suppliers, and fulfill orders. This flexibility gives entrepreneurs the freedom to travel or work remotely.
Disadvantages of Dropshipping
Despite its advantages, dropshipping has its fair share of challenges. The competition in the dropshipping market is fierce, and finding unique products or niches can be difficult. It requires intensive research, market analysis, and continuous adaptation to stay ahead of the curve.
Another potential downside is the lack of control over the fulfillment process. Sellers rely on third-party suppliers to ship products, which can lead to shipping delays, inventory inaccuracies, or poor customer service. Building a robust network of reliable suppliers is crucial for success in dropshipping.
Moreover, dropshipping comes with the risk of inventory issues. Since sellers do not physically handle the products, they must rely on accurate inventory data from suppliers. If there are discrepancies or stockouts, it can result in disappointed customers and potential damage to the seller’s reputation.
Furthermore, dropshipping requires effective marketing strategies to stand out from the competition. With numerous online stores offering similar products, sellers must invest in advertising, search engine optimization, and social media marketing to attract customers and drive sales. Since most dropshippers make use of Shopify, it’s important to know the best ways to advertise your Shopify store in Canada.
In conclusion, while dropshipping offers advantages such as a low barrier to entry and flexibility in product variety, it also presents challenges such as intense competition, lack of control over the fulfillment process, inventory issues, and the need for effective marketing strategies. Entrepreneurs considering dropshipping should carefully weigh these pros and cons before venturing into this business model.
The Cost of Amazon FBA
Having gone through the pros and cons of Amazon FBA, let’s take a closer look at the various costs of selling your products through Amazon’s fulfillment centres.
Plan Fees
When selling with Amazon FBA, you can choose between two plans that determine how large your operations are. First, you have the Individual plan, which charges you a base fee of $1.49 per item sold (plus additional fees which we will discuss below). The Individual plan is suitable for sellers who sell fewer than 30 products per month, are still deciding what to sell, and have no plans to advertise or use advanced selling tools. In plain terms, the Individual plan is for sellers who are just trying out Amazon FBA to see its potential.
Second, you have the Professional plan. As the name implies, this plan is targeted to accommodate the needs of high-volume sellers and comes with a variety of professional tools to analyze your sales. The Professional plan costs $29.99 per month (plus additional selling fees), and is suitable for sellers who sell more than 30 products per month, want to advertise their products, want to qualify for top placement on product detail pages, and want to use advanced selling tools like APIs and reports.
Category Referral Fees
For every item sold, sellers pay Amazon a percentage of the total price. This fee is called a Referral fee and the percentage varies depending on the category of your product. Most categories have Referral fees between 8% and 17%. Let’s take a look at some examples.
Amazon Referral Fees
| Percentage | Category |
| 8% | Computers, Consumer Electronics, Video Game Consoles |
| 12% | Automotive, Power Tools, Business, Industrial and Scientific Supplies |
| 15% | Backpacks, Handbags, and Luggage, Footwear, Home and Kitchen, Lawn and Garden, Books, DVD, Music, Software, Video, Office Products, Pet Products, Sports and Outdoors, Tools and Home Improvement, Toys and Games, Video Games and Gaming Accessories |
| 17% | Clothing and Accessories, Eyewear |
Fulfillment Fees
Fulfillment fees are fees you have to pay if you plan to use Fulfillment by Amazon (FBA) to ship your products. If you are going to handle the logistics of your business yourself, then you do not need to pay fulfillment fees. Amazon’s fulfillment fees depend on the size, shape and weight of the products you want to sell. Let’s take a quick look at some examples.
Amazon Referral Fees
| Size | Weight | Fees |
| Envelope | First 100 g | $4.32 |
| Envelope | 200 to 300 g | $4.99 |
| Envelope | 400 to 500 g | $5.45 |
| Standard | First 100 g | $5.92 |
| Standard | 400 to 500 g | $7.13 |
| Standard | 900 to 1,000 g | $8.23 |
| Standard | 1,400 to 1,500 g | $9.20 |
Storage Fees
If you want to let Amazon FBA handle every aspect of your logistics, then you’re probably looking to store your products in Amazon fulfillment centres. Inventory storage fees are charged monthly based on the daily average volume for the space your inventory occupies in Amazon fulfillment centers. This is measured in cubic metres and the price varies on the season.
Amazon Storage Fees
| January to September | $33 per cubic metre |
| October to December | $53 per cubic metre |
Extra fees for inventory storage are charged in the following cases: for products categorized as dangerous goods, for units kept in an Amazon fulfillment center for over 365 days (referred to as aged inventory surcharge), and for sellers who possess a large amount of inventory stored compared to the volume of their sales in the recent week (known as storage utilization surcharge).
The Cost of Dropshipping
Now, let’s turn our attention to dropshipping and examine its costs. Dropshipping involves third-party providers, meaning that the costs can vary depending on the prices of third-party providers. Let’s take a look at three of the most popular dropshipping suppliers for Canadians and examine the cost to do business with them.
SaleHoo
SaleHoo serves as a valuable resource for e-commerce enthusiasts and entrepreneurs. Offering a curated directory of trustworthy suppliers, it aids businesses in sourcing products efficiently. Operating within the Canadian market, SaleHoo connects users with local and international suppliers, facilitating seamless cross-border trade. Its platform provides insights into market trends, product research, and competitive analysis.
SaleHoo offers its services in two distinct subscription plans. The Basic plan costs USD $27 per month (or USD $270 if billed annually), and comes with 1 sub-user account, 1-click import of 500 AliExpress products, and access to their base suite of tools and benefits.
The Premium plan, which is ideal for larger teams, costs USD $97 per month (or USD $970 if billed annually), and gives you access to 3 sub-user accounts, the ability to sell on 3 distinct stores, 1-click import of unlimited AliExpress products, and a dedicated onboarding manager.
Spocket
Spocket, a dynamic e-commerce platform, has garnered prominence in Canada’s business landscape. As a hub for dropshipping, it enables entrepreneurs to curate and offer an array of high-quality products to customers without managing inventory. Based in Vancouver, Spocket bolsters the Canadian entrepreneurial spirit by fostering connections between local suppliers and global retailers.
While Spocket has monthly subscription options, the discounts are significant when choosing annual subscriptions, so we will be examining those in this article.
First up is the Pro subscription, which costs $24 per month ($288 billed annually), and gives you access to 250 unique products, 25 premium products, branded invoicing, and AliExpress dropshipping. This plan also allows you to chat directly with suppliers and look for products based on image searching.
Next up is the Empire subscription, which costs $57 per month ($684 billed annually), and allows you to choose 10.000 unique products and 10.000 for your online store. This plan is particularly useful for large teams who are looking to populate their online store with a wide range of high-quality products.
Lastly, we have the Unicorn subscription, which goes for a price of $79 per month ($948 billed annually) and caters to large e-commerce businesses. With this plan, you can select 25.000 unique products and 25.000 premium products to sell in your online store. This plan also gives you access to supplier sourcing, product requests, bulk checkout, and more.
Syncee
Syncee, a leading e-commerce solution, has established a prominent presence in Canada’s burgeoning market. With its innovative platform, Syncee empowers Canadian businesses by seamlessly connecting them with global suppliers. This results in a diverse product range, enhanced competitiveness, and improved supply chain efficiency. By facilitating effortless product import, synchronization, and management, Syncee simplifies the complexities of online retail. With that being said, let’s take a look at Syncee’s pricing.
Syncee offers a completely free Starter plan, making it easy for Canadian side-hustlers to begin their entrepreneurial journey in the e-commerce industry. With this plan, you can browse through more than 7 million products from across the world and collect them in preparation for your online store once you decide to buy one of Syncee’s paid subscriptions.
Once you’ve tried out Syncee for free and you’re ready to begin selling products on your online store, you can choose the Basic plan which costs $29 per month and allows you to place 25 products on your online store. With this plan, you can enjoy direct communication with the supplier, and you don’t have to pay any transaction fees on your sales.
If you want to grow your business, then consider the Pro plan. For $49 per month, you can place 250 products on your online store, including Premium and VIP products. This plan also enables you to automatically refresh the pricing of your products up to two times per day and gives you access to dynamic pricing settings.
Finally, there’s the Business plan available at a monthly cost of $99. This plan enables you to list up to 10,000 products on your e-commerce platform. It’s particularly suited for sizable enterprises that need comprehensive business management. It provides specialized tools for gaining valuable insights into your products and sales, granting you complete control over your business operations.
Comparing Amazon FBA and Dropshipping for Canadians
Now that we have dissected the advantages and disadvantages of each model, let’s compare Amazon FBA and dropshipping specifically for Canadian side hustlers:
Cost Comparison
From a cost perspective, dropshipping has a clear advantage. Since you don’t need to invest in inventory upfront, you can start your business with minimal capital. This is especially beneficial for Canadian side hustlers who may be looking for a low-risk and affordable way to start their e-commerce venture. On the other hand, Amazon FBA requires sellers to purchase and store inventory, which may require a substantial upfront investment. This could be a barrier to entry for some Canadians who are just starting out or have limited funds to invest.
In addition to the initial investment, it’s important to consider the ongoing costs associated with each model. With dropshipping, you may have to pay for a subscription to a dropshipping platform or marketplace. However, these costs are typically lower compared to the fees associated with Amazon FBA, such as storage fees, fulfillment fees, and referral fees. Therefore, dropshipping can be a more cost-effective option for Canadian side hustlers who are conscious of their expenses.
Time Investment Comparison
When it comes to time investment, dropshipping offers a significant advantage. With dropshipping, the supplier takes care of fulfillment and inventory management, allowing you to focus on marketing and growing your business. This means that you can spend more time on activities that directly contribute to generating sales and expanding your customer base.
On the other hand, Amazon FBA requires sellers to handle inventory management and potentially deal with customer inquiries. While Amazon provides tools and support to streamline these processes, it still requires a certain level of time and effort from the seller. This can be a consideration for Canadian side hustlers who have limited time to allocate to their e-commerce business or prefer a more hands-off approach.
However, it’s worth noting that with Amazon FBA, you can take advantage of Amazon’s vast customer base and established infrastructure. This can potentially lead to higher sales volume and greater exposure for your products. So, while it may require more time investment, the potential payoff could be significant for Canadian side hustlers who are willing to put in the effort.
Profit Margin Comparison
Profit margins can vary depending on the product, competition, and pricing strategy. However, dropshipping generally offers higher profit margins as there are no additional fees or large upfront costs like those with Amazon FBA. This means that you can potentially earn more from each sale when dropshipping compared to selling through Amazon FBA.
With FBA, sellers must factor in fees for storage, fulfillment, and other services, which can significantly impact profitability. These fees can eat into your profit margins and require careful consideration when setting your pricing. However, it’s important to remember that Amazon FBA provides access to a large customer base and the potential for increased sales volume. So, while the profit margins may be lower compared to dropshipping, the overall revenue generated from selling through Amazon FBA could still be higher.
Ultimately, the choice between Amazon FBA and dropshipping for Canadian side hustlers will depend on various factors such as available capital, time commitment, and personal preferences. It’s important to carefully evaluate your goals and resources before deciding which model is the best fit for your e-commerce business.
Amazon FBA Vs. Dropshipping: The Bottom Line
Both Amazon FBA and dropshipping offer unique opportunities for Canadian side hustlers venturing into the world of e-commerce. The decision between the two ultimately comes down to your financial situation, time availability, and personal preferences. Consider the advantages and disadvantages of each model, compare them against your goals, and ensure that you are saving costs by using one of the best business credit cards in Canada. With careful planning and execution, your e-commerce side hustle can thrive and become a profitable venture.
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